UTSTARCOM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3661 52-1782500
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
|
1275 HARBOR BAY PARKWAY, SUITE 100
ALAMEDA, CA 94502
(510) 864-8800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
COPIES TO:
STEVEN E. BOCHNER, ESQ. ALAN F. DENENBERG, ESQ.
STEVEN L. BERSON, ESQ. Shearman & Sterling
CARMEN C. CHANG, ESQ. 1550 El Camino Real
Wilson Sonsini Goodrich & Rosati Menlo Park, CA 94025-4100
Professional Corporation (650) 330-2200
650 Page Mill Road
Palo Alto, CA 94304-1050
(650) 493-9300
|
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for same offering. / / __________
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
Common Stock, $0.00125 par value..................... $125,000,000 $33,000
|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS TWO SEPARATE PROSPECTUSES. THE FIRST PROSPECTUS RELATES TO A PUBLIC OFFERING OF SHARES OF COMMON STOCK IN THE UNITED STATES AND CANADA (THE "U.S. PROSPECTUS"). THE SECOND PROSPECTUS RELATES TO A CONCURRENT OFFERING OF COMMON STOCK OUTSIDE THE UNITED STATES AND CANADA (THE "INTERNATIONAL PROSPECTUS"). THE U.S. PROSPECTUS AND THE INTERNATIONAL PROSPECTUS ARE IDENTICAL IN ALL RESPECTS, OTHER THAN THE FRONT COVER PAGE, THE "UNDERWRITING" SECTION AND THE BACK COVER PAGE. THE ALTERNATE PAGES FOR THE INTERNATIONAL PROSPECTUS APPEAR IN THIS REGISTRATION STATEMENT IMMEDIATELY FOLLOWING THE COMPLETE U.S. PROSPECTUS.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 2000
P_R_O_S_P_E_C_T_U_S
SHARES
[LOGO]
COMMON STOCK
This is UTStarcom, Inc.'s initial public offering of common stock. The
U.S. underwriters are offering shares in the United States and Canada and
the international managers are offering
shares outside the United States and Canada.
We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the common stock will trade on the Nasdaq National Market under the symbol "UTSI."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
PER SHARE TOTAL
--------- -----
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to UTStarcom, Inc. ............. $ $
|
The U.S. underwriters may also purchase up to an additional shares from UTStarcom at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. The international managers may similarly purchase up to an additional shares from UTStarcom.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares of common stock will be ready for delivery in New York, New York on or about , 2000.
The date of this prospectus is , 2000.
[INSIDE FRONT COVER PAGE]
PHOTOGRAPHS, DESCRIPTIONS AND CAPTIONS
1. Top: Color photos of radio port controller, indoor radio port, outdoor radio port, remote subscriber terminal and handset.
Caption: Airstar City-Wide Wireless Mobile Phone System. Our Personal Access System allows service providers that operate wireless networks to provide cost-effective voice and data services for several hundred thousand subscribers.
2. Middle: Color photos of AN-2000 access node and OMUX optical multiplexor.
Caption: AN-2000 / OMUX. Our standards-based AN-2000 system and OMUX product allow service providers to offer voice and high-speed data broadband services.
3. Bottom: Color photo of WACOS IP-based switching system.
Caption: WACOS IP-Based Multi-Service Switching System. Our WACOS system provides IP-based switching services in multiple networks.
4. Bottom left: UTStarcom logo.
[INSIDE GATE-FOLD OF FRONT COVER PAGE]
IMAGES, DIAGRAM, DIAGRAM DESCRIPTIONS AND CAPTIONS.
1. Top left: UTStarcom logo.
2. Top caption: COMMUNICATIONS ACCESS NETWORK SOLUTIONS.
3. Center: Diagram of a linked communications network depicting our AN-2000, Airstar and WACOS systems.
4. Center left: Diagram of an AN-2000 deployment. A long distance switch connects to a central office switch over a standard digital interface. The central office switch connects to a remotely located AN-2000 central office terminal over a standard digital interface. Internet and data services connect to the same central office terminal over a standard digital interface. The central office terminal connects to two AN-2000 remote terminals. The connections are made through a high performance robust digital transmission technology, known as SDH. A computer using our Netman software is connected to and manages the central office terminal and the remote terminals. The remote terminals connect to subscribers to provide telephone and data services.
5. Center middle: Diagram of an Airstar deployment. A long distance switch connects to a central office switch over a standard digital interface. A second long distance switch connects to a second central office switch over a standard digital interface. The two central office switches connect to two separate Personal Access System, or PAS, remote terminals. Internet and data services connect to one of the PAS remote terminals over a standard digital interface. An air traffic controller connects to each of the PAS remote terminals to provide wireless channel and traffic-mobility management throughout the system. A computer using our Netman software is connected to and manages the air traffic controller and the PAS remote terminals. The PAS remote terminals connect to radio ports over a standard digital interface. The radio ports provide wireless city-wide mobile phone, fixed wireless voice and wireless mobile data services.
6. Center right: Diagram of a WACOS deployment. A long distance switch is connected over legacy telephony protocols to the local access network through a WACOS public switched telephone network gateway. Internet services are connected to the local access network through the WACOS Internet gateway. A WACOS standard digital protocol wireless gateway and a WACOS broadband gateway are located on the access network. The gateways connect with the Airstar and AN-2000 systems to provide wireless and wireline voice, data and Internet services. The gateways also allow for large-scale wireless mobile phone service, voice over IP and broadband access. An operational support system provides customer care, billing and management capabilities.
[INSIDE BACK COVER PAGE]
IMAGES, A MAP AND CAPTIONS
1. Top left: UTStarcom Logo
Caption: Locations and Customers
2. Map of Asia. Red dots depict the location of UTStarcom installations. Blue dots depict the location of UTStarcom offices. Colored shading on the map depicts estimated telecommunications service revenues.
TABLE OF CONTENTS
PAGE
--------
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 22
Use of Proceeds............................................. 23
Dividend Policy............................................. 23
Capitalization.............................................. 24
Dilution.................................................... 25
Selected Consolidated Financial Data........................ 27
Selected Pro Forma Combined Financial Data.................. 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 30
Business.................................................... 40
Management.................................................. 57
Related Party Transactions.................................. 65
Principal Stockholders...................................... 68
Description of Capital Stock................................ 70
Material United States Federal Tax Consequences to
Non-United States Holders................................. 73
Shares Eligible for Future Sale............................. 76
Underwriting................................................ 78
Legal Matters............................................... 82
Experts..................................................... 82
Where You Can Find More Information......................... 82
Index to Financial Statements and Financial Information..... F-1
|
INFORMATION IN PROSPECTUS
In this prospectus, references to and statements regarding China refer to the People's Republic of China, excluding Hong Kong, Macau and Taiwan, references to "U.S. dollars," or "$" are to United States Dollars, and references to "Renminbi" are to Renminbi, the legal currency of China.
Unless specifically stated, information in this prospectus gives effect to a 2-for-1 stock split effected in December 1999 and assumes:
- an exchange rate of 8.3 Renminbi for one U.S. dollar;
- all outstanding shares of our preferred stock have been converted into an aggregate of 69,762,112 shares of common stock; and
- the underwriters will not exercise their over-allotment option and no other person will exercise any other outstanding options or warrants.
You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Information contained on our Web site is not part of this prospectus. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.
UTStarcom is registered as a trademark in the United States. UTStarcom, Airstar and WLL are registered as trademarks in China. This prospectus also includes product names, trade names and trademarks of other companies. All other product names, trade names and trademarks appearing in this prospectus are the property of their respective holders.
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL DATA AND RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION.
UTSTARCOM, INC.
We provide communications equipment for service providers that operate wireless and wireline networks in rapidly growing communications markets. Our integrated suite of network access systems, optical transmission products and subscriber terminal products allows service providers to offer efficient and scalable voice, data and Internet access services. Service providers can easily integrate our standards-based systems into their existing networks and deploy our systems in new broadband, Internet Protocol and wireless network rollouts. To date, substantially all of our sales have been to service providers in China.
China has one of the fastest growing communications markets in the world. Growth in China's communications equipment and services markets is being driven by the government's commitment to infrastructure build-out, pent-up demand for communications services and robust economic growth. According to 1998 statistics from the International Telecommunication Union, China has only 7.0 phone lines per 100 people. In comparison, the United States has approximately 66.1 phone lines per 100 people. China's low telephone penetration rate combined with its population of 1.2 billion presents a significant market opportunity for providers of voice and data communications services and equipment. Furthermore, the number of Internet subscribers within China is expected to dramatically increase, resulting in further infrastructure buildout for data services and increased demand for communications equipment capable of providing those services.
Service providers in China often require network solutions with a suite of integrated products that address all of their access needs, including wireline and wireless, voice and data. These comprehensive product offerings enable service providers to quickly, and with minimal incremental investment, address the changing communications demands of their subscribers. In addition, given the rapid growth in China's emerging communications market, network solutions must be efficient and scalable so that the same architecture can provide an affordable entry level solution for hundreds of subscribers yet economically scale to hundreds of thousands of subscribers. Additionally, service providers in China often require vendors to continually develop products to meet evolving market needs and to have an extensive local service, support and manufacturing presence. Our wireless and wireline access and switching systems are designed to deliver the following key benefits to service providers:
INTEGRATED, COMPREHENSIVE PRODUCT OFFERING. By offering communications systems that link the backbone network, access network and subscribers' premises, we supply service providers with solutions that enable them to quickly deploy services to subscribers. Furthermore, as subscriber needs evolve from voice to data, we offer solutions to meet these needs.
FLEXIBILITY FOR VOICE AND DATA SERVICES. We have designed our systems to offer a high degree of flexibility in terms of the number of subscribers and types of traffic delivered to those subscribers. This flexibility is particularly important in China as the communications services market is undergoing rapid change and growth. Our access systems allow service providers to quickly and cost-effectively implement upgrades for new services, including high-speed data services, compared to alternative solutions which may require the purchase of an entirely new system to provide these services.
LEADING PRICE AND PERFORMANCE SOLUTION. We have designed our systems so that service providers in developing markets such as China can quickly deploy multiple services from our platform in a cost-effective manner. By delivering a modular system, we allow service providers to purchase only the functionality and capacity needed and to purchase additional functionality and capacity over time as
subscriber demand warrants. Furthermore, as demand for communications services in China grows, our scalable systems will allow service providers to scale up from a small initial subscriber base to hundreds of thousands of subscribers in a cost-effective and efficient manner.
STANDARDS-BASED ARCHITECTURE. We have designed our systems to comply with key international open communication standards for multi-vendor interoperability. Our standards-based systems incorporate open interfaces that allow service providers to connect our products to equipment from multiple vendors and thus integrate multiple voice and data traffic types within one system. Our compliance with open standards lowers costs by permitting service providers to shorten evaluation times and eases integration of our products with other systems in the service providers' networks.
LOCAL PRESENCE. We have established a strong local presence in China that allows us to be responsive to the needs of service providers and their subscribers. We manufacture the majority of our products at two facilities located in the cities of Huizhou in Guangdong province and Hangzhou in Zhejiang province that are owned by joint ventures between us and the affiliates of corresponding provincial Posts and Telecommunications Administrations, or PTAs. By using local facilities in China, we have helped create new jobs within the provinces and have strengthened our relationships with the PTAs in some of China's most modernized and rapidly growing provinces. We also maintain nine sales and customer support sites in China that allow us to deploy a customer support representative anywhere in China within 24 hours. Additionally, we have developed relationships at the national, provincial and local levels which provide us with a continuous flow of information on market changes and insight into unique service provider needs and related opportunities.
Our objective is to be a leading provider of broadband, Internet Protocol, or IP, and wireless network equipment to high growth communications markets. The principal elements of our strategy are as follows:
- leverage our installed base of wireless and wireline access systems as demand for broadband and high-speed data services grows in China;
- continue to develop products and technologies for market-driven solutions and penetrate the emerging IP-based switching market;
- further capitalize on China's low penetration rate and increasing demand for communications services by increasing our sales, support and development staff and delivering new products and technologies; and
- leverage our success in China to address other high-growth markets.
Service providers have installed over 900,000 lines of our Airstar wireless access system, which we believe is the most widely deployed wireless local access system in China. Over 1.2 million lines of our wireline AN-2000 access system have been deployed in China, including installations in the six largest regional communications markets. Our OMUX product provides optical transmission and is often bundled with our Airstar and AN-2000 systems. The OMUX is currently installed as a stand-alone or bundled product at over 5,000 locations for over 200 communications service providers. Our newest product, WACOS, is targeted at the emerging broadband, IP-based switching and wireless markets.
We incorporated in Delaware as Unitech Industries Inc. in 1991. In 1994, we changed our name to Unitech Telecom, Inc. In 1995, we acquired StarCom Network Systems, Inc. and changed our name to UTStarcom, Inc. Our principal executive offices are located at 1275 Harbor Bay Parkway, Alameda, California, and our telephone number is (510) 864-8800.
THE OFFERING
Common stock offered:
U.S. offering......................... shares
International offering................ shares
Total............................... shares
Common stock to be outstanding after
this offering......................... shares
Use of proceeds......................... We intend to use the proceeds from this offering for
general corporate purposes, including research and
development, expansion of our sales and marketing
organization and working capital. We may also use a
portion of the proceeds from this offering to acquire
or invest in complementary businesses, technologies
or products.
Proposed Nasdaq National Market
symbol................................ UTSI
|
The number of shares that will be outstanding after the offering is based on the number of shares outstanding as of December 14, 1999 and excludes:
- 18,856,646 shares of common stock authorized for issuance under our stock option plans, under which options to purchase 12,431,342 shares were outstanding and 4,266,926 shares were available for grant as of December 14, 1999;
- 532,000 shares of common stock reserved for issuance upon the exercise of warrants outstanding as of December 14, 1999 at a weighted average exercise price of $6.025 per share; and
- an option held by Intel Pacific, Inc. to purchase up to 615,210 shares of our Series F preferred stock at a price of $8.1273 per share. This option expires on January 13, 2000.
SUMMARY FINANCIAL DATA
The summary financial data below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, the unaudited pro forma combined financial information and the related notes included elsewhere in this prospectus.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales....................... $ 3,941 $ 10,006 $ 35,542 $ 75,597 $ 105,167 $ 79,878 $ 124,701
Gross profit.................... 1,625 5,717 13,220 26,802 39,921 31,208 52,024
Operating income (loss)......... (512) (8,979) 1,237 (2,677) 3,874 4,977 11,805
Net income (loss) applicable to
common stock.................. (487) (9,841) (310) 390 473 2,506 10,236
Earnings (loss) per share(1):
Basic......................... $ (0.18) $ (2.40) $ (0.04) $ 0.05 $ 0.06 $ 0.32 $ 1.19
Diluted....................... $ (0.18) $ (2.40) $ (0.04) $ 0.05 $ 0.01 $ 0.03 $ 0.14
Shares used in per share
calculations(1):
Basic......................... 2,651 4,108 8,344 7,320 7,582 7,792 8,640
Diluted....................... 2,651 4,108 8,344 7,320 77,050 76,220 73,532
|
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998(2) SEPTEMBER 30, 1999(2)
-------------------- ---------------------
(UNAUDITED)
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $105,167 $124,701
Gross profit................................................ 39,921 52,024
Operating income (loss)..................................... (621) 9,905
Net income (loss) (3,277) 9,992
Pro forma earnings (loss) per share:
Basic..................................................... (0.04) 0.13
Diluted................................................... (0.04) 0.12
Shares used in per share calculations:
Basic..................................................... 76,051 79,013
Diluted................................................... 76,051 84,947
|
SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents(4)................................ $ 35,275 $
Working capital............................................. 65,464
Total assets................................................ 176,683
Total short-term debt....................................... 42,324
Total stockholders' equity.................................. 79,924
|
(2) Adjusted to reflect:
- the issuance of 6,152,106 shares of Series F preferred stock at $8.1273 per share in November and December 1999 in connection with a private round of financing;
- the issuance of 4,523,700 shares of Series G preferred stock in December 1999 in connection with our acquisition of Wacos Inc.; and
- to give effect to the conversion of all outstanding shares of preferred stock into common stock upon the completion of this offering.
(3) Adjusted to reflect the receipt of the estimated net proceeds from the sale of shares of common stock offered by this prospectus at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discount and estimated offering expenses.
(4) Includes restricted cash of $14,292 as of September 30, 1999.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A DECISION TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND RELATED NOTES.
RISKS RELATING TO OUR COMPANY
OUR FUTURE SALES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE FROM QUARTER TO QUARTER, AND IF WE FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY
Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate in the future due to a variety of factors, some of which are outside of our control. Factors that may affect our future operating results include:
- the timing, number and size of orders for our products, as well as the relative mix of orders for each of our products, particularly the volume of lower margin telephone handsets;
- the evolving and unpredictable nature of the economic, regulatory and political environments in China and other countries in which we market or plan to market our products;
- aggressive price reductions by our competitors;
- currency fluctuations;
- market acceptance of our products and product enhancements;
- the lengthy and unpredictable sales cycles associated with sales of our products combined with the impact of this variability on our suppliers' ability to provide us with components on a timely basis; and
- longer collection periods of accounts receivable in China and other countries.
The limited performance history of some of our products, our limited forecasting experience and processes and the emerging nature of our target markets make forecasting our future sales and operating results difficult. Our expense levels are based, in part, on our expectations regarding future sales, and these expenses are largely fixed, particularly in the short term. In addition, to enable us to promptly fill orders, we maintain inventories of finished goods, components and raw materials. As a result, we commit to considerable costs in advance of anticipated sales. In the past, a substantial portion of our sales in each quarter resulted from orders received and shipped in that quarter, and we have operated with a limited backlog of unfilled orders. Accordingly, we may not be able to reduce our costs in a timely manner to compensate for any unexpected shortfall between forecasted and actual sales. Any significant shortfall of sales may require us to maintain higher levels of inventories of finished goods, components and raw materials than we require, thereby increasing our risk of inventory obsolescence and corresponding inventory write-downs and write-offs. Although we have reserved against inventory obsolescence, we cannot guarantee that these reserves will be adequate to offset such write-downs or write-offs.
Due to these and other factors, our future sales, costs, expenses and results of operations are likely to vary significantly from period to period. As a result, period to period comparisons of our operating results are not necessarily meaningful or indicative of future performance. Furthermore, it is likely that in some future quarters our operating results will fall below the expectations of public market analysts or investors. If this occurs, the trading price of our common stock could decline.
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT
As of September 30, 1999, we had an accumulated deficit of approximately $4.9 million. We anticipate continuing to incur significant sales and marketing, research and development and general and administrative expenses and, as a result, we will need to continue to generate higher revenues to sustain profitability. Numerous factors could negatively impact our results of operations, including a decrease in sales, price pressures and a fixed cost structure which could limit our ability to respond to declining revenues. Although our sales have grown in recent quarters, our past results should not be relied on as indications of our future performance. We cannot assure you that we will be able to remain profitable in future periods.
COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED PRICES, REVENUES AND MARKET SHARE
We face intense competition in our target markets and expect competition to increase. Our principal competitors for our different product lines include the following:
- AIRSTAR SYSTEM: Alcatel Alsthom CGE, S.A.; Ericsson LM Telephone Co.; Huawei Technology Co., Ltd.; Lucent Technologies, Inc.; Motorola, Inc.; NEC Corporation; Siemens AG; and Zhongxing Telecommunications Equipment.
- AN-2000 AND OMUX: Advanced Fibre Communications, Inc.; Alcatel; Bosch Telecom GmbH; ECI Telecom Ltd.; Ericsson; Fujitsu Limited; Huawei; Lucent; NEC; Nokia Corporation; Shanghai Bell Alcatel Mobile Communication; Siemens; and Zhongxing.
- WACOS SYSTEM: Alcatel; Cisco Systems, Inc.; Clarent Corporation; Ericsson; Huawei; Lucent; Motorola; Nokia; Nortel Networks Corporation; Nuera Communications, Inc.; Siemens; Tachion Networks, Inc.; and Vienna Systems Corp.
We are increasingly facing competition from domestic companies in China and believe that our strongest competition in the future may come from these companies, many of which operate under lower cost structures and more favorable governmental policies and with much larger sales forces than we do. Furthermore, other companies not presently offering competing products may also enter our target markets. Many of our competitors have significantly greater financial, technical, product development, sales, marketing and other resources than we do. Additionally, some competitors may be able to offer significant financing arrangements to service providers, in some cases facilitated by favorable government policies. Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties, including our current customers, to increase their ability to produce products that address the needs of service providers in our target markets. Increased competition in our target markets may result in price reductions, reduced gross profit as a percentage of net sales and loss of market share, any one of which could materially adversely affect our business, financial condition and results of operations.
THE SUCCESS OF OUR BUSINESS DEPENDS ON A RELATIVELY SMALL NUMBER OF LARGE SYSTEM DEPLOYMENTS, AND ANY CANCELLATION, REDUCTION OR DELAY IN THESE DEPLOYMENTS COULD HARM OUR BUSINESS
Our business is characterized by large system deployments for a relatively small number of service providers. In the nine months ended September 30, 1999, two customers accounted for 21.5% and 15.9%, respectively, of our net sales. Our dependence on large system buildouts makes our ability to deploy systems in a timely and cost-effective manner critically important to our business. We have in the past experienced delays and encountered other difficulties in the installation and implementation of our systems. Various factors could cause future delays, including technical problems and the shortage of qualified technicians. Any delays or difficulties in deploying our systems, or the cancellation of any orders by service providers, could significantly harm our business.
WE DO NOT HAVE SOME OF THE LICENSES WE REQUIRE TO SELL OUR NETWORK ACCESS PRODUCTS IN CHINA
Beginning January 1, 1999, China's government required that all telecommunications equipment connected to public or private telecommunications networks within China be approved by the Ministry of Information Industry, or the MII, and the manufacturer of the equipment obtain a network access license for each of its products. The network access license is valid for a period of three years and may be renewed upon application, subject to re-examination by the MII. Sellers are prohibited from selling or advertising for sale equipment for which its manufacturer has not obtained a network access license and may be liable for penalties in an amount up to three times earnings from the sale of any equipment sold beginning January 1, 1999 without a license. In addition, any unlicensed equipment may be required to be removed from the network. The regulations implementing these requirements are not very detailed, have not been applied by a court and may be interpreted and enforced by regulatory authorities in a number of different ways. Accordingly, we have obtained an opinion from our counsel in China as to which licenses we are required to obtain. Based upon this counsel's advice, we believe that we have obtained the required network access licenses for our AN-2000 system and bundled OMUX product. We do not yet have a network access license for our Airstar system, but have applied to the MII for the required license. We have also applied for network access licenses for our stand-alone OMUX product and for other products which we are no longer manufacturing but had previously sold to service providers in China. Network access licenses will be required for any additional products that we may develop for sale in China, including our WACOS system. Based upon verbal inquiries made by our counsel in China to the MII, we believe that for products which we sold before January 1, 1999, such as the Airstar system, no penalties will be imposed by the MII for sales we have made or will make during the period an application is pending. Our counsel in China has advised us that China's governmental authorities, including the MII, or courts may interpret or apply the regulations with respect to which licenses are required and the ability to sell a product while an application for the product license is pending differently. Failure to obtain the required licenses could require us to remove previously installed equipment and would prohibit us from making further sales of the product, which could have a material adverse effect on our business, financial condition and results of operations.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO COLLECT PAYMENTS FROM OUR CUSTOMERS ON A TIMELY BASIS
Our customers often must make a significant commitment of capital to purchase our products. As a result, any downturn in a customer's business or its failure to pay on a timely basis could materially adversely affect our business, financial condition and results of operations. In particular, accounts receivable collection cycles historically tend to be much longer in China than in other markets. The failure of any of our customers to make timely payments could require us to write-off accounts receivable or increase our accounts receivable reserves, either of which could adversely affect our business, financial condition and results of operations.
A DECLINE IN BUSINESS ACTIVITY DURING CHINA'S LUNAR NEW YEAR MAY RESULT IN DECREASED SALES DURING OUR FIRST QUARTER
Business activity in China declines considerably during the first quarter of each year in observance of the Lunar New Year. As a result, sales during the first quarter of our fiscal year have in the past typically not exceeded, and we expect that in the future will not exceed, sales during the fourth quarter of the preceding year. We will continue to face this seasonality in the future and do not have the ability to forecast with any degree of certainty the impact of the decreased business activity during the Lunar New Year on our sales and operating results.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND TO COMPETE EFFECTIVELY, WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE
The emerging market for communications equipment in developing countries is characterized by rapid technological developments, frequent new product introductions and evolving industry and regulatory standards. Our success will depend in large part on our ability to enhance our network access and switching technologies and develop and introduce new products and product enhancements that anticipate changing service provider requirements and technological developments. We may need to make substantial capital expenditures and incur significant research and development costs to develop and introduce new products and enhancements. If we fail to timely develop and introduce new products or enhancements to existing products that effectively respond to technological change, our business, financial condition and results of operations could be materially adversely affected.
From time to time, we or our competitors may announce new products or product enhancements, services or technologies that have the potential to replace or shorten the life cycles of our products and that may cause customers to defer purchasing our existing products, resulting in inventory obsolescence. Future technological advances in the communications industry may diminish or inhibit market acceptance of our existing or future products or render our products obsolete.
Even if we are able to develop and introduce new products, we cannot assure you that they will gain market acceptance. Market acceptance of our products will depend on various factors including:
- our ability to obtain necessary approvals from regulatory organizations;
- the perceived advantages of the new products over competing products;
- our ability to attract customers who have existing relationships with our competitors;
- product cost relative to performance; and
- the level of customer service available to support new products.
Specifically, sales of our AN-2000 system outside of China depend, in part, on the adoption of the V5.2 standard in these markets. Additionally, sales of our Personal Access System, or PAS, the mobile component of our Airstar wireless system, will depend in part upon consumer acceptance of the mobility limitations of this service. The introduction of inexpensive wireless telephone service or other competitive services in China may have a material adverse effect on sales of our Airstar systems in China. If our existing or new products fail to achieve market acceptance for any reason, our business, financial condition and results of operations could be materially adversely affected.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO DELIVER QUALITY PRODUCTS ON A TIMELY AND COST EFFECTIVE BASIS
Our operating results depend on our ability to manufacture products on a timely and cost effective basis. In the past, we have experienced reductions in yields as a result of various factors, including defects in component parts and human error in assembly. If we experience a deterioration in manufacturing performance or a delay in production of any of our products, we could experience delays in shipments and cancellations of orders. Moreover, networking products frequently contain undetected software or hardware defects when first introduced or as new versions are released. In addition, our products are often embedded in or deployed in conjunction with service providers' products which incorporate a variety of components produced by third parties. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relation problems or loss of customers, any one of which could harm our business.
If future demand for our products requires additional manufacturing capacity, we may invest in and build additional manufacturing facilities, most likely in China. However, we cannot assure you that the new manufacturing facilities will attain the same quality or level of efficiencies as our existing facilities. Alternatively, or in addition, we may contract with third party manufacturing facilities over which we may be unable to exercise the same degree of quality control as we can over our own facilities. We currently have no arrangements with any independent manufacturing facility, and we may not be able to obtain independent manufacturing sources on commercially attractive terms if and when needed. Any failure to obtain a sufficient level of high quality manufacturing capacity could result in a material adverse effect on our business, financial condition and results of operations.
WE DEPEND ON SOME SOLE SOURCE AND OTHER KEY SUPPLIERS FOR HANDSETS, COMPONENTS AND MATERIALS USED IN OUR PRODUCTS, AND IF THESE SUPPLIERS FAIL TO PROVIDE US WITH ADEQUATE SUPPLIES OF HIGH QUALITY PRODUCTS, OUR COMPETITIVE POSITION, REPUTATION AND BUSINESS COULD BE HARMED
Some handsets, components and materials used in our products are purchased from a single supplier or a limited group of suppliers. In particular, we rely on a limited number of suppliers to manufacture and supply mobile phone handsets, radios and radio controllers used with our Airstar system. In addition, we obtain various integrated circuits used in our products from sole source suppliers. If any supplier is unwilling or unable to provide us with these components and materials, we may not be able to find alternative sources on favorable terms, in a timely manner, or at all. Our inability to obtain or to develop alternative sources if and as required could result in delays or reductions in manufacturing or product shipments, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. Moreover, if these suppliers delay product shipments or supply us with inferior quality products, our competitive position, reputation and business could suffer.
OUR ABILITY TO SOURCE A SUFFICIENT QUANTITY OF HIGH QUALITY HANDSETS AND OTHER COMPONENTS USED IN OUR PRODUCTS MAY BE LIMITED BY CHINA'S IMPORT RESTRICTIONS AS WELL AS OUR ABILITY TO OBTAIN SUFFICIENT DOMESTIC MANUFACTURING CAPACITY
We require a significant number of imported components to manufacture our products in China. Imported electronic components are subject to a variety of permit requirements, approval procedures and import duties. Failure to obtain necessary permits or approvals or administrative actions by China's government to limit imports of certain components could adversely affect our ability to manufacture and sell our products in China. In addition, import duties increase the cost of our products and may make them less competitive.
In particular, an integral component of our Airstar PAS system is the handset used by subscribers to make and receive mobile telephone calls. Currently, a worldwide shortage of handsets exists. Although we have contracted with Japanese vendors to manufacture handsets under the UTStarcom label, we cannot assure you that they will be able to supply adequate quantities of handsets. Moreover, we must pay an import duty on each handset that we import into China, which may result in a competitive cost advantage for our competitors who produce handsets in China. As a result, we are evaluating various manufacturing alternatives within China. Currently, we are in the early stages of negotiations with third parties to manufacture handsets for us in China. We may be unable to enter into arrangements with third parties who are capable of producing adequate quantities of high-quality handsets. We also intend to develop the capacity to manufacture our own handsets. However, we may be unsuccessful in our efforts to do so. Additionally, to comply with manufacturing regulations in China we will need to obtain components for our handsets from local sources. These sources may not be able to produce adequate quantities of components that meet our quality standards. Our inability to obtain a sufficient number of high quality handsets could result in a material adverse effect on our business, financial condition and results of operations.
IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATION IN CHINA AND INDIRECT DISTRIBUTION CHANNELS ELSEWHERE OR SUCCESSFULLY MANAGE OUR EXPANDED SALES ORGANIZATION, OUR OPERATING RESULTS MAY SUFFER
Our distribution strategy focuses primarily on developing and expanding our direct sales organization in China and our indirect distribution channels outside of China. We may not be able to successfully expand our direct sales organization in China and the cost of any expansion may exceed the revenue generated from these efforts. Even if we are successful in expanding our direct sales organization in China, we may not be able to compete successfully against the significantly larger and better-funded sales and marketing operations of current or potential competitors. In addition, if we fail to develop relationships with significant international resellers or manufacturers' representatives, or if these resellers or representatives are not successful in their sales or marketing efforts, we may be unsuccessful in our expansion efforts outside China.
WE EXPECT AVERAGE SELLING PRICES OF OUR PRODUCTS TO DECREASE WHICH MAY REDUCE OUR REVENUES, AND, AS A RESULT, WE MUST INTRODUCE NEW PRODUCTS AND REDUCE OUR COSTS IN ORDER TO MAINTAIN PROFITABILITY
The average selling prices for communications access and switching systems and subscriber terminal products, such as handsets, in China have been declining as a result of a number of factors, including:
- increased competition;
- aggressive price reductions by competitors;
- rapid technological change; and
- price and performance enhancements.
We have in the past experienced and expect in the future to experience substantial period-to-period fluctuations in operating results due to declining average selling prices. We anticipate that average selling prices of our products will decrease in the future in response to product introductions by us or our competitors or other factors, including price pressures from customers. Therefore, we must continue to develop and introduce new products and enhancements to existing products that incorporate features that can be sold at higher average selling prices. Failure to do so could cause our revenues and gross profit, as a percentage of net sales, to decline, which could have a material adverse effect on our business, financial condition and results of operations.
Our cost reduction efforts may not allow us to keep pace with competitive pricing pressures or lead to improved gross profit, as a percentage of net sales. In order to be competitive, we must continually reduce the cost of manufacturing our products through design and engineering changes. We may not be successful in redesigning our products or delivering our products to market in a timely manner. We cannot assure you that any redesign will result in sufficient cost reductions to allow us to reduce the prices of our products to remain competitive or to improve or maintain our gross profit, as a percentage of net sales.
SERVICE PROVIDERS SOMETIMES EVALUATE OUR PRODUCTS FOR LONG AND UNPREDICTABLE PERIODS WHICH CAUSES THE TIMING OF PURCHASES AND OUR RESULTS OF OPERATIONS TO BE UNPREDICTABLE
The period of time between our initial contact with a service provider and the receipt of an actual purchase order may span a year or more. During this time, service providers may subject our products to an extensive and lengthy evaluation process before making a purchase. The length of these qualification processes may vary substantially by product and service provider, making our results of operations unpredictable. We may incur substantial sales and marketing expenses and expend significant management effort during this process, which ultimately may not result in a sale. These qualification processes often make it difficult to obtain new customers, as service providers are reluctant to expend the resources necessary to qualify a new supplier if they have one or more existing qualified sources.
OUR INABILITY TO EXERCISE COMPLETE CONTROL OVER OUR SUBSIDIARIES MAY BE DETRIMENTAL TO OUR BUSINESS
A considerable portion of our operations is and will continue to be conducted through direct and indirect subsidiaries. For example, we own an 88% interest in a joint venture which operates the Zhejiang manufacturing facility and a 51% interest in a joint venture which operates the Guangdong manufacturing facility. Under China law governing Sino-foreign joint ventures, equity holders exercise rights primarily through the board of directors, which constitutes the highest authority of the joint venture. Under China law, some significant corporate actions require unanimous approval of the board of directors, such as:
- amendment of the Articles of Association of the joint venture;
- liquidation or dissolution of the joint venture;
- any increase, decrease or transfer of equity interests of any party to the joint venture; and
- a merger of the joint venture with another economic entity.
As a result, even though we may own a majority interest in a joint venture, we do not have sole power to control all of the policies and decisions of these jointly-owned subsidiaries. In particular, although we own a majority of the Guangdong joint venture, we are only entitled to appoint a minority of the directors to the joint venture's board of directors.
Our operating results and cash flow depend on the operating results and cash flow of our subsidiaries and the payment of funds by those subsidiaries to us. These subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay dividends or otherwise provide financial benefits to us. Moreover, with respect to our Guangdong manufacturing joint venture, any payment of dividends to us must be agreed to by our joint venture partner, whose interests in receiving dividend distributions may not coincide with ours. In addition, applicable law in some countries including China limits the ability of a subsidiary to pay dividends for various reasons including the absence of sufficient distributable reserves. In the event of any insolvency, bankruptcy or similar proceedings, creditors of the subsidiaries would generally be entitled to priority over us with respect to assets of the affected subsidiary. In addition, because our joint venture partners in both Zhejiang and Guangdong provinces are affiliated with the provincial Posts and Telecommunications Administrations, or PTAs, that operate the telecommunication networks in these areas, if we fail to maintain these joint ventures, sales to customers located in the jurisdictions of these PTAs may decrease. A reduction in sales in those areas could have a material adverse effect on our business, financial condition and results of operations.
OUR MULTI-NATIONAL OPERATIONS SUBJECT US TO VARIOUS ECONOMIC, POLITICAL, REGULATORY AND LEGAL RISKS
We market and sell our products in China and other markets. The expansion of our existing multi-national operations and entry into additional international markets will require significant management attention and financial resources. Multi-national operations are subject to inherent risks, including:
- difficulties in designing products that are compatible with varying international communications standards;
- longer accounts receivable collection periods and greater difficulty in accounts receivable collection;
- unexpected changes in regulatory requirements;
- changes to import and export regulations, including quotas, tariffs and other trade barriers;
- delays or difficulties in obtaining export and import licenses;
- potential foreign exchange controls and repatriation controls on foreign earnings;
- exchange rate fluctuations and currency conversion restrictions;
- the burdens of complying with a variety of foreign laws and regulations;
- difficulties and costs of staffing and managing multi-national operations;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences; and
- political and economic instability.
In markets outside of China, we rely on a number of original equipment manufacturers, or OEMs, and third-party distributors and agents to market and sell our network access products. If these OEMs, distributors or agents fail to provide the support and effort necessary to service developing markets effectively, our ability to maintain or expand our operations outside of China will be materially affected. We cannot assure you that we will successfully compete in these markets, that our products will be accepted or that the risks associated with international transactions will not adversely affect our business, financial condition and results of operations.
Our international sales are generally denominated in local currencies. Due to the limitations on converting Renminbi, we are limited in our ability to engage in currency hedging activities in China. We do not currently engage in currency hedging activities with respect to any other currencies. Although the impact of currency fluctuations to date has been insignificant, we cannot guarantee that fluctuations in currency exchange rates in the future will not have a material adverse effect on revenues from international sales and, correspondingly, on our business, financial condition and results of operations.
OUR FAILURE TO MEET INTERNATIONAL AND GOVERNMENTAL PRODUCT STANDARDS COULD BE DETRIMENTAL TO OUR BUSINESS
Many of our products are required to comply with numerous government regulations and standards, which vary by market. As standards for products continue to evolve, we will need to modify our products or develop and support new versions of our products to meet emerging industry standards, comply with government regulations and satisfy the requirements necessary to obtain approvals. The products we sell or manufacture within China must comply with the technical standards stipulated by the MII. In international markets outside of China, our products must comply with recommendations issued by the International Telecommunications Union and requirements established by the respective regional service providers which specify the technical standards for equipment connected to the networks they operate. Our inability to obtain regulatory approval and meet established standards could delay or prevent entrance into or force departure from markets and materially adversely affect our business, financial condition and results of operations.
OUR RECENT GROWTH HAS STRAINED OUR RESOURCES, AND IF WE ARE UNABLE TO MANAGE AND SUSTAIN OUR GROWTH, OUR OPERATING RESULTS WILL BE NEGATIVELY AFFECTED
We have recently experienced a period of rapid growth and anticipate that we must continue to expand our operations to address potential market opportunities. Our expansion has placed and will continue to place a significant strain on our management, operational, financial and other resources. Many of the members of our management team have limited experience in the management of rapidly growing companies. To manage our growth effectively, we will need to take various actions, including:
- enhancing management information systems and forecasting procedures;
- further developing our operating, administrative, financial and accounting systems and controls;
- maintaining close coordination among our engineering, accounting, finance, marketing, sales and operations organizations;
- expanding, training and managing our employee base; and
- expanding our finance, administrative and operations staff.
If we fail to implement or improve systems or controls or to manage any future growth and expansion effectively, our business, financial condition and results of operations could suffer.
OUR SUCCESS IS DEPENDENT ON CONTINUING TO HIRE AND RETAIN QUALIFIED PERSONNEL, AND IF WE ARE NOT SUCCESSFUL IN ATTRACTING AND RETAINING THESE PERSONNEL, OUR
BUSINESS MAY BE HARMED
The success of our business depends in significant part upon the continued contributions of key technical and senior management personnel, many of whom would be difficult to replace. In particular, our success depends in large part on the knowledge, expertise and services of Hong Liang Lu, our President and Chief Executive Officer, and Ying Wu, our Executive Vice President and Chief Executive Officer of China Operations. The loss of any key employee, the failure of any key employee to perform satisfactorily in his or her current position or our failure to attract and retain other key technical and senior management employees could have a material adverse effect on our business, financial condition and results of operations.
To effectively manage our recent growth as well as any future growth, we will need to recruit, train, assimilate, motivate and retain qualified employees. Competition for qualified employees is intense, and the process of recruiting personnel with the combination of skills and attributes required to execute our business strategy can be difficult, time-consuming and expensive. We are actively searching for research and development engineers and sales and marketing personnel, who are in short supply. Additionally, we have a need for and have experienced difficulty in finding qualified accounting personnel knowledgeable in U.S. and China accounting standards. The failure to attract, hire, assimilate or retain qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
Competitors and others have in the past and may in the future attempt to recruit our employees. In addition, companies in the communications industry whose employees accept positions with competitors frequently claim that the competitors have engaged in unfair hiring practices. We may be the subject of these types of claims in the future as we seek to hire qualified personnel. Some of these claims may result in material litigation and disruption to our operations. We could incur substantial costs in defending ourselves against these claims, regardless of their merits.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE OUR STOCKHOLDERS AND HARM OUR OPERATING RESULTS
We recently acquired Wacos, Inc., a research and development subsidiary, through a merger. We continually evaluate additional acquisition prospects that would complement our existing product offerings, augment our market coverage, enhance our technological capabilities, or that may otherwise offer growth opportunities. Acquisitions of other companies may result in dilutive issuances of equity securities, the incurrence of debt and the amortization of expenses related to goodwill and other intangible assets, any of which could materially adversely affect our business, financial condition and results of operations. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of operations, technologies, products and personnel of the acquired company, diversion of management's attention from other business concerns, risks of entering markets in which we have no direct or limited prior experience, and the potential loss of key employees of ours and the acquired company.
WE MAY EXPERIENCE DIFFICULTY IN IDENTIFYING, FORMING AND MAINTAINING NEW BUSINESS VENTURES THAT ARE IMPORTANT TO THE DEVELOPMENT OF OUR BUSINESS
We have invested, and expect to continue to invest, significant capital in new business ventures. We cannot assure you that we will be able to continue to identify suitable parties for new ventures in the future. The failure to form or maintain new ventures could significantly limit our ability to expand our
operations and could have a material adverse effect on our business, financial condition and results of operations. These new ventures or investments require significant management time, involve a high degree of risk and will present significant challenges. We cannot assure you that these activities will be successful, that we will realize appropriate returns on these activities or that, if any venture or investment fails, it will not have a material adverse effect on our business, financial condition and results of operations.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND MAY BE SUBJECT TO CLAIMS THAT WE INFRINGE THE INTELLECTUAL PROPERTY OF OTHERS, EITHER OF WHICH COULD SUBSTANTIALLY HARM OUR BUSINESS
We rely on a combination of patents, copyrights, trade secret laws and contractual obligations to protect our technology. Although we have applied for several patents in the United States, one of which has issued, as well as in other countries, we cannot assure you that any additional patents will issue as a result of pending patent applications or that our issued patents will be upheld. Moreover, we have not yet obtained patents in China. We can give no assurance that we will be able to obtain patents in China on our products or the technology that we use to manufacture our products. Our joint ventures in China rely upon our trademarks, technology and know-how to manufacture and sell our products. We cannot guarantee that these and other intellectual property protection measures will be sufficient to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours. In addition, the legal systems of many foreign countries, including China, do not protect intellectual property rights to the same extent as the legal system of the United States. If we are unable to adequately protect our proprietary information, our business, financial condition and results of operations could be materially adversely affected.
The increasing dependence of the communications industry on proprietary technology has resulted in frequent litigation based on allegations of the infringement of patents and other intellectual property. In the future we may be subject to litigation to defend against claimed infringements of the rights of others or to determine the scope and validity of the proprietary rights of others. Future litigation also may be necessary to enforce and protect our trade secrets and other intellectual property rights. Any intellectual property litigation could be costly and could cause diversion of management's attention, either of which could have a material adverse effect on our business, financial condition and results of operations. Adverse determinations in any litigation could result in the loss of our proprietary rights, subject us to significant liabilities or require us to seek licenses from third parties which may not be available on commercially reasonable terms, if at all. We could also be subject to court orders preventing us from manufacturing or selling our products. Any one of the above events could have a material adverse effect on our business, financial condition and results of operations.
PROBLEMS RELATED TO YEAR 2000 ISSUE COULD HARM OUR BUSINESS
The potential for software failures due to processing errors from calculations using the year 2000 date is a known risk. We recognize the need to ensure that our operations and products will not be adversely impacted by year 2000 software failures. We have established procedures for evaluating and managing the risks and costs associated with this problem and believe that our internal computer systems, including our accounting, sales and technical support automation systems, are currently year 2000 compliant. The failure to address this issue adequately and in a timely fashion could have a material adverse effect on our business, financial condition and results of operations. Furthermore, we cannot guarantee that the systems of other companies on which our systems and operations rely will be year 2000 compliant. Even if our internal systems are not materially affected by the year 2000 issue, our business could be affected through disruptions in the operation of the entities with which we interact.
RISKS RELATING TO CHINA
Sales in China account for substantially all of our sales. Approximately $102.9 million, or 97.9%, of our sales in 1998, and $124.2 million, or 99.6% of our sales in the nine months ended September 30, 1999, occurred in China. Additionally, a substantial portion of our fixed assets are located in China. Of our total fixed assets, approximately 46.4% as of December 31, 1998 and 46.5% as of September 30, 1999 were in China. We expect to make further investments in China in the future. Therefore, our business, financial condition and results of operations are to a significant degree subject to economic, political and social events in China.
DEVALUATION IN THE VALUE OF THE RENMINBI AND FLUCTUATIONS IN EXCHANGE RATES COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
We purchase substantially all of our materials in the United States and Japan and a significant portion of our cost of goods sold is incurred in U.S. dollars and Japanese yen. A significant portion of our operating expenses are incurred in U.S. dollars. At the same time, most of our sales are denominated in Renminbi. The value of the Renminbi is subject to changes in China's governmental policies and to international economic and political developments. Although the official exchange rate for the conversion of Renminbi to U.S. dollars has remained stable, with the Renminbi appreciating slightly against the U.S. dollar since 1994, the exchange rate experienced significant volatility prior to 1994 including periods of sharp devaluation. There can be no assurance that exchange rates will not become volatile or that the Renminbi will not devalue again against the U.S. dollar. Exchange rate fluctuations could have a material adverse effect on our business, financial condition and results of operations.
In the past, financial markets in many Asian countries have experienced severe volatility and, as a result, some Asian currencies have experienced significant devaluation from time to time. The devaluation of some Asian currencies may have the effect of rendering exports from China more expensive and less competitive and therefore place pressure on China's government to devalue the Renminbi. Due to the limitations on the convertibility of Renminbi, we are limited in our ability to engage in currency hedging activities in China and do not currently engage in currency hedging activities with respect to international sales outside of China. There can be no assurance that China's government will not devalue the Renminbi in the future. Any devaluation of the Renminbi could result in an increase in volatility of Asian currency and capital markets. Future volatility of Asian financial markets could have an adverse impact on our ability to expand our product sales into Asian markets outside of China.
CURRENCY RESTRICTIONS IN CHINA MAY LIMIT THE ABILITY OF OUR CHINA AFFILIATES TO OBTAIN FOREIGN CURRENCY NECESSARY FOR THE PURCHASE OF IMPORTED COMPONENTS AND MAY LIMIT OUR ABILITY TO OBTAIN FOREIGN CURRENCY IN EXCHANGE FOR RENMINBI EARNINGS
China's government imposes controls on the convertibility of Renminbi into foreign currencies. The People's Bank of China publishes a daily exchange rate for Renminbi based on the previous day's transactions in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the exchange rate set by the People's Bank of China according to market conditions.
Under existing foreign exchange laws, Renminbi held by our China subsidiaries can be converted into foreign currencies to pay current account items such as payments to suppliers for imports, labor services, payment of interest on foreign exchange loans and distributions of dividends so long as the subsidiaries have adequate amounts of Renminbi to purchase the foreign currency. Expenses of a capital nature such as the repayment of bank loans denominated in foreign currencies, however, require approval from appropriate governmental authorities before Renminbi can be used to purchase foreign
currency. This system could be changed at any time by executive decision of the State Council to impose limits on current account convertibility of the Renminbi or other similar restrictions. Moreover, even though the Renminbi is intended to be freely convertible under the current account, the State Administration of Foreign Exchange, or SAFE, which is responsible for administering China's foreign currency market, has a significant degree of administrative discretion in implementing the laws. From time to time, SAFE has used this discretion in ways which effectively limit the convertibility of current account payments. Furthermore, in many circumstances SAFE must approve foreign currency conversions. Under the current foreign exchange control system, sufficient foreign currency may not be available at a given exchange rate to satisfy our currency demands. Additionally, we may experience difficulties in completing the administrative procedures necessary to obtain needed foreign currency. Shortages in the availability of foreign currency may restrict the ability of our Chinese subsidiaries to obtain sufficient foreign currency to pay dividends to us or otherwise satisfy their foreign currency denominated obligations. Moreover, we cannot assure you that China's government will continue the policy of making the Renminbi convertible under current accounts. Our inability to convert our sales received in Renminbi into U.S. dollars could have a material adverse effect on our business, financial condition and results of operations.
CHANGES WITHIN CHINA'S COMMUNICATIONS MARKET COULD HARM OUR BUSINESS
We derive substantially all of our sales from sales to local telecommunications service providers in China which utilize network access equipment in the continued expansion and upgrading of China's communications infrastructure. The continued development of the communications infrastructure in China correspondingly depends, in part, on the demand for voice and data services in China and China's governmental policy. Although this industry has grown rapidly in the past, we cannot assure you that it will continue to grow in the future. Any reduced demand for voice and data services, any other downturn or other adverse changes in the China communications industry or the adoption or enforcement of government policies that limit or prohibit our ability to manufacture, market or sell our products could have a material adverse effect on our business, financial condition and results of operations.
CHINA'S TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND HAS RECENTLY BEEN RESTRUCTURED, WHICH HAS LED TO UNCERTAINTY
China's telecommunications industry is heavily regulated by the MII. The MII controls the 33 provincial PTAs that exercise regulatory responsibility over the telecommunications industries in their respective provinces. The MII has broad discretion and authority to regulate all aspects of the telecommunications and information technology industry in China including managing spectrum bandwidths, setting network equipment specifications and standards and drafting laws and regulations related to the electronics and telecommunications industries.
As part of the Chinese government's industry restructuring initiatives, the regulatory functions of the MII and the PTAs will be separated from the operational functions of the state-owned companies under their control. Following this separation, it is expected that the MII will act exclusively as the industry regulator and will no longer manage the day-to-day operations of telecommunications service providers in China. The separation of the regulatory and operational functions of the MII and the PTAs has not been completed. As a result, the MII continues to exercise administrative control over the operational goals and policies of telecommunications service providers formerly under the control of the China Telecom system. In addition, the provincial PTAs continue to operate the fixed line telephone systems in their respective provinces. We cannot predict when complete separation of the regulatory and operational functions of the MII and the provincial PTAs will be achieved.
China does not yet have a national telecommunications law. The MII, under the direction of the State Council, is currently preparing a draft of the Telecommunications Law of the People's Republic of China for ultimate submission to the National People's Congress for review and adoption. It is unclear if and when the Telecommunications Law will be adopted. If the Telecommunications Law is adopted, we expect it to become the basic telecommunications statute and the source of telecommunications regulations in China. Although we expect that a Telecommunications Law would have a positive effect on the overall development of the telecommunications industry in China, we do not know the nature and scope of regulation that it would create. Accordingly, we cannot predict whether it will have a positive or negative effect on us or on some or all aspects of our business.
The MII has broad discretion to apply standards in deciding what types of equipment may be connected to the national telecommunications networks, the forms and types of services that may be offered to the public and the content of material available in China over the Internet. If the MII sets standards with which we are unable to comply, our ability to sell product in China may be limited which would materially adversely affect our business, financial condition and results of operations.
CHINA CLOSELY RESTRICTS ACTIVITIES OF FOREIGN INVESTORS IN THE TELECOMMUNICATIONS INDUSTRY
China's government and its agencies, including the MII and the State Council, regulate foreign investment in the telecommunications industry through the promulgation of various laws and regulations and the issuance of various administrative orders and decisions. Foreign investment enterprises, companies and individuals are prohibited from investing and participating in the operation and management of telecommunications networks without special approval by the State Council. In addition, they are restricted from manufacturing analog mobile communications systems, including wireless telephones. We cannot assure you that China will not promulgate new laws or regulations, or issue administrative or judicial decisions or interpretations, which would further restrict or bar foreigners from engaging in telecommunications-related activities. The promulgation of laws or regulations or the issuance of administrative orders or judicial decisions or interpretations restricting or prohibiting telecommunications activities by foreigners could have a material adverse effect on our business, financial condition and results of operations.
OUR CUSTOMERS IN CHINA ARE PART OF THE CHINA TELECOM SYSTEM AND ARE SUBJECT TO ITS ULTIMATE CONTROL. WE UNDERSTAND THAT CHINA TELECOM RECENTLY PROHIBITED ALL PTBS IN CHINA FROM PURCHASING LOW-MOBILITY WIRELESS ACCESS SYSTEMS, SUCH AS OUR PAS SYSTEM, FOR IMPLEMENTATION IN LARGE CITIES
Each of the local Posts and Telecommunications Bureaus, or PTBs, in China which comprise our existing or potential customers is part of the China Telecom system and subject to its ultimate control. Accordingly, China Telecom may issue policy statements or make other decisions which govern the equipment purchasing decisions of all of our customers in China. For example, we understand that China Telecom recently prohibited all PTBs from purchasing low-mobility wireless access systems, such as our PAS system, for implementation in large cities. While to date we have not marketed or sold our PAS systems in large cities, we may wish to do so in the future. This decision of China Telecom or other decisions by China Telecom could have a material adverse effect on our business, financial condition and results of operations.
CHINA'S GOVERNMENT POLICIES COULD IMPACT OUR BUSINESS
Since 1978, China's government has been and is expected to continue reforming its economic and political systems. These reforms have resulted in and are expected to continue to result in significant economic and social development in China. Many of the reforms are unprecedented or experimental and may be subject to change or readjustment due to a number of political, economic and social factors. We believe that the basic principles underlying the political and economic reforms will continue to be implemented and provide the framework for China's political and economic system. New reforms or the readjustment of previously implemented reforms could have a significant negative effect on our operations. Changes in China's political, economic and social conditions and governmental policies, including new laws and regulations or the interpretation of those laws and regulations, the introduction of measures to control inflation or stimulate growth, changes in the rate or method of taxation, or the imposition of additional restrictions on currency conversion and remittances abroad, could have a material adverse effect on our business, financial condition and results of operations. In addition, any actions by China's government which limit our ability to develop or sell our products in China will adversely affect our business, financial condition and results of operations.
CHINA'S ECONOMIC POLICIES COULD IMPACT OUR BUSINESS
The economy of China differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development in various respects such as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, self-sufficiency, rate of inflation and balance of payments position. In the past, the economy of China has been primarily a planned economy subject to one- and five-year state plans adopted by central government authorities and largely implemented by provincial and local authorities which set production and development targets.
Since 1978, increasing emphasis had been placed on decentralization and the utilization of market forces in the development of China's economy. Economic reform measures adopted by China's government may be inconsistent or ineffectual, and we may not in all cases be able to capitalize on any reforms. Further, these measures may be adjusted or modified in ways which could result in economic liberalization measures that are inconsistent from time to time or from industry to industry or across different regions of the country. China's economy has experienced significant growth in the past decade. This growth, however, has been accompanied by imbalances in China's economy and has resulted in significant fluctuations in general price levels, including periods of inflation. China's government has implemented policies from time to time to increase or restrain the rate of economic growth, control periods of inflation or otherwise regulate economic expansion. While we may be able to benefit from the effects of some of these policies, these policies and other measures taken by China's government to regulate the economy could also have a significant overall impact on economic conditions in China which could have a material adverse affect on our business, financial condition and results of operations.
CHINA'S EXPECTED ENTRY INTO THE WTO CREATES UNCERTAINTY AS TO THE FUTURE ECONOMIC AND BUSINESS ENVIRONMENTS IN CHINA
China has been attempting to join the World Trade Organization and recently signed a bilateral trade agreement with the United States which has enabled China to gain the support of the United States in China's attempt to enter the WTO. With this agreement concluded, and subject to the support of other member countries, China is expected to enter into the WTO as early as some time in 2000. Although China has been reducing tariff levels over the past several years, entry into the WTO will require China to further reduce tariffs and eliminate other trade restrictions. While China's entry into the WTO and related relaxation of trade restrictions may lead to increases in foreign investment, it may also lead to increased competition in China's markets from international companies. Whether or not China is accepted into the WTO, the impact on China's economy and our business is uncertain. Any of these developments could have a material adverse effect on our business, financial condition and results of operation.
IF TAX BENEFITS AVAILABLE TO OUR SUBSIDIARIES LOCATED IN CHINA ARE REDUCED OR REPEALED, OUR BUSINESS COULD SUFFER
Our subsidiaries located in China enjoy tax benefits in China which are generally available to foreign investment enterprises, including full exemption from national enterprise income tax for two years starting from the first profit-making year and/or a 50% reduction in national income tax rate for the following three years. In addition, local enterprise income tax is often waived or reduced during this tax holiday/incentive period. Under current regulations in China, foreign investment enterprises that have been accredited as technologically advanced enterprises are entitled to additional tax incentives. These tax incentives vary in different locales and could include preferential national enterprise income tax treatment at 50% of the usual rates for different periods of time. Three of our four subsidiaries in China were accredited as technologically advanced enterprises. Our fourth subsidiary is applying for accreditation. We have no guarantee that the tax incentives will not be
repealed or reduced in the future. If these tax incentives are abolished before our subsidiaries in China can take full advantage of them, the tax liability of these subsidiaries will increase which could have a material adverse effect on our business, financial condition and results of operations.
CHINA'S LEGAL SYSTEM EMBODIES UNCERTAINTIES THAT COULD NEGATIVELY IMPACT OUR BUSINESS
China has a civil law legal system. Although often used by judges for guidance, decided court cases do not have binding legal effect on future decisions. Since 1979, many new laws and regulations covering general economic matters have been promulgated in China. Despite this activity to develop the legal system, China's system of laws is not yet complete. Even where adequate law exists in China, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic and it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China's judiciary in many cases creates additional uncertainty as to the outcome of any litigation. Further, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes.
China has adopted a broad range of related laws, administrative rules and regulations that govern the conduct and operations of foreign investment enterprises and restrict the ability of foreign companies to conduct business in China. These laws, rules and regulations provide some incentives to encourage the flow of investment into China, but also subject foreign companies, and foreign investment enterprises including our subsidiaries in China, to a set of restrictions which may not always apply to domestic companies in China. Although China is increasingly according foreign companies and foreign investment enterprises established in China the same rights and privileges as Chinese domestic companies in anticipation of China's entry into the WTO, these special laws, administrative rules and regulations governing foreign companies and foreign investment enterprises may still place us and our subsidiaries at a disadvantage in relation to Chinese domestic companies and may adversely affect our competitive position.
As China's legal system develops, the promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors and companies. We cannot assure you that the promulgation of new laws in China, changes in current laws or the interpretation thereof will not have a material adverse effect on our business, financial condition and results of operations.
Many of our activities and products in China are subject to administrative review and approval by various national and local agencies of China's government. Because of the changes occurring in China's legal and regulatory structure, there can be no assurance that we will be able to secure the requisite governmental approval for our activities and products. Failure to obtain the requisite government approval for any of our activities or products could have a material adverse effect on our business, financial condition and results of operations.
RISKS RELATED TO THE OFFERING
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY BE UNABLE TO SELL YOUR SHARES AT OR ABOVE THE OFFERING PRICE
Prior to this offering, there has been no public market for our common stock. We cannot assure you that an active public market for our common stock will develop or be sustained after the offering. The initial public offering price will be determined by negotiations between us and the underwriters, and may not be indicative of the market price of our common stock after the offering. Investors may not be able to resell their shares at or above the initial public offering price due to a number of factors, including:
- actual or anticipated fluctuations in operating results;
- changes in expectations as to future financial performance or changes in financial estimates or buy/sell recommendations of securities analysts;
- publications or technological innovations by us or our competitors; and
- the operating and stock price performance of other comparable companies.
In addition, stock markets have experienced extreme price and trading volume volatility, particularly in the high technology sectors of these markets. This volatility has significantly affected the market prices of securities of many technology companies for reasons often unrelated to the operating performance of the specific companies. These fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.
OUR EXISTING STOCKHOLDERS HAVE SIGNIFICANT CONTROL OF OUR MANAGEMENT AND AFFAIRS, WHICH THEY COULD EXERCISE AGAINST YOUR BEST INTERESTS
Following the completion of this offering, SOFTBANK CORP. and its affiliates will beneficially own % of our outstanding stock and our officers and directors will beneficially own % of our outstanding stock. As a result, SOFTBANK acting alone or in conjunction with our officers and directors will have the ability to exert significant influence over all matters submitted to our stockholders for approval as well as our management and affairs. This concentration of ownership may delay or prevent a change of control or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of our company, which could decrease the market price of our common stock. Matters that could require stockholder approval include:
- election and removal of directors;
- merger or consolidation of our company; and
- sale of all or substantially all of our assets.
Given the contractual and business relationships between SOFTBANK and us, the interests of SOFTBANK may not always coincide with our interests. SOFTBANK, acting through its designees on the Board of Directors and through its ownership of voting securities, will have the ability to exert significant influence over our actions irrespective of the desires of our other stockholders or directors.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE STOCK YOU PURCHASE
The initial public offering price of our common stock will be substantially higher than the book value per share of the outstanding common stock after this offering. Therefore, based on an assumed initial offering price of $ per share, if you purchase our common stock in this offering you will suffer immediate dilution of approximately $ per share. If additional shares are sold by the underwriters following exercise of their over-allotment option, or if outstanding options and warrants to purchase our common stock are exercised, you will experience additional dilution.
FOLLOWING THIS OFFERING, SUBSTANTIAL NUMBERS OF SHARES OF OUR COMMON STOCK WILL BECOME AVAILABLE FOR SALE IN THE PUBLIC MARKET, WHICH COULD CAUSE THE MARKET PRICE OF OUR STOCK TO DECLINE
Upon completion of this offering, shares of our common stock will be outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants after December 14, 1999. Of these shares, all of the shares sold in this offering will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act.
The remaining 78,597,194 shares of our common stock outstanding as of December 14, 1999 are subject to restrictions under Rule 144 of the Securities Act. Of those shares, substantially all of the
shares are subject to a lock-up agreement with the underwriters and will not become eligible for sale in the public market until 180 days following the date of this prospectus, unless earlier released from the lock-up by the underwriters. As restrictions on resale end, the market price of our common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. In addition to the adverse effect a price decline could have on the holders of our common stock, a price decline would likely impede our ability to raise additional capital through the issuance of additional shares of our common stock or other equity securities.
Shortly after this offering, we intend to file a registration statement covering 2,000,000 shares of common stock reserved for issuance under our employee stock purchase plan and 16,698,268 shares of common stock reserved for issuance under our stock option plans. Any vested shares registered under the registration statement will immediately become available for sale in the open market, subject to the preceding contractual restrictions and Rule 144 volume limitations applicable to our affiliates.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER, EVEN IF THE TRANSACTION WOULD BENEFIT OUR STOCKHOLDERS
Some provisions of our Certificate of Incorporation and Bylaws, as well as provisions of Delaware law, may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. These provisions include:
- authorizing the Board of Directors to issue additional preferred stock;
- prohibiting cumulative voting in the election of directors;
- limiting the persons who may call special meetings of stockholders;
- prohibiting stockholder action by written consent;
- creating a classified Board of Directors pursuant to which our directors are elected for staggered three year terms; and
- establishing advance notice requirements for nominations for election to the Board of Directors and for proposing matters that can be acted on by stockholders at stockholder meetings.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We use words like "anticipates," "believes," "plans," "expects," "future," "intends" and similar expressions to identify these forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including, but not limited to, the following:
- devaluation of the Renminbi and fluctuations of exchange rates;
- changes in China's government, economic or regulatory policies;
- uncertainty regarding the commercial acceptance of our network access and switching equipment and technologies;
- uncertainty regarding our future operating results;
- our ability to introduce new products;
- delays or losses of sales due to long sales and delivery cycles for our products;
- the possibility of lower prices, reduced gross profit as a percentage of net sales and loss of market share due to increased competition; and
- increased demands on our resources due to anticipated growth.
In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.
USE OF PROCEEDS
We estimate our net proceeds from the sale of the shares of our common stock offered in this offering will be approximately $ , or approximately $ if the underwriters exercise their over-allotment option in full, based on an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses.
We intend to use the net proceeds from this offering for general corporate purposes, including research and development, expansion of our sales and marketing organization and working capital. Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities.
From time to time, we may evaluate opportunities to acquire or invest in complementary businesses, technologies or products and may use a portion of the net proceeds from this offering to enter into these type of transactions.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We currently intend to retain future earnings to finance the growth and development of our business, and we do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of our revolving line of credit agreement prohibit us from paying cash dividends without the prior consent of the bank.
CAPITALIZATION
The following table summarizes our short-term debt and capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the issuance of 6,152,106 shares of Series F preferred stock at $8.1273 per share in November and December 1999 in connection with a private round of financing, and 4,523,700 shares of Series G preferred stock in December 1999 in connection with our acquisition of Wacos, Inc. and to give effect to the conversion of all outstanding shares of preferred stock into common stock upon the completion of this offering; and
- on a pro forma as adjusted basis to reflect the receipt of the net proceeds from the sale of shares offered hereby at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discount and estimated offering expenses.
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS)
Total short-term debt..................................... $ 42,324 $ 42,324 $
======== ======== ========
Stockholders' equity:
Convertible preferred stock, $0.00125 par value;
actual--80,200,000 shares authorized, 59,086,306
shares issued and outstanding; pro forma and as
adjusted--5,000,000 shares authorized, no shares
issued and outstanding................................ 73 --
Common stock, $0.00125 par value; actual--123,614,032
shares authorized, 10,049,174 shares issued and
outstanding;
pro forma--242,000,000 shares authorized, 78,462,900
shares issued and outstanding; as adjusted--
shares issued and outstanding(1)...................... 13 94
Common stock warrant.................................... 389 389
Additional paid-in capital.............................. 93,179 167,612(2)
Deferred stock compensation............................. (5,270) (5,270)
Accumulated deficit..................................... (4,938) (21,524)(2)
Notes receivable from stockholders...................... (557) (557)
Cumulative translation adjustment....................... 95 95
Treasury stock.......................................... (3,060) (3,060)
-------- --------
Total stockholders' equity............................ 79,924 137,779
-------- --------
Total capitalization................................ $ 79,924 $137,779
======== ========
|
(1) Excludes 11,451,990 shares of common stock issuable upon exercise of options outstanding as of September 30, 1999 at a weighted average exercise price of $2.21 per share. Also excludes 532,000 shares of common stock issuable upon exercise of warrants outstanding as of September 30, 1999 with a weighted average exercise price of $6.025 per share. For additional information regarding our capital structure, see "Management--Employee Benefit Plans," "Related Party Transactions," "Description of Capital Stock" and Notes 15-18 of Notes to Consolidated Financial Statements.
(2) Includes an outstanding option held by Intel Pacific, Inc. to purchase up to 615,210 shares of our Series F preferred stock at a price of $8.1273 per share. This option expires on January 13, 2000. For additional information, see Notes to Unaudited Pro Forma Combined Financial Information.
DILUTION
The pro forma net tangible book value of our common stock as of September 30, 1999 was approximately $132,353 million, or $1.69 per share. Pro forma net tangible book value per share represents the amount of our total assets, excluding net intangible assets, less our total liabilities, divided by the total number of shares of our common stock outstanding, after giving effect to:
- the issuance of 6,152,106 shares of Series F preferred stock in November and December 1999 in connection with a private round of financing;
- the issuance of 4,523,700 shares of Series G preferred stock in connection with our acquisition of Wacos, Inc. in December 1999; and
- the conversion of all outstanding shares of preferred stock into an aggregate of 69,762,112 shares of common stock.
Without taking into account any other changes in net tangible book value after September 30, 1999, other than to give effect to the sale of shares of common stock offered by this prospectus at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses payable us, the pro forma net tangible book value of our common stock as of September 30, 1999 would have been approximately $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing common stock in this offering. The following table illustrates this per share dilution:
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999.................................... $ 1.69
Increase per share attributable to new investors........
------
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution per share to new investors......................... $
======
|
The following table summarizes, on a pro forma basis, as of September 30, 1999:
- the total number of shares of common stock purchased from us;
- the total consideration paid and the average price per share paid by existing stockholders and by new investors, assuming an initial public offering price of $ per share; and
- before deducting the estimated underwriting discount and estimated offering expenses payable by us.
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- -------------
Existing stockholders............... 78,462,900 % $161,204,000 % $2.05
New investors.......................
---------- ----- ------------ -----
Total............................. 100.0% $ 100.0%
========== ===== ============ =====
|
The foregoing discussion and table assume (i) no exercise of an option held by Intel Pacific, Inc. to purchase up to 615,210 shares of our Series F preferred stock at a price of $8.1273 per share and (ii) no exercise of any stock options or warrants outstanding as of September 30, 1999. As of September 30, 1999, there were:
- options outstanding to purchase a total of 11,451,990 shares of common stock at a weighted average exercise price of $2.21 per share;
- 13,621,534 shares authorized for issuance under our stock option plans of which 153,140 were available for grant; and
- warrants outstanding to purchase a total of 532,000 shares of common stock at a weighted average exercise price of $6.025 per share.
To the extent that any of the outstanding options or warrants are exercised, or additional options are issued and exercised, there will be further dilution to new investors. For additional information about our capitalization and the options and warrants described above, see "Management--Employee Benefit Plans," "Related Party Transactions," "Description of Capital Stock" and Notes 17 and 18 of Notes to Consolidated Financial Statements.
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 1996, 1997 and 1998 and consolidated balance sheet data at December 31, 1997 and 1998 are derived from, and are qualified by reference to, our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the year ended December 31, 1994 and 1995 and the consolidated balance sheet data at December 31, 1994, 1995 and 1996 have been derived from audited financial statements not included in this prospectus. The consolidated statement of operations data for the nine months ended September 30, 1999 and the consolidated balance sheet data at September 30, 1999 have been derived from, and are qualified by reference to, audited interim financial statements contained elsewhere in this prospectus. The consolidated statement of operations data for the nine months ended September 30, 1998 are derived from our unaudited financial statements which are included elsewhere in this prospectus. The results of operations for the nine months ended September 30, 1999 are not necessarily indicative of results that may be expected for the full fiscal year or any future period.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales....................... $ 3,941 $ 10,006 $ 35,542 $ 75,597 $105,167 $ 79,878 $124,701
Cost of sales................... 2,316 4,289 22,322 48,795 65,246 48,670 72,677
-------- -------- -------- -------- -------- -------- --------
Gross profit.................... 1,625 5,717 13,220 26,802 39,921 31,208 52,024
Operating expenses:
Selling, general and
administrative.............. 1,813 3,452 8,042 21,211 23,233 17,672 24,096
Research and development...... 324 612 3,899 8,228 12,694 8,494 12,490
In-process research and
development................. -- 10,611 -- -- -- -- --
Amortization of deferred stock
compensation................ -- -- -- -- -- -- 3,521
Amortization of intangible
assets...................... 21 42 40 120 65 112
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.... 2,137 14,696 11,983 29,479 36,047 26,231 40,219
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)......... (512) (8,979) 1,237 (2,677) 3,874 4,977 11,805
Interest and other income
(expenses)...................... 75 163 858 1,987 (1,244) (335) (687)
Equity in net income (loss) of
affiliated companies............ 162 -- (291) (161) (596) (646) 984
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and minority interest..... (275) (8,816) 1,804 (851) 2,034 3,996 12,102
Income tax expense (benefit).... 1 54 575 400 1,414 828 (1,023)
Minority interest in (earnings)
loss of consolidated
subsidiaries.................... (211) (701) (743) 228 746 134 (1,233)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations...................... (487) (9,571) 486 (1,023) 1,366 3,302 11,892
Income (loss) from discontinued
operations...................... -- -- 301 1,413 (893) (796) (1,656)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............... (487) (9,571) 787 390 473 2,506 10,236
Mandatorily redeemable
convertible preferred stock
dividend requirement............ -- (270) (1,097) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to
common stock.................... $ (487) $ (9,841) $ (310) $ 390 $ 473 $ 2,506 $ 10,236
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share(1):
Basic......................... $ (0.18) $ (2.40) $ (0.04) $ 0.05 $ 0.06 $ 0.32 $ 1.19
======== ======== ======== ======== ======== ======== ========
Diluted....................... $ (0.18) $ (2.40) $ (0.04) $ 0.05 $ 0.01 $ 0.03 $ 0.14
======== ======== ======== ======== ======== ======== ========
Shares used in per share
calculations(1):
Basic......................... 2,651 4,108 8,344 7,320 7,582 7,792 8,640
======== ======== ======== ======== ======== ======== ========
Diluted....................... 2,651 4,108 8,344 7,320 77,050 76,220 73,532
======== ======== ======== ======== ======== ======== ========
|
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- --------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents(2)........................ $ 651 $12,531 $18,246 $31,481 $ 17,626 $ 35,275
Working capital..................................... 1,159 14,905 34,382 55,415 56,312 65,464
Total assets........................................ 4,099 26,318 49,610 95,936 142,121 176,683
Total short-term debt............................... 754 5,704 1,127 1,579 37,115 42,324
Redeemable convertible preferred stock.............. -- 13,917 39,912 -- -- --
Total stockholders' equity.......................... 1,435 1,350 39,519 67,873 71,207 79,924
|
(1) Based on the number of shares outstanding as of September 30, 1999. Excludes
(i) 13,621,534 shares of common stock authorized for issuance under our
stock option plans, under which options to purchase 11,451,990 shares were
outstanding as of September 30, 1999 with a weighted average exercise price
of $2.21 per share and 153,140 shares were available for grant and
(ii) 532,000 shares of common stock reserved for issuance upon the exercise
of warrants outstanding as of September 30, 1999 with a weighted average
exercise price of $6.025 per share.
(2) Includes restricted cash of $1,500 at December 31, 1998 and $14,292 at September 30, 1999.
SELECTED PRO FORMA COMBINED FINANCIAL DATA
You should read the following selected financial data in conjunction with our pro forma combined financial information and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. On December 14, 1999, we acquired Wacos, Inc., a research and development subsidiary, through a merger. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values on the acquisition date. The adjustments used to prepare the unaudited combined statement of operations data reflect preliminary adjustments based on our best estimates. A third party valuation of the assets acquired will be used to finalize the adjustments. The following unaudited pro forma combined statement of operations data reflects the acquisition of Wacos, Inc.'s minority interest as if the acquisition had occurred on January 1, 1998. This data may not be indicative of the results of operations had the acquisition actually occurred on January 1, 1998, nor do they purport to indicate our future results of operations.
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
-------------- -----------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMBINED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $105,167 $124,701
Cost of sales............................................... 65,246 72,677
-------- --------
Gross profit................................................ 39,921 52,024
Operating expenses:
Selling, general and administrative....................... 23,233 24,096
Research and development.................................. 14,655 12,490
Amortization of deferred stock compensation............... -- 3,521
Amortization of intangible assets......................... 2,654 2,013
-------- --------
Total operating expenses................................ 40,542 42,120
-------- --------
Operating income (loss)..................................... (621) 9,905
Interest and other income (expenses)........................ (1,139) (687)
Equity in net income (loss) of affiliated companies......... 331 984
-------- --------
Income (loss) before income taxes and minority interest..... (1,429) 10,202
Income tax expense (benefit)................................ 1,427 (1,023)
Minority interest in (earnings) loss of consolidated
subsidiaries.............................................. (421) (1,233)
-------- --------
Income (loss) from continuing operations.................... (3,277) 9,992
Pro forma earnings (loss) per share(1):
Basic..................................................... $ (0.04) $ 0.13
======== ========
Diluted................................................... $ (0.04) $ 0.12
======== ========
Shares used in pro forma per share calculations(1):
Basic..................................................... 76,051 79,013
======== ========
Diluted................................................... 76,051 84,947
======== ========
|
(1) Adjusted to reflect:
- the issuance of 6,152,106 shares of Series F preferred stock at $8.1273 per share in November and December 1999 in connection with a private round of financing;
- the issuance of 4,523,700 shares of Series G preferred stock in December 1999 in connection with our acquisition of Wacos, Inc.; and
- to give effect to the conversion of all outstanding shares of preferred stock into common stock upon the completion of this offering.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER SUBSTANTIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide communications equipment for service providers that operate wireless and wireline networks in rapidly growing communications markets. Our integrated suite of network access systems, optical transmission products and subscriber terminal products allows service providers to offer efficient and scalable voice, data and Internet access services. Service providers can easily integrate our standards-based systems into their existing networks and deploy our systems in new broadband, IP-based and wireless network rollouts. To date, substantially all of our sales have been to service providers in China.
We incorporated in Delaware as Unitech Industries Inc. in 1991. Since our incorporation, we have focused our resources on developing products for China's communications market. We shipped our first network access products in 1993. In 1994, we changed our name to Unitech Telecom, Inc. In 1995, we acquired StarCom Network Systems, Inc. and changed our name to UTStarcom, Inc. During 1996, we introduced our advanced, V5.1 and V5.2 compliant, multi-service network access product, the AN-2000. Late in 1996, we introduced our Airstar wireless access system. In December 1999, we completed the acquisition of Wacos, Inc., a research and development subsidiary that develops IP-based switching systems. As part of our business operations in China, we have established a wholly owned subsidiary and two joint ventures.
To date, we have derived substantially all of our revenues from sales of communications equipment to service providers in China. Each of the PTBs to whom we sell our equipment in China is part of the China Telecom system and subject to its ultimate control. However, equipment purchasing decisions are generally made at the individual PTB level. Our customers often make a large initial purchase of our equipment followed by supplemental purchases of enhancements and upgrades. As a result, our largest revenue-producing customers typically vary from period-to-period. For example, in the nine months ended September 30, 1999, two of our customers together accounted for over 37% of our sales. However, we expect that different customers will be our largest source of revenues in subsequent periods.
Over 99% of our sales for the nine months ended September 30, 1999 were made in China. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal environment in China, and by the general state of China's economy. Our operations in China are subject to special considerations and significant risks not typically associated with companies in the United States. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. Our results may be adversely affected by, among other things, changes in the political, economic and social conditions in China, and by changes in governmental policies with respect to laws and regulations, changes in China's telecommunications industry and regulatory rules and policies, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.
Specifically, remittances from China which are of a capital nature, such as the repayment of bank loans denominated in foreign currencies, require approval from appropriate governmental authorities before Renminbi can be used to purchase foreign currency. Although the payment of cash dividends is permitted so long as our subsidiaries have sufficient reserves and adequate amounts of Renminbi to
purchase foreign currency, regulations restrict the ability of our subsidiaries to transfer funds to us through intercompany loans and advances.
We sell our products in China through a direct sales force. The evaluation period for our products may span a year or more. Revenue from product sales is recognized when title is passed and all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Revenues and estimated profits on longer term contracts, typically lasting no more than three to four months, are generally recognized using the percentage of completion method based on the costs incurred relative to total estimated costs.
Cost of sales consists primarily of material costs, third party commissions, costs associated with assembly and testing of products, costs associated with installation and customer training and overhead and warranty costs. Cost of sales also includes import taxes on components.
Our gross profit has been affected by material costs, product mix, average selling prices, and the type of distribution channel through which we sell our products. Our gross profit, as a percentage of net sales, varies among our product families. The gross profits, as a percentage of net sales, on our mobile phone handsets are very low. We expect that our overall gross profit, as a percentage of net sales, will fluctuate from period to period as a result of shifts in product mix, anticipated decreases in average selling prices and our ability to reduce product costs.
Selling, general and administrative expenses include compensation and benefits, professional fees, sales commissions, provision for uncollectible accounts receivable and travel and entertainment costs. We intend to pursue aggressive selling and marketing campaigns and to expand our direct sales organization and, as a result, our sales and marketing expenses will increase in future periods. We also expect that in support of our continued growth and our operations as a public company general and administrative expenses will continue to increase for the foreseeable future.
Research and development expenses consist primarily of salaries and related costs of employees engaged in research, design and development activities, the cost of parts for prototypes, equipment depreciation and third party development expenses. We believe that continued investment in research and development is critical to our long-term success. Accordingly, we expect that our research and development expenses will increase in future periods.
Recent financing rounds of preferred stock included a yield enhancement feature pursuant to which the preferred stock converts into common stock on a one-for-one basis at a price below the expected offering price upon the completion of our initial public offering. This will result in a charge to net income in the fiscal period ending December 31, 1999 of approximately $14.8 million.
In connection with the grant of stock options to some of our employees, we recorded deferred compensation of $8.8 million during the nine months ended September 30, 1999, representing the difference between the deemed fair value of common stock for accounting purposes and the option exercise price for these options at the date of grant. Deferred compensation is presented as a reduction of stockholders' equity, with amortization recorded over the four year vesting period of the option. We recorded amortization of deferred stock compensation of approximately $3.5 million during the nine month period ended September 30, 1999. At September 30, 1999, approximately $5.3 million remained to be amortized.
Amortization of intangible assets consists primarily of the amortization of intangible assets associated with acquisitions in China. Amortization of intangible assets will increase in 2000 as a result of our acquisition of the Wacos, Inc. research and development joint venture.
Consolidated equity in net income (loss) of affiliated companies comprises our share of the earnings from our Guangdong manufacturing joint venture and, prior to July 1998, our share of the costs from our Wacos, Inc. subsidiary.
Under current regulations in China, foreign investment enterprises that have been accredited as technologically advanced enterprises are entitled to additional tax incentives. These tax incentives vary in different locales and could include preferential national enterprise income tax treatment at 50% of the usual rates for different periods of time. Three of our four subsidiaries in China were accredited as technologically advanced enterprises. Our fourth subsidiary is applying for accreditation. We have no guarantee that the tax incentives will not be repealed or reduced in the future.
Minority interest in (earnings) loss of consolidated subsidiaries represents the share of earnings in our Zhejiang manufacturing joint venture that is owned by our joint venture partner. From July to December 1998, minority interest also included the share of losses in our Wacos, Inc. subsidiary not owned by us.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by certain items reflected in our consolidated statements of operations:
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ --------------------
1996 1997 1998 1998 1999
-------- -------- -------- --------- --------
PERCENTAGE OF NET SALES:
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 62.8 64.5 62.0 60.9 58.3
----- ----- ----- ----- -----
Gross profit..................................... 37.2 35.5 38.0 39.1 41.7
Operating expenses:
Selling, general and administrative............ 22.6 28.1 22.1 22.1 19.3
Research and development....................... 11.0 10.9 12.1 10.6 10.0
Amortization of deferred stock compensation.... 0.0 0.0 0.0 0.0 2.8
Amortization of intangible assets.............. 0.1 0.1 0.1 0.1 0.1
----- ----- ----- ----- -----
Total operating expenses..................... 33.7 39.1 34.3 32.8 32.2
----- ----- ----- ----- -----
Operating income (loss).......................... 3.5 (3.5) 3.7 6.2 9.5
Interest and other income (expenses)............. 2.4 2.6 (1.2) (0.4) (0.6)
Equity in net income (loss) of affiliated
companies...................................... (0.8) (0.2) (0.6) (0.8) 0.8
----- ----- ----- ----- -----
Income (loss) before income taxes and minority
interest....................................... 5.1 (1.1) 1.9 5.0 9.7
Income tax expense (benefit)..................... 1.6 0.5 1.3 1.0 (0.8)
Minority interest in (earnings) loss of
consolidated subsidiaries...................... (2.1) 0.3 0.7 0.2 (1.0)
----- ----- ----- ----- -----
Income (loss) from continuing operations......... 1.4 (1.4) 1.3 4.1 9.5
Income (loss) from discontinued operations....... 0.8 1.9 (0.8) (1.0) (1.3)
----- ----- ----- ----- -----
Net income (loss)................................ 2.2% 0.5% 0.5% 3.1% 8.2%
===== ===== ===== ===== =====
|
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
NET SALES. Our net sales increased 56% from $79.9 million in the nine months ended September 30, 1998 to $124.7 million in the nine months ended September 30, 1999. This increase was primarily due to an increase in sales volume of our Airstar system. In the nine months ended September 30, 1999, sales to Xi'an PTB accounted for 21.5% of our net sales and sales to Kunming PTB accounted for 15.9% of our net sales. In the nine months ended September 30, 1998, no customers accounted for over 10% of our sales.
GROSS PROFIT. Gross profit increased 67% from $31.2 million in the nine months ended September 30, 1998 to $52.0 million in the nine months ended September 30, 1999. Gross profit, as a percentage of net sales, increased from 39% in the nine months ended September 30, 1998 to 42% in the nine months ended September 30, 1999. The increase in gross profit, as a percentage of net sales, was primarily due to changes in the mix of products sold during the two periods.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased 36% from $17.7 million in the nine months ended September 30, 1998 to $24.1 million in the nine months ended September 30, 1999. The increase in selling, general and administrative expenses was primarily due to the hiring of additional sales and customer support staff. Selling, general and administrative expenses as a percentage of net sales decreased from 22% in the nine months ended September 30, 1998 to 19% in the nine months ended September 30, 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 47% from $8.5 million in the nine months ended September 30, 1998 to $12.5 million in the nine months ended September 30, 1999. The increase in research and development expenses was primarily due to the hiring of additional technical personnel to support our research and development efforts. As a percentage of net sales, research and development expenses decreased from 11% in the nine months ended September 30, 1998 to 10% in the nine months ended September 30, 1999.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred stock compensation increased from $0 in the nine months ended September 30, 1998 to $3.5 million for the nine months ended September 30, 1999. This amortization is due to deferred compensation of approximately $8.8 million, related to stock options granted in the nine months ended September 30, 1999, which we are amortizing over the vesting periods of the applicable options beginning in 1999.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets increased from $65,000 in the nine months ended September 30, 1998 to $112,000 in the nine months ended September 30, 1999. The increase in amortization of intangible assets was due to the addition of amortization of our Wacos, Inc. subsidiary beginning in the third quarter of 1998.
INTEREST INCOME (EXPENSES). Interest income (expenses) were $(0.2) million for the nine months ended September 30, 1998 and $(0.9) million for the nine months ended September 30, 1999. The increase in interest expense was primarily due to decreased interest income from lower average cash balances.
OTHER INCOME (EXPENSES). Other income (expenses) were $(0.1) million for the nine months ended September 30, 1998 and $0.2 million for the nine months ended September 30, 1999. The increase in other income was primarily due to various miscellaneous charges.
EQUITY IN INCOME (LOSS) OF AFFILIATED COMPANIES. Equity in net income
(loss) of affiliated companies increased from $(0.6) million in the nine months
ended September 30, 1998 to $1.0 million in the nine months ended September 30,
1999. The change between the two periods reflects the increased profitability of
our Guangdong manufacturing joint venture in 1999, and losses incurred by our
Wacos, Inc. subsidiary in the first half of 1998.
INCOME TAX EXPENSE (BENEFIT). Income tax expense was $0.8 million for the nine months ended September 30, 1998 compared to a $(1.0) million benefit for the nine months ended September 30, 1999 due to tax incentives and one time tax refunds of $(0.4) million in China. We have not provided for U.S. taxes on our foreign subsidiaries' undistributed earnings because such earnings are intended to be indefinitely reinvested in those subsidiaries.
MINORITY INTEREST IN (EARNINGS) LOSS OF CONSOLIDATED SUBSIDIARIES. Minority interest in (earnings) loss of consolidated subsidiaries was $0.1 million in the nine months ended September 30, 1998 and $(1.2) million in the nine months ended September 30, 1999. The change between the two periods is
primarily due to the increased profitability at our Zhejiang manufacturing joint venture in 1999, and losses incurred by our Wacos, Inc. subsidiary in the third quarter of 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NET SALES. Our net sales increased from $35.5 million in 1996 to $75.6 million in 1997 and $105.2 million in 1998. The 113% increase from 1996 to 1997 and the 39% increase from 1997 to 1998 were primarily attributable to significant increases in the sales volume of network access systems and, to a lesser extent, mobile phone handsets. Sales growth in 1998 was partially offset by a slowdown in the overall industry due to the restructuring of China's telecommunications industry.
GROSS PROFIT. Gross profit increased from $13.2 million in 1996 to
$26.8 million in 1997 and $39.9 million in 1998. Gross profit, as a percentage
of net sales, was 37% in 1996, 36% in 1997 and 38% in 1998. Gross profit, as a
percentage of net sales, declined from 1996 to 1997 due to declining average
selling prices for network access equipment resulting from increased competition
in China's communication market, and, to a lesser extent, changes in product
mix. Gross profit, as a percentage of net sales, improved from 1997 to 1998
primarily due to manufacturing economies of scale and, to a lesser extent,
changes in product mix.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased from $8.0 million in 1996 to $21.2 million in 1997 and $23.2 million in 1998. These increases were primarily due to increased sales and administrative personnel associated with the growth in net sales and the expansion of our overall level of business activity. Selling, general and administrative expenses as a percentage of net sales were 23% in 1996, 28% in 1997 and 22% in 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from $3.9 million in 1996 to $8.2 million in 1997 and $12.7 million in 1998. These increases were primarily due to the hiring of additional technical personnel and the purchase of laboratory tools and test equipment necessary to support our product development efforts. The increase in research and development expenses from 1997 to 1998 is also attributable to the consolidation of our Wacos, Inc. research and development subsidiary. Research and development expenses as a percentage of net sales were 11% in 1996, 11% in 1997 and 12% in 1998.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets was $42,000 in 1996, $40,000 in 1997 and $120,000 in 1998. The increase in amortization of intangible assets from 1997 to 1998 was primarily due to the increase in our investment in our Guangdong manufacturing joint venture and the addition of amortization of our Wacos, Inc. subsidiary beginning in the third quarter of 1998.
INTEREST INCOME (EXPENSES). Interest income (expenses) was $0.6 million in 1996, $2.0 million in 1997 and $(0.2) million in 1998. The increase in interest income from 1996 to 1997 reflects our larger cash balances primarily from the sale of preferred stock. The change from 1997 to 1998 was primarily due to increased interest charges on higher debt balances combined with decreased interest income from lower cash balances.
OTHER INCOME (EXPENSES). Other income (expenses) was $0.2 million in 1996, $5,000 in 1997 and $(1.0) million in 1998. The decrease in other income from 1996 to 1997 was primarily due to various miscellaneous charges. The change from 1997 to 1998 is primarily due to a $1.3 million loss on one investment.
EQUITY IN INCOME (LOSS) OF AFFILIATED COMPANIES. Consolidated equity in net income (loss) of affiliated companies was $(0.3) million in 1996, $(0.2) million in 1997 and $(0.6) million in 1998. The change from 1996 to 1997 reflects the increasing profitability of our Guangdong manufacturing joint venture, partially offset by losses incurred by our Wacos, Inc. subsidiary in 1997. The change from 1997 to 1998 reflects increases in losses at our Wacos, Inc. subsidiary partially offset by increasing profitability of our Guangdong manufacturing joint venture.
INCOME TAX EXPENSE (BENEFIT). We recorded a provision for income taxes of $0.6 million in 1996, $0.4 million in 1997 and $1.4 million in 1998. The increase from 1997 to 1998 reflects our increasing income and required adjustments to our deferred tax asset valuation allowance.
MINORITY INTEREST IN (EARNINGS) LOSS OF CONSOLIDATED SUBSIDIARIES. Minority interest in (earnings) loss of consolidated subsidiaries was $(0.7) million in 1996, $0.2 million in 1997 and $0.7 million in 1998. The change in minority interest in (earnings) loss from 1996 to 1997 was primarily a result of decreased profitability of our Zhejiang manufacturing joint venture. The change in minority interest in earnings (loss) between 1997 and 1998 was primarily a result of losses incurred by our Wacos, Inc. subsidiary, which was first consolidated in July 1998, offset by increased profits by our Zhejiang manufacturing joint venture.
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly statement of operations data, in dollars and as a percentage of net sales, for each of the six quarters ended September 30, 1999. This unaudited quarterly information has been prepared on the same basis as the annual information presented elsewhere in this prospectus and reflects all normal non-recurring adjustments that we consider necessary for a fair presentation of such information in accordance with generally accepted accounting principles. The operating results for any quarter are not necessarily indicative of results for any future period.
THREE MONTHS ENDED
---------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................. $33,028 $31,352 $25,289 $27,551 $42,131 $55,019
Cost of sales......................................... 19,114 19,982 16,576 16,848 23,873 31,956
------- ------- ------- ------- ------- -------
Gross profit.......................................... 13,914 11,370 8,713 10,703 18,258 23,063
Operating expenses:
Selling, general and administrative................. 6,250 6,216 5,562 5,587 8,292 10,217
Research and development............................ 2,574 3,668 4,200 4,045 4,138 4,307
Amortization of deferred stock compensation......... -- -- -- 637 1,669 1,215
Amortization of intangible assets................... 21 22 55 37 37 38
------- ------- ------- ------- ------- -------
Total operating expenses.......................... 8,845 9,906 9,817 10,306 14,136 15,777
------- ------- ------- ------- ------- -------
Operating income (loss)............................... 5,069 1,464 (1,104) 397 4,122 7,286
Interest and other income (expenses).................. (319) (370) (910) (220) (489) 22
Equity in income (loss) of affiliated companies....... (489) 236 50 190 702 92
------- ------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interest............................................ 4,261 1,330 (1,964) 367 4,335 7,400
Income tax expense (benefit).......................... 477 185 586 222 242 (1,487)
Minority interest in (earnings) loss of consolidated
subsidiaries........................................ (512) 734 612 (486) (103) (644)
------- ------- ------- ------- ------- -------
Income (loss) from continuing operations.............. 3,272 1,879 (1,938) (341) 3,990 8,243
Income (loss) from discontinued operations............ (270) (454) (97) (267) (1,389) --
------- ------- ------- ------- ------- -------
Net income (loss)..................................... $ 3,002 $ 1,425 $(2,035) $ (608) $ 2,601 $ 8,243
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF NET SALES:
Net sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 57.9 63.7 65.5 61.2 56.7 58.1
------- ------- ------- ------- ------- -------
Gross profit.......................................... 42.1 36.3 34.5 38.8 43.3 41.9
Operating expenses:
Selling, general and administrative................. 18.9 19.8 22.0 20.3 19.7 18.6
Research and development............................ 7.8 11.7 16.6 14.7 9.8 7.8
Amortization of deferred stock compensation......... 0.0 0.0 0.0 2.3 4.0 2.2
Amortization of intangible assets................... 0.1 0.1 0.2 0.1 0.1 0.1
------- ------- ------- ------- ------- -------
Total operating expenses.......................... 26.8 31.6 38.8 37.4 33.6 28.7
------- ------- ------- ------- ------- -------
Operating income (loss)............................... 15.3 4.7 (4.4) 1.4 9.7 13.2
Interest and other income (expenses).................. (1.0) (1.2) (3.6) (0.8) (1.2) 0.0
Equity in income (loss) of affiliated companies....... (1.5) 0.8 0.2 0.7 1.7 0.2
------- ------- ------- ------- ------- -------
Income (loss) before income taxes and minority
interest............................................ 12.8 4.3 (7.8) 1.3 10.2 13.5
Income tax expense (benefit).......................... 1.4 0.6 2.3 0.8 0.6 (2.7)
Minority interest in (earnings) loss of consolidated
subsidiaries........................................ (1.6) 2.3 2.4 (1.8) (0.2) (1.2)
------- ------- ------- ------- ------- -------
Income (loss) from continuing operations.............. 9.8 6.0 (7.7) (1.2) 9.5 15.0
Income (loss) from discontinued operations............ (0.8) (1.4) (0.4) (1.0) (3.3) 0.0
------- ------- ------- ------- ------- -------
Net income (loss)..................................... 9.0% 4.6% (8.1)% (2.2)% 6.2% 15.0%
======= ======= ======= ======= ======= =======
|
Our net sales have increased in each quarter since the fourth quarter of 1998. The increase in net sales was primarily due to significant increases in sales of network access products, particularly our Airstar system. Sales during the third and fourth quarters of 1998 were negatively impacted by the weaker demand experienced during the reorganization of the telecommunications industry in China. Business activity in China declines significantly during the first quarter of each year in observance of the Lunar New Year. Although the usual seasonal slowdown was present during the first quarter of 1999, it was not evident because of the relatively low level of fourth quarter 1998 sales.
Gross profit has increased in each quarter since the fourth quarter of 1998. The increase in gross profit was primarily due to significant increases in sales of network access products, particularly our Airstar system. Gross profit, as a percentage of net sales, has fluctuated from quarter to quarter primarily due to product mix. Gross profit, as a percentage of net sales, generally has increased since the fourth quarter of 1998, primarily due to significant increases in sales of higher margin network access products and a shift in product mix toward higher margin network access products. The decrease in gross profit, as a percentage of net sales, from the second quarter to the third quarter and from the third quarter to the fourth quarter of 1998 was primarily due to decreases in sales volume and price pressures resulting from a slowdown in the overall industry due to the restructuring of China's telecommunications industry.
Operating expenses have generally increased in absolute dollars over the quarters shown as we have increased staffing in research and development, sales and marketing and administrative functions. The recent decline in selling, general and administrative expenses as a percentage of net sales reflects the relatively higher sales level as well as a leveling off of the proportion of expenses that are variable to sales, such as commissions and bad debt expense. Research and development expenses as a percent of net sales have generally declined as our net sales have increased.
Our quarterly operating results have fluctuated in the past and are likely to fluctuate in the future as a result of a variety of factors. These factors, some of which are beyond our control, include:
- the timing, number and size of orders for our products as well as product mix;
- market acceptance of our products and product enhancements;
- the evolving and unpredictable nature of the economic, regulatory and political environments in China and other countries in which we market or plan to market our products;
- longer collection periods of accounts receivable in China and other countries;
- the lengthy and unpredictable sales cycles associated with sales of our products;
- our ability to secure and maintain regulatory and governmental authorizations for our products; and
- the decline in business activity in the first quarter associated with the Lunar New Year.
Our net sales and gross profit, as a percentage of net sales, have also fluctuated and are likely to continue to fluctuate in large part due to the volatility of the volume of sales of lower margin mobile phone handsets and competitive pricing pressure across product lines. As a result of the foregoing factors, we believe period to period comparisons are not necessarily meaningful and should not be relied upon as indicative of future results.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through private sales of equity securities and, to a lesser degree, bank lines of credit. We have a line of credit arrangement with a bank in China permitting Renminbi denominated borrowings of up to $48.2 million. This facility bears interest at rates ranging from 5.6% to 6.4% and matures from January to July 2000. At September 30, 1999, the
equivalent of $26.5 million was outstanding under this facility. In June 1998, we entered into a loan agreement with SOFTBANK for the total amount of $25.0 million, of which $9.1 million was outstanding as of September 30, 1999. Borrowings under this facility were repaid in full in December 1999. In December 1998, we guaranteed a bank loan incurred by one of our customers in the amount of $1.6 million in conjunction with the sale of equipment. As of September 30, 1999, we had working capital of $65.5 million, including $35.3 million in cash and cash equivalents and $28.0 million worth of Renminbi denominated bank borrowings. In November and December 1999, we secured private equity financing totaling $50.0 million.
As of September 30, 1999, we had cash and cash equivalents totaling $35.3 million. Of this amount, $14.3 million was restricted. Of the restricted amount, $11.3 million related to cash from asset sales pending completion of contractual obligations. The remaining restricted amount was for collateral on letters of credit.
The net proceeds from the private financing will be used as follows:
- $10.0 million to establish an investment fund with SOFTBANK CORP. focused on investments in Internet companies in China;
- $9.1 million to repay outstanding indebtedness to SOFTBANK CORP.; and
- the remainder to fund the continued growth and development of our business.
Net cash used in operations was $12.2 million in 1996, $26.4 million in 1997 and $46.4 million in 1998. For the nine months ended September 30, 1999, net cash provided by operations was $2.2 million. The substantial increase in net cash used by operations from 1996 to 1998 was a result of the increase in accounts receivable and inventory levels associated with net sales growth. The net cash provided by operations in the nine months ended September 30, 1999 was a result of increased profitability and cash collections.
Net cash used in investing activities was $1.0 million in 1996, $3.7 million in 1997, $1.7 million in 1998 and $2.0 million in the nine months ended September 30, 1999. These expenditures included additions to property, plant and equipment of $2.5 million in 1996, $3.2 million in 1997, $2.8 million in 1998 and $2.5 million in the nine months ended September 30, 1999.
Net cash provided by financing activities was $19.2 million in 1996, $43.2 million in 1997, $34.5 million in 1998 and $17.2 million in the nine months ended September 30, 1999. Net cash provided by financing activities in 1996 and 1997 primarily consisted of net proceeds from the sale of preferred stock. Net cash provided by financing activities in 1998 and in the nine months ended September 30, 1999 primarily consisted of borrowings under a short-term line of credit.
Our international sales are generally denominated in local currencies. Due to the limitations on converting Renminbi, we are limited in our ability to engage in currency hedging activities in China. We do not currently engage in currency hedging activities with respect to any other currencies. Although the impact of currency fluctuations to date has been insignificant, we cannot guarantee that fluctuations in currency exchange rates in the future will not have a material adverse effect on revenues from international sales and, correspondingly, on our business, financial condition and results of operations.
We believe that the net proceeds of this offering, together with cash generated from operations and funds available under our credit facilities, will be sufficient to meet our capital requirements for at least the next 12 months. Our future cash requirements will depend on many factors, including but not limited to:
- the extent to which average sales prices for our products decline;
- the levels at which we maintain inventory;
- the timing and extent of spending to support product development;
- sales and marketing and customer support efforts;
- the timing of introductions of new products and enhancements to existing products; and
- market acceptance of our products.
To the extent that the funds generated by this offering, together with existing resources and future earnings, are insufficient to fund our future activities, we may need to raise additional funds through public or private financing, which could include the issuance of additional equity. We are also exploring the possibility of securing additional equity investments by third parties in our joint ventures in China. We cannot assure you that additional financing will be available or that, if available, such financing will be obtainable on favorable terms.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products are coded to accept only two-digit entries in date code fields. Beginning in the year 2000, these date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. Computer programs or hardware that have date-sensitive software or embedded chips and have not been upgraded to comply with these "year 2000" requirements may recognize a date using "00" as the year 1900 rather that the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities.
GENERAL READINESS ASSESSMENT. The year 2000 problem can affect the computers, software and other equipment that we use in our operations. As a result, we have instituted a year 2000 compliance plan, implemented by a team of our internal information technology staff responsible for monitoring the assessment and remediation of our year 2000 projects and reporting that status to our executive staff. This project team has assessed the potential effect and costs of remediating the year 2000 problem for our internal systems.
ASSESSMENT OF OUR PRODUCTS. We have assessed the ability of our products to operate properly in the year 2000. We believe that our current products are year 2000 compliant. Accordingly, we do not believe that the year 2000 issue presents a material exposure as it relates to our products.
ASSESSMENT OF INTERNAL INFRASTRUCTURE. We believe that we have identified most of the major computers, software applications and related equipment used in connection with our internal operations that need to be evaluated to determine if they must be modified, upgraded or replaced to minimize the possibility of a material disruption to our business. Based on a review of these computer systems, we have determined that our computer systems and applications are compliant with the year 2000 format.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers and related systems, the operation of office and facilities equipment, such as fax machines, telephone switches, security systems and other common devices, may be affected by the year 2000 problem. We have assessed the potential effect of the year 2000 problem on our office and facilities equipment and have determined that no problems exist that cannot be remediated by the replacement of relatively inexpensive equipment.
COSTS OF REMEDIATION. Our total cost of completing required modifications, upgrades or replacements of our internal systems was less than $100,000. Based on the activities described above, we do not believe that the year 2000 problem will have a material adverse effect on our business or operating results.
SUPPLIERS. As part of our review of the year 2000 problem, we have contacted third-party suppliers of components and key contractors used in the assembly of our products to identify and, to the extent possible, resolve issues involving the year 2000 problem. However, we have limited or no control over the actions of these third-party suppliers and subcontractors. Thus, while we believe that we have resolved any significant year 2000 problems with these third parties, there can be no assurance that these suppliers have resolved any or all year 2000 problems before the occurrence of a material disruption to the operation of our business. Any failure on the part of these third parties to timely resolve year 2000 problems with their systems in a timely manner could have a material adverse effect on our business.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. We believe that we have identified and resolved all year 2000 problems that could materially adversely affect our business operations before December 31, 1999. However, we believe that it is not possible to determine with complete certainty that all year 2000 problems affecting us have been identified or corrected. The number of devices and systems that could be affected and the interactions among these devices and systems are too numerous to address. In addition, no one can accurately predict whether failures will occur as a result of the year 2000 problem or the severity, timing, duration or financial consequences of these potential failures. As a result, we believe that the following consequences are possible:
- a significant number of operational inconveniences and inefficiencies for us, our contract manufacturers and our customers that will divert management's time and attention and financial and human resources from ordinary business activities;
- possible business disputes and claims, including claims under product warranty, due to year 2000 problems experienced by our customers and incorrectly attributed to our products, which we believe will be resolved in the ordinary course of business; and
- a few serious business disputes alleging that we failed to comply with the terms of contracts or industry standards of performance, some of which could result in litigation or contract termination.
CONTINGENCY PLANS. We have developed contingency plans to be implemented if our efforts to identify and correct year 2000 problems affecting our internal systems are not effective. Depending on the systems affected, these plans include:
- accelerated replacement of affected equipment or software;
- short- to medium-term use of backup equipment or software or other redundant systems;
- increased work hours for our personnel or the hiring of additional information technology staff; and
- the use of contract personnel to correct, on an accelerated basis, any year 2000 problems that arise or to provide interim alternate solutions for information system deficiencies.
Our implementation of any of these strategies could have a material adverse effect on our business.
DISCLAIMER. The discussion of our efforts and expectations relating to year 2000 compliance are forward-looking statements. Our ability to achieve year 2000 compliance, and the level of incremental costs associated therewith, could be adversely affected by, among other things, the availability and cost of contract personnel and external resources, third-party suppliers' ability to modify proprietary software and unanticipated problems not identified in the ongoing compliance review.
BUSINESS
OVERVIEW
We provide communications equipment for service providers that operate wireless and wireline networks in rapidly growing communications markets. Our integrated suite of network access systems, optical transmission products and subscriber terminal products allows service providers to offer efficient and scalable voice, data and Internet access services. Service providers can easily integrate our standards-based systems into their existing networks and deploy our systems in new broadband, Internet Protocol, or IP, and wireless network rollouts. To date, substantially all of our sales have been to service providers in China.
Our integrated suite of products consists of Airstar, AN-2000, OMUX and WACOS. Our Airstar network access system allows service providers to offer voice and data services over fixed wireless and city-wide wireless mobile networks. With over 900,000 lines installed at 12 large commercial sites, we believe that Airstar is the most widely deployed wireless local access system in China. For wireline networks, we provide a broadband-ready access system called AN-2000. Over 1.2 million lines of our wireline AN-2000 access system have been deployed in China, including deployments in the six largest regional communications markets. Our optical multiplexing, or OMUX, products provide optical transmission and are often bundled with our AN-2000 and Airstar systems. The OMUX, either as a stand-alone or bundled product, is currently installed at over 5,000 locations for over 200 communications service providers. Our newest product, WACOS, is an IP-based switch designed to deliver multiple voice and data services using a highly distributed architecture. We expect to begin initial shipments of WACOS in 2000. Our access and switching systems are currently designed to address the unique performance requirements of rapidly expanding communications infrastructure markets such as China.
INDUSTRY BACKGROUND
COMMUNICATIONS NEEDS OF DEVELOPING COUNTRIES. Demand for voice and data communications services in developing nations continues to grow rapidly and is driven by both public sector infrastructure investment and private sector business growth. The governments of many developing countries have identified the buildout of a communications infrastructure as a key driver of modernization and economic growth. According to a 1998 report by the International Telecommunication Union, developing countries are investing in communications infrastructure at a rate of $53.1 billion annually, representing 31.9% of all communications infrastructure spending worldwide. Governments are increasingly implementing and funding buildouts through privatization of state-owned telecommunications service providers. These service providers, in turn, are deploying advanced networks for voice and data services. In addition, increasingly affluent businesses and residential consumers in the highest growth regions of these countries are demanding state-of-the-art voice and data communications solutions to interact and compete on a global basis.
GROWTH IN CHINA'S COMMUNICATIONS MARKET. China has one of the fastest growing communications markets in the world. Growth in China's communications equipment and services markets is being driven by the government's commitment to infrastructure build-out, pent-up demand for communication services and robust economic growth. Dataquest estimates that the market for communications equipment and services in China will grow from $44.2 billion in 1998 to $89.9 billion in 2002, representing a compound annual growth rate of 19.4%. Dataquest forecasts that the market for access equipment in China will grow at a compound annual rate of 32.8% from 1998 to 2002. This market represents the fastest growing segment of the communications market in China and the fastest growing access equipment market in the world. China's demand for communication services is highlighted by its relatively low teledensity rate, which is a measure of the number of lines per hundred people. According to 1998 statistics from the International Telecommunication Union, China, with a
population of 1.2 billion, has a teledensity rate of only 7.0% compared to teledensity rates in Brazil of 12.1%, in Western Europe of 53.1%, in Hong Kong of 55.8% and in the United States of 66.1%. While growth in the China communications market is currently driven predominantly by voice services, the increasing demand for data services presents a growing opportunity. The Strategis Group and BDA China Limited estimate that Internet subscribers in China will grow from 2.1 million in 1998 to 40.4 million in 2003, representing a compound annual growth rate of 80.6%. China's ability to invest heavily in its communications infrastructure is fueled by the country's strong economic activity, primarily in its coastal provinces which represented 41.1% of China's gross domestic product of $961 billion in 1998. In addition, the World Bank estimates China's GDP will grow at a compound annual rate of 7% from 1999 to 2003.
STRUCTURE OF CHINA'S TELECOMMUNICATIONS INDUSTRY. Historically, the China Telecom system was the sole provider of public telecommunications services in China. In 1993, the State Council, in an effort to promote competition, began issuing licenses to new telecommunications operators including China United Telecommunications Corporation, or Unicom, a provider of mobile communication services, and Jitong Communications Co., Ltd., a provider of data communications and Internet access services. In February 1999, the State Council approved a restructuring plan for the China Telecom system. The plan separated the telecommunications operations of the China Telecom system along four business lines: fixed line, mobile, paging and satellite communications services. Under the new structure, a new state-owned company, China Mobile, holds and operates the nationwide mobile communications assets. China Mobile also controls China Telecom (Hong Kong) Limited, a public company, that operates cellular services in six of China's provinces. A new state-owned company, China Satellite, holds and operates the satellite assets. The paging operations have been merged into Unicom. China Telecom holds and operates the fixed line telephone and data communications assets. China Telecom operates through a network of approximately 2,400 local level telephone companies called Posts and Telecommunications Bureaus, or PTBs. PTBs are responsible for purchasing, installing and operating the voice and data communications services in their local markets.
GOVERNMENT REGULATION OF THE TELECOMMUNICATIONS INDUSTRY. The China telecommunications industry is regulated at the national, provincial and local levels. At the national level, the Ministry of Information Industry, or MII, regulates the industry. The MII was established in March 1998 to assume the regulatory, administrative and other governmental duties of the former Ministry of Posts and Telecommunications. The MII has broad authority to regulate all aspects of the telecommunications and information technology industries in China including managing spectrum bandwidths, setting network equipment specifications and standards, regulating the Internet and drafting laws and regulations related to the electronics and telecommunications industries. We believe that the MII's general telecommunications equipment strategy is to ensure that China's infrastructure is based on advanced open architectures that are scalable, cost efficient and quickly deployed. The MII also oversees the 33 Post and Telecommunications Administrations, or PTAs, that have regulatory responsibility over the telecommunications industry in their respective provinces. In China today, each PTA oversees all local PTBs in its region and approves a subset of telecommunications products that meet MII standards from which PTBs can then select the specific products they purchase, install and operate. Although historically the MII has shared regulation and operation of China's telecommunications industry with the China Telecom system, as part of the Chinese government's industry restructuring, the regulatory functions of the MII and the PTAs are in the process of being separated from the operational functions of the state-owned PTBs under their control. Following this separation, it is expected that the MII will act exclusively as the industry regulator and that the local PTBs will act exclusively as operators. Given the multi-level regulatory environment, equipment providers in China must generally market intensively to all three levels of the communications industry.
COMMUNICATIONS NETWORK ARCHITECTURE IN CHINA. The buildout of China's communications infrastructure involves not only installing a nationwide network of high-bandwidth fiber-optic
backbones, but also locally connecting each business and residential subscriber to these backbones. The systems of wireline or wireless connections that link local subscribers to these backbone networks are often referred to as the "last mile" or the local access network. Because of the high growth rate, geographic dispersion and diverse communications needs of residences and businesses in China, the direct wiring of subscribers to the backbone network using traditional copper connections is a lengthy, costly and inefficient process. Direct wiring of subscribers to traditional telephone switches often locks those subscribers into a limited set of communications services and limits scalability and migration to other services. In contrast, service providers in China require communications equipment that allows them to rollout different services quickly, efficiently and cost-effectively. Given the relative absence of a legacy communications infrastructure, these service providers are less constrained and thus often deploy the latest, "best-of-breed" systems with the flexibility to handle future services such as data. This is true in both the local access networks and the backbone networks.
A new trend in access network design is the use of remote nodes that push network intelligence closer to a group of subscribers, thus making it easier and more efficient to deliver multiple services from the backbone network to subscribers at the local level. These nodes use a standard digital protocol known as V5.2 to communicate with backbone networks. This open protocol allows equipment from various vendors to be interconnected seamlessly and allows service providers to deliver a variety of services from multiple backbones over the same access network thus reducing costs. By deploying small, intelligent nodes close to subscribers, service providers can deploy fewer central office switches, each covering larger areas, optimizing manageability and lowering per-subscriber cost. Because of these benefits, service providers in China are deploying open architecture switches capable of interacting with access networks at most new installations.
Another new trend can be seen in the backbone network, where an increasing portion of traffic travels across IP-based systems instead of traditional voice systems using circuit switches. IP-based architectures differ fundamentally from circuit-switched architectures in the way information travels from point to point through networks. IP-based technology does not require a dedicated connection or circuit between the callers. Instead, the caller's voice is divided into numerous small packages of information called packets. These packets are sent over the network intermixed with other packets of data, such as fax, email or Internet content, to be reassembled at the destination of the call. In contrast, traditional telephone technology requires that a circuit between the callers be established and maintained during the length of the call, and voice and data cannot easily be transmitted simultaneously over this circuit. This is inefficient because much of a phone call is silence which effectively wastes capacity on the circuit. This inefficiency has caused service providers to seek new switches based on IP-based technology.
NEEDS OF CHINA'S COMMUNICATIONS SERVICE PROVIDERS. Service providers in China often require network solutions with a suite of integrated products that address all of their access needs, including wireline and wireless, voice and data. These comprehensive product offerings enable service providers to quickly, and with minimal incremental investment, address the changing demands of their subscribers for expanded or more advanced services over time. Service providers also require solutions that are standards-based to ease installation and avoid duplicate buildout of separate networks. In addition, given the rapid growth in China's emerging communications market, network solutions must be efficient and scalable so that the same architecture can provide an affordable entry level solution for as few as hundreds of subscribers yet economically scale to hundreds of thousands of subscribers over time. Additionally, service providers in China will often require the vendors to continually develop products to meet evolving market needs and to have a local service and support presence.
Although markets such as China represent substantial opportunities for communications equipment vendors, to date, few companies have delivered the combination of leading technology, market specific products and a local presence that service providers require.
THE UTSTARCOM SOLUTION
Our wireless and wireline access and switching systems are designed to deliver the following key benefits to service providers:
INTEGRATED, COMPREHENSIVE PRODUCT OFFERING. By offering communications systems that link the backbone network, the access network and subscribers' premises, we supply service providers with solutions that enable them to quickly deploy services to subscribers. For the implementation of completely new networks, which is typical in China, service providers can choose to deploy our complete suite of product offerings. By contrast, for locations where some network infrastructure is already in place, service providers can deploy a subset of our products and integrate them into their existing networks. Furthermore, as subscriber needs evolve from voice to data, we offer solutions to meet these needs. All of our products can be managed from a single integrated management station through the use of our Netman software.
FLEXIBILITY FOR VOICE AND DATA SERVICES. We have designed our systems to offer a high degree of flexibility in terms of the number of subscribers and types of traffic delivered to those subscribers. Our equipment can be flexibly configured to offer a variety of services in response to subscriber demand. This flexibility is particularly important in China, as the communications services market is undergoing rapid change and growth. As Internet usage achieves greater penetration in China, service providers will desire systems which are designed to deliver high-speed data capability. Our access systems allow service providers to quickly and cost-effectively implement upgrades for new services, including high-speed data capability, compared to alternative solutions which may require the purchase of an entirely new system to provide these services.
LEADING PRICE AND PERFORMANCE SOLUTION. All of our products are based on a modular design, using cost effective off-the-shelf components wherever possible and realizing most of the products' added value through our software. By delivering a modular system, we allow service providers to purchase only the functionality and capacity needed and to purchase additional functionality and capacity over time as subscriber demand warrants. In response to large pent-up demand, most service providers in China are currently delivering voice services. However, we expect demand for data services to increase dramatically in China. To meet this growing demand, service providers will be able to deliver data traffic with modular upgrades to our systems rather than through large-scale purchases of replacement equipment. Furthermore, as demand for communications services in China grows, our scalable systems will allow service providers to scale up from a small initial subscriber base to hundreds of thousands of subscribers in a cost-effective and efficient manner.
STANDARDS-BASED ARCHITECTURE. Our products are designed to comply with key international open communication standards for multi-vendor interoperability, which are consistent with standards established by the MII. For example, we were one of the first companies to deliver an access system to the China market that incorporated an open interface to central office switches. This open interface, known as the V5.2 protocol, allows service providers to connect our products to equipment from multiple vendors and thus integrate multiple voice and data traffic types within one system. In this manner an operator can deploy our system for voice services first, but offer mobile or Internet services at a later time as the market for these services develops. Furthermore, our compliance with open standards lowers costs by permitting service providers to shorten evaluation times and ease integration of our products with other systems in the service providers' networks.
LOCAL PRESENCE. We have established a strong local presence in China that allows us to be responsive to the needs of service providers and their subscribers. We manufacture our products primarily at two facilities located in the cities of Huizhou in the Guangdong province and Hangzhou in the Zhejiang province that are owned by joint ventures between us and affiliates of the corresponding PTAs. By using local facilities in China, we have helped create new jobs within the provinces and have strengthened our relationships with the PTAs in some of China's most modernized and rapidly growing
provinces. We also maintain nine sales and customer support sites in China that allow us to deploy a customer support representative onsite anywhere in China within 24 hours. Our sales force develops direct relationships with decision makers at both the provincial and the local level through pre-sales design and consulting services, as well as performing more traditional product sales functions. Additionally, through our relationships at the national, provincial and local levels we receive a continuous flow of information on market changes and insight into unique service provider needs and related opportunities.
STRATEGY
Our objective is to be a leading provider of broadband, IP and wireless network equipment to high growth communications markets. The principal elements of our strategy are as follows:
LEVERAGE OUR INSTALLED BASE AS DEMAND FOR BROADBAND AND HIGH-SPEED DATA GROWS IN CHINA. We believe we are a leading supplier of both wireline and wireless access systems in China. Communications service providers currently face a large subscriber demand for voice services. Accordingly, our systems are being used primarily for voice services. However, given the increasing demand for Internet and data access in China, we believe we are well positioned to leverage our installed base of systems and service provider relationships to deliver additional data capabilities. We intend to capitalize on this opportunity by supplying systems that enable service providers to offer broadband services over copper connections through digitial subscriber line, or xDSL, technologies and over fiber optic connections. We also intend to enable high-speed data services over 64 Kilobits per second, or Kbps, wireless links.
DEVELOP PRODUCTS AND TECHNOLOGIES FOR MARKET-DRIVEN SOLUTIONS; PENETRATE EMERGING IP-BASED SWITCHING MARKET. By working closely with multiple service providers over the last five years, we have gained unique insight into future service provider requirements. For example, we developed our Personal Access System, or PAS, wireless access system in response to a market need for a low-cost, community-based mobile service. We believe PAS has been deployed in more cities in China than any other city-wide wireless mobile service. We believe increases in Internet usage, particularly voice over IP traffic, have resulted in a market need for a next-generation switching platform optimized for IP traffic. Accordingly, we have made a substantial investment in developing our WACOS IP-based switching system which we expect to ship in 2000. WACOS is designed to integrate with our existing products and to scale over time as demand for new services grows. We believe that WACOS can deliver value to service providers, as a stand-alone platform or in conjunction with expansions to our Airstar PAS system installations. We have a history of developing unique systems, such as PAS and WACOS, and we intend to continue to provide market-driven solutions to our customers.
EXPAND PRESENCE IN CHINA. We intend to further capitalize on China's large population, low teledensity and increasing demand for communications services. Since our inception, we have focused our engineering, product development and sales and marketing efforts primarily on communications equipment for China. This focus has enabled us to be a leader in this market by quickly identifying the needs of service providers in China and rapidly developing market-specific products to address those needs. We intend to expand our presence in this market by:
- increasing the number of sales and support staff and offices within China;
- developing new products to address the demands of our existing and emerging customer base;
- migrating our installed base from voice to data as market demand warrants; and
- increasing our local research and development and manufacturing capabilities.
LEVERAGE SUCCESS IN CHINA TO ADDRESS OTHER HIGH-GROWTH COMMUNICATIONS MARKETS. Since our products comply with many international standard protocols and are attractive and readily adaptable to
the requirements of service providers in many markets outside of China, we intend to leverage our success in China to penetrate other high-growth communications markets. We anticipate supplying these markets through original equipment manufacturer, or OEM, sales relationships or through the development of local sales agency and distributor relationships within the specific communications market. We are initiating this strategy with NEC Corporation, which offers our AN-2000 as an OEM through its worldwide sales organization. We have also established strategic relationships in Brazil, Colombia, India, the Philippines, Russia and other countries.
PRODUCTS
Our integrated suite of network access, optical multiplexing, subscriber terminal and IP-based switching products gives service providers in high-growth markets an efficient means to offer voice and data services. Our product lines include Airstar, AN-2000, OMUX, Netman and WACOS.
AIRSTAR
Airstar is a wireless access system that enables voice and data access over fixed and city-wide wireless links. The following diagram shows how our Airstar system is deployed.
[Diagram depicting our Airstar system.]
A typical Airstar installation consists of several remote terminals based on our AN-2000 architecture, each coupled through one or more digital radio port controllers to many small indoor and outdoor radio ports, and various subscriber terminals. The remote terminals connect to the central office switch to provide local and long distance telephone service over a standard V5.2 interface or an analog 2-wire interface for switches without V5.2 capability. This provides for an open interface to the central office switch which benefits service providers by shifting network intelligence to the access network, thus reducing reliance on costly and proprietary distributed central office switch architectures. The remote terminals pass traffic through the radio port controllers to the radio ports, which each serve multiple subscribers. From the radio port, the signal is passed to a remote subscriber terminal or handset. The air traffic controller provides wireless traffic-channel and mobility management throughout the system.
Airstar enables rapid and reliable deployment of communications services to subscriber communities where the installation of a wireline alternative may be uneconomical. Airstar can also be used in large indoor spaces such as office buildings, airports and shopping malls. Airstar is optimized for high-capacity urban or suburban traffic densities and can deliver wireline equivalent voice quality, including voice-band modem and fax support, with the advantages of simple planning for radio siting, immunity to inter-radio interference, low power consumption and scalability. Our Airstar system operates in China in the 1900-1915 MHz band allocated by the Radio Regulatory Bureau of the MII.
Service providers have installed our Airstar system at 12 large commercial sites in China representing a total installed base of over 900,000 lines. We currently offer the Airstar for two different applications: Personal Access System, or PAS, and wireless local loop, or WLL.
PERSONAL ACCESS SYSTEM
PAS provides city-wide wireless mobile phone service for a community of up to several hundred thousand subscribers at traffic densities of upwards of 2,000 subscribers per square kilometer. PAS targets first-time subscribers, second line subscribers and small businesses. PAS provides distinct benefits to both service providers and subscribers. Service providers can quickly illuminate entire communities with strategically located low-power radios, creating the potential for new revenue streams from city-wide mobile service. Additionally, compared to traditional cellular systems, PAS mobility functions are completely integrated into the access network architecture and thus require no central office switch modification or incremental mobile switching hardware. By integrating PAS into the existing access network, service providers can take advantage of unused central office switching capacity to carry incremental wireless traffic loads. This integration also allows a service provider to offer existing switch-based services, such as caller ID, call forwarding, and voice mail, to its wireless subscribers. Subscribers benefit from rapid service activation and enjoy the mobility of small handsets weighing less than three ounces with over 800 hours of standby battery capacity and up to 6.5 hours of talk time. We have contracted with multiple Japanese vendors to manufacture a variety of handsets under the UTStarcom label.
With the PAS system, a service provider does not need to modify its existing billing system. However, PAS does provide separate call detail records that the service provider can use for specific mobility-related billing policies such as premium billing for roaming calls or wireless data calls, or for pre-paid PAS services.
An additional benefit of PAS is its support of wireless data transmission of 32Kbps, upgradeable to 64Kbps. This enables wireless Internet access at speeds faster than those possible with many wireline dial-up modems. We believe PAS allows faster Internet access than other wireless technologies currently commercially deployed in China.
WIRELESS LOCAL LOOP
WLL provides for fixed, as opposed to mobile, wireless network access. In a WLL deployment, small and inexpensive radios located strategically throughout the service area provide a wireless digital link to the subscriber's home or business. We believe this offers both a cost and time-to-market advantage over some traditional copper deployments. A fixed subscriber unit located in the subscriber's home or business converts the wireless signals to a standard analog telephone interface that can be distributed through conventional inside-building wiring.
AN-2000
Our AN-2000 is a digital wireline network access system that delivers a variety of services to subscribers over copper, fiber or microwave radio links. These services include:
- traditional analog voice;
- dialed voice and data in digital format over integrated services digital network, or ISDN, lines;
- analog leased lines; and
- business data services over integrated digital subscriber line, or IDSL, and high-data-rate digital subscriber line, or HDSL.
Service providers have deployed over 1.2 million AN-2000 subscriber lines. In response to a developing market need, in the second half of year 2000 the AN-2000 will be enhanced to enable high-performance, always-on Internet access for residential and business subscribers using advanced asymmetric digital subscriber line, or ADSL, technology.
The following diagram depicts a typical AN-2000 deployment.
[Diagram depicting our AN-2000 system.]
The AN-2000 system consists of both central office terminals and remote terminals which are linked together to form a digital access network using copper, fiber or microwave radio. The AN-2000 connects to the access ring through either our OMUX product or a high performance robust transmission technology, known as synchronous digital hierarchy, or SDH. A central office AN-2000, or CT, connects the access ring to Internet access, local and long distance and dedicated data services. A remote AN-2000, or RT, connects to the access ring and offers voice and data services to the subscribers. A regional access network has the potential to contain hundreds of AN-2000s servicing hundreds of thousands of subscribers.
The AN-2000 provides several important features which together form a cost-effective access platform for the delivery of voice and data services. We were among the earliest to offer a V5.2 switch interface to the China market. This capability benefits service providers by shifting network intelligence out into the access network, reducing reliance on costly and proprietary distributed central office switch
architectures. In addition, we designed the AN-2000 to provide high capacity, scalability and redundancy, offering reliable operation and economical service management. For service providers whose switches are not yet V5.2 compliant, we provide a migration capability whereby the AN-2000 terminates analog and ISDN ports in the central office, effectively creating a V5.2 interface to the remote AN-2000s. We believe that the AN-2000 is currently the leading system available that can convert existing analog central office interfaces to V5.2.
Our OMUX product, which converts data transmission between electrical and optical formats, is often bundled with our Airstar and AN-2000 systems. Together, these products can comprise a complete access platform. In addition to bundled sales, the OMUX is used by cellular service providers to connect base station controllers to base stations and by other enterprises for private data networks and data collection applications.
The primary advantage of the OMUX is its ability to offer highly competitive price and performance characteristics to service providers, particularly in low capacity implementations. The OMUX employs our SPDH technology, which provides the reliability of higher priced synchronous digital hierarchy, or SDH, networks for lower capacity access networks and enables highly reliable operations. The OMUX is available in varying capacities depending on network configuration and service provider requirements. To date, service providers have deployed the OMUX at over 5,000 locations, both as a stand-alone product and bundled with Airstar and AN-2000.
NETMAN
Our Netman network management system, which is integrated with our network access products, provides for centralized management of our Airstar, AN-2000 and OMUX products. Netman provides the ability to manage individual network components and to report the status of the network as a whole. It runs on a personal computer using a Microsoft Windows-based graphical user interface software. With Netman, a service provider can add and drop subscribers independently, saving configuration and installation time. Netman can continuously monitor all access network elements, providing for real-time reporting and alarms in addition to performance management and optimization and distribution of software updates. The scalability of Netman allows a single system to serve an entire distributed network of up to several thousand remote nodes under normal network conditions. Netman can also be installed on a portable personal computer to be used as the local on-site maintenance terminal wherever remote nodes are installed.
WACOS
Our WACOS system is an IP-based switching system which is deployed as a layered network architecture designed to support end-to-end communications and data services. The WACOS system supports communication between legacy telephone equipment and next-generation IP devices. In addition, operational support system, or OSS, software provided with WACOS enables management of WACOS equipment, billing for WACOS services and customer care for WACOS subscribers. The use of IP technology to transmit voice and data over a single network enables the use of lower cost equipment and improves bandwidth efficiency for service providers. This results in a wider variety of communications applications at lower per subscriber cost. The WACOS family includes:
- PSTN Gateway devices which support connection to the public switched telephone network, or PSTN, through standard interfaces;
- Wireless Gateways which support expansion of PAS networks; and
- OSS Server Cluster which supports management, billing and customer care functions.
The following diagram depicts our WACOS system.
[Diagram depicting our WACOS system.]
MARKETS AND CUSTOMERS
Market opportunities within China's 31 provinces vary greatly by region, with the more densely populated coastal provinces experiencing the strongest economic development. While we provide our communications equipment to PTBs in a wide variety of provinces, to date, we have focused on marketing and selling our products to PTBs in Guangdong, Zhejiang, Fujian, Shandong and Jiangsu provinces and the municipality of Shanghai. The PRC State Statistical Bureau estimates that in 1997, these six regions represented 26.3% of China's population and 41.1% of China's gross domestic product. These regions also represent a disproportionately high percentage of China's wireline and wireless subscribers and influence adoption of technology among other regions. While each of the PTBs is part of the China Telecom system and subject to its ultimate control, equipment purchasing decisions are generally made at the individual PTB level.
The following table is a list of our customers in China who have each purchased more than $200,000 of our products during 1999.
BEIJING MUNICIPALITY
Beijing PTA
The People's Bank of China
FUJIAN PROVINCE
Fujian CUIEC
Putian PTB
Quanzhou PTB
GANSU PROVINCE
Shizhuishan PTB
GUANGDONG PROVINCE
Foshan PTB
Guangzhou PTB
Huizhou PTB
Shengda Telecommunication Co.
Shenzhen PTB
Yunfu PTB
Zhaoqing PTB
GUIZHOU PROVINCE
Agriculture Bank in
Gui Yang City
HEBEI PROVINCE
Baoding PTB
Huabei Oil Field
HEILONGJIANG PROVINCE
Haerbin PTB
HUBEI PROVINCE
Wuhan CUIEC
JIANGSU PROVINCE
Changzhou PTB
Kunshan Power Supplier
Administration
Taizhou PTB
Xuzhou PTB
LIAONING PROVINCE
Shenyang PTB
NINGXIA PROVINCE
Pingluo PTB
Wuzhong City PTB
SHAANXI PROVINCE
Xi'an PTB
SHANDONG PROVINCE
Dongying PTB
Jinan PTB
Jining PTB
Qingdao CUIEC
Qingdao PTB
Zhoucheng PTB
SHANGHAI MUNICIPALITY
Songjiang PTB
SHANXI PROVINCE
Datong PTB
SICHUAN PROVINCE
Chengdu PTB
Chongqing PTB
TIANJIN MUNICIPALITY
Dezun Tel. & Comm.
Material Co.
YUNNAN PROVINCE
Kunming PTB
ZHEJIANG PROVINCE
Hangzhou PTB
Ningbo PTB
Ruian PTB
Shaoxing PTB
Shengzhou PTB
Xiaoshan Tel. & Comm.
Material Co.
Yuhang PTB
Zhejiang CUIEC
Zhuji PTB
We also sell our network access equipment to service providers in high growth communications markets outside of China. Markets outside of China will account for less than 1.0% of our total sales in 1999.
SALES, MARKETING AND CUSTOMER SUPPORT
We pursue a direct sales and marketing strategy in China, targeting sales to individual PTBs and to manufacturers or equipment distributors with closely associated customers. We maintain sales and customer support sites in Beijing, Shanghai, Guangzhou, Shenyang, Wuhan, Xi'an, Hangzhou, Jinan and Chengdu. We also sell through relationships with regional government-owned telecommunications manufacturing companies, which act as agents in the sale of our products to PTBs.
We believe our customer support services allow us to distinguish ourselves from competing equipment providers and build customer loyalty. The customer service operation in Hangzhou is co-located with the manufacturing joint venture and serves as both a technical resource and liaison to our product development organization. In China, customer service technicians are distributed in the regional sales and customer support sites to provide a local presence. We provide additional support on a 24-hour, 365-day basis from the customer support center in Hangzhou in the form of field dispatch
personnel, who also provide training on installation, operation and maintenance of equipment. As of December 1, 1999, we employed 406 people in sales, marketing and customer support.
Our sales efforts in markets outside of China combine direct sales, original equipment manufacturer, or OEM, sales and manufacturing licensing. Our OEM sales focus on the AN-2000. Our most significant customers outside of China are NEC, which will sell the AN-2000 under a private label, and Kyocera Corporation, which incorporated the AN-2000 into its wireless local loop product. Itochu Corporation and Kanematsu Corporation have also helped us sell our products outside of China.
TECHNOLOGY
Our research and development efforts have led to the creation of key technologies that have contributed to the success of our products in the marketplace.
V5.2 PROTOCOL AND DYNAMIC SWITCHING. The AN-2000 and Airstar intelligent call processor and 2,048 timeslot interchange allow these systems to fully exploit the power of the V5.2 interface protocol between the central office switch and access node, which requests voice channel allocation from the switch on a call-by-call basis. Since most subscriber telephones are idle most of the time, a small number of channels can be shared by many subscribers, saving money and increasing reliability. The AN-2000 and Airstar can economically split a large bundle of V5.2 voice channels from the central office switch into many smaller, more economical bundles to be transmitted to the remote access nodes that may contain fewer subscribers than the switch is optimized for. This capability increases switch utilization, reduces the number and expense of V5.2 interfaces provided by the central office switch and economically allows the deployment of many small remote access nodes. Our V5.2 interface product is extensively deployed throughout China and is interoperable with the products of major switch vendors.
SDH OPTICAL TRANSMISSION. Service providers have widely chosen to adopt and deploy fiber optic transmission systems conforming to the synchronous digital hierarchy, or SDH, standard promulgated by the International Telecommunications Union. The SDH standard is the international equivalent of the North American SONET standard. The SDH standards for first tier capacity allow up to 1,953 information channels to be transmitted over optical fiber between nodes that can be structured in a redundant ring configuration. If the fiber in the ring is cut accidentally, the SDH system can recover its operation immediately and maintain service while the cut is repaired. The AN-2000 fully integrates the SDH fiber with self-healing ring capability into a single plug-in module in contrast to earlier generation equipment that required a separate external SDH multiplexer. This configuration saves expense and provides a simple unified management structure for the SDH and access node functions.
AIRSTAR MOBILITY MANAGEMENT. We have developed a specially configured AN-2000 node, called the air traffic controller, or ATC, in the PAS to provide the function of wireless traffic-channel and mobility management. Airstar subscribers are assigned wireless traffic channels at the time they become active on a call and the precise channel may be different from call to call or, in the case of PAS users, may change during a call, because of variable channel availability and also movement of the subscriber. The ATC collects all of these dynamically assigned channels and re-maps them to fixed channels on the access network interface, providing wireless benefits without alteration of the access network. Service providers can mix and match wireline and wireless service delivery in a seamless manner without regard for access network compatibility or special provisioning. Airstar PAS can manage hundreds of thousands of air traffic channels by arranging a network of ATCs into a two-stage configuration with regional nodes handling local traffic and a network of central nodes handling traffic between regional nodes.
WACOS IP-BASED SWITCHING AND SERVICE DELIVERY PLATFORM. The WACOS system is deployed as a layered network architecture designed to support end-to-end communications and data services. This type of architecture is rapidly gaining worldwide acceptance with a large number of vendors and service
providers cooperating in the creation of new standards for IP-based networks. In the WACOS implementation, unlike current telephone networks, service providers and subscribers are able to quickly and easily deploy new services and features based on these emerging standard protocols.
WACOS is a complete telecommunications system that offers technology at several levels:
- TRADITIONAL PHONES AND IP APPLIANCES. Innovative protocols used by WACOS provide support for traditional telephone service and provide the foundation for next-generation IP-based appliances such as IP-enabled cell phones and personal digital assistants.
- IP ACCESS NETWORK. The WACOS gateway converts between legacy telephony protocols such as SS7 and V5.2 and modern IP-based services. The gateway provides an open platform for the development of enhanced services, such as unified messaging, by us or third party developers.
- BACKBONE NETWORK. WACOS relies on industry standard IP-based network architecture. Initially based on widely deployed IP over asynchronous transfer mode, or ATM, technology, WACOS is capable of economical upgrade to emerging packet over SONET and gigabit ethernet standards.
- OPERATIONAL SUPPORT SYSTEM. The operational support system, or OSS, is implemental using industry-standard computing platforms based on Windows NT or Unix, depending on customer preference. The OSS allows service providers to flexibly tailor billing policies and allows subscriber self-provisioning through on-line account access. Web-based graphic user interfaces provide precise management information to support staff with minimal training requirements, reducing operational costs.
RESEARCH AND DEVELOPMENT
We believe that continued and timely development and introduction of new and enhanced products are essential if we are to maintain our competitive position. While we use competitive analyses and technology trends as factors in our product development plans, the primary input for new products and product enhancements comes from soliciting and analyzing information about service providers' needs. Our MII, PTA and PTB relationships and full-service post-sale customer support provide our research and development organization with insight into trends and developments in the marketplace. The insights provided from these relationships allowed us to develop unique, market-driven products such as PAS and WACOS. Current projects include the development of:
- high speed IP-based switching technologies;
- locator functions for Airstar PAS;
- broadband ADSL delivery for AN-2000 and the WACOS network;
- increased wireless data rates for Airstar PAS;
- significantly enhanced network management capabilities; and
- an OMUX product using the SDH architecture.
We maintain a strong relationship between our U.S. and China research centers. Projects are typically designed and developed in the United States by one team and tested in China by another, allowing us to conduct research and development activities 24 hours a day. We rotate engineers between the U.S. and China research centers to further integrate our research and development operations. We have been able to cost-effectively hire highly skilled technical employees from a large pool of qualified candidates in China. Our research and development efforts are conducted at the following facilities:
- The New Jersey Technical Center, with 94 engineers as of December 1, 1999, provides technical leadership on PAS and AN-2000 developments, including hardware and software development,
system engineering and system architecture, as well as project management and engineering methodology.
- The Hangzhou Technical Center, with 61 engineers as of December 1, 1999, takes leadership on most transmission system developments, and also participates in AN-2000 and PAS projects, performing software, hardware and mechanical design. It also provides manufacturing engineering support, high-level field support and takes the lead in operations systems development for the China market.
- The Alameda Technical Center, with 35 engineers as of December 1, 1999, focuses primarily on IP gateways and distributed switching for wireless communications.
- The Hefei Technical Center, with 25 engineers as of December 1, 1999, focuses on the development of wireless technology. The Hefei facility is located at the University of Science and Technology of China.
In the past we have made, and expect to continue to make, significant investments in research and development. Our research and development expenditures totaled $3.9 million in 1996, $8.2 million in 1997, $12.7 million in 1998 and $12.5 million in the nine months ended September 30, 1999.
MANUFACTURING, ASSEMBLY AND TESTING
We manufacture or engage in the final assembly and testing of our Airstar systems, AN-2000 and OMUX products at the facilities of our two manufacturing joint ventures in China. In Zhejiang province, we have a joint venture with Zhejiang Telecommunication Equipment Factory. In Guangdong province, we have a joint venture with Guangdong Nanfang Communications Group Corporation. These manufacturing operations consist of circuit board assembly, final system assembly, software installation and testing. We assemble circuit boards primarily using surface mount technology. Assembled boards are individually tested prior to final assembly and tested again at the system level prior to system shipment. We use internally developed functional and parametric tests for quality management and process control and have developed an internal system to track quality statistics at a serial number level.
Both the Guangdong and the Zhejiang manufacturing facilities are ISO 9002 certified. ISO 9002 certification requires that the certified entity establish, maintain and follow an auditable quality process including documentation, requirements, development, training, testing and continuous improvement and which is periodically audited by an independent outside auditor.
We have contracted with Matsushita Electric Industrial Co., Ltd., which distributes products under the Panasonic brand, to manufacture the Airstar wireless infrastructure components and handsets for distribution under the UTStarcom label. We have also contracted with Kyocera Corporation to provide handsets under the UTStarcom label and with Sharp Corporation to provide handsets and repeaters under the UTStarcom label. Our AN-2000 product line integrates some third party products for subscriber premises equipment and testing. In order to gain more control over the quality of the products, further reduce the cost and ease restrictions on China's import license quotas, we have started and will continue local assembly of the wireless infrastructure components and handsets in China. We anticipate that we will enter into arrangements with third parties to manufacture handsets in China. We also intend to develop the capacity to manufacture our own handsets.
STRATEGIC RELATIONSHIPS
We benefit from strategic relationships with other major companies that act as our suppliers, investors and customers. SOFTBANK CORP. is a major investor in our company and holds two seats on our Board of Directors. Prior to this offering, we intend to establish an investment fund with SOFTBANK focused on investments in Internet companies in China. Intel Pacific, Inc., a wholly owned
subsidiary of Intel Corporation, is another one of our investors. We have agreed to work together with Intel to evaluate and develop new technologies primarily related to our IP-based switching systems. Matsushita Communication Industrial Co., Ltd. is a major supplier of radio and terminal equipment for the Airstar system, and is also an investor and has funded custom developments related to the WACOS system. Mitsubishi Electric Corporation has also invested in our company. Affiliates of the Guangdong and Zhejiang PTAs are our manufacturing joint venture partners in China. We have entered into a memorandum of understanding with Himachal Futuristic Communications Ltd. to manufacture our AN-2000 system for the Indian market. NEC Corporation is marketing our AN-2000 system under a private label worldwide.
COMPETITION
We face intense competition in our target markets and expect competition to increase. Our principal competitors in our various product lines include:
- AIRSTAR SYSTEM: Alcatel Alsthom CGE, S.A.; Ericsson LM Telephone Co.; Huawei Technology Co., Ltd.; Lucent Technologies, Inc.; Motorola, Inc.; NEC Corporation; Siemens AG; and Zhongxing Telecommunications Equipment.
- AN-2000 AND OMUX: Advanced Fibre Communications, Inc.; Alcatel; Bosch Telecom GmbH; ECI Telecom Ltd.; Ericsson; Fujitsu Limited; Huawei; Lucent; NEC; Nokia Corporation; Shanghai Bell Alcatel Mobile Communication; Siemens; and Zhongxing.
- WACOS SYSTEM: Alcatel; Cisco Systems, Inc.; Clarent Corporation; Ericsson; Huawei; Lucent; Motorola; Nokia; Nortel Networks Corporation; Nuera Communications, Inc.; Siemens; Tachion Networks, Inc.; and Vienna Systems Corp.
We are increasingly facing competition from domestic companies in China. We believe that our strongest competition in the future may come from these companies, many of which operate under lower cost structures and more favorable governmental policies and have much larger sales forces than we do. Furthermore, other companies not presently offering competing products may also enter our target markets. Many of our competitors have significantly greater financial, technical, product development, sales, marketing and other resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in service provider requirements. Our competitors may also be able to devote greater resources than we can to the development, promotion and sale of new products. These competitors may also be able to offer significant financing arrangements to service providers, in some cases facilitated by government policies, which is a competitive advantage in selling systems to service providers with limited financial and currency resources. Increased competition is likely to result in price reductions, reduced gross profit as a percentage of net sales and loss of market share, any one of which could materially harm our business, financial condition and results of operations.
Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties, including PTAs, PTBs and other local organizations, to increase the ability of their products to address the needs of prospective customers in our target markets. Accordingly, alliances among competitors or between competitors and third parties may emerge and rapidly acquire significant market share. To remain competitive, we believe that we must continue to partner with PTAs and other local organizations, maintain a high level of investment in research and development and in sales and marketing, and manufacture and deliver products to service providers on a timely basis and without significant defects. If we fail to meet any of these objectives, our business, financial condition and results of operations could be harmed.
The introduction of inexpensive wireless telephone service or other competitive services in China may also have an adverse impact on sales of our Airstar system in China. We cannot assure you that
we will be able to compete successfully against current or future competitors or that competitive pressures in the future will not materially adversely effect our business, financial condition and results of operations.
We believe that the principal competitive factors affecting the market for our network access products include:
- total initial cost of solution;
- short delivery and installation intervals;
- design and installation support;
- ease of integration with the backbone network;
- flexibility in supporting multiple interfaces and services
- life-cycle cost determined by reliability; and
- manageability of the solution and scalability.
We believe we have in the past generally competed favorably with offerings of our competitors on the basis of these factors. However, we may not be able to compete effectively against current and future competitors based on these or any other competitive factors in the future, and the failure to do so would have a material adverse effect on our business, financial condition and results of operations.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part on our proprietary technology. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect our proprietary rights. To date, we have relied primarily on proprietary processes and know-how to protect our intellectual property. We presently hold one U.S. patent for existing products and have submitted ten U.S. patent applications and four foreign patent applications. We cannot assure you that any of our patent applications will be granted or that any patents issued will cover the scope of the claims sought in the applications. Our U.S. patents do not afford any intellectual property protection in China or other international jurisdictions. Moreover, we have not yet obtained patents in China. We can give no assurance that we will be able to obtain patents in China on our products or the technology that we use to manufacture our products. Our joint ventures in China rely upon our trademarks, technology and know-how to manufacture and sell our products. Under the terms of our joint venture agreements, any modifications or enhancements to or derivatives of our intellectual property developed by the joint ventures will be owned by the joint ventures. Any infringement of our proprietary rights could result in significant litigation costs, and any failure to adequately protect our proprietary rights could result in our competitors offering similar products, potentially resulting in loss of a competitive advantage and decreased revenues. Despite our efforts to protect our proprietary rights, existing patent, copyright, trademark and trade secret laws afford only limited protection. In addition, the legal systems of some foreign countries, including China, do not protect our proprietary rights to the same extent as does the legal system of the United States. Attempts may be made to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. Accordingly, we may not be able to prevent misappropriation of our technology or deter others from developing similar technology. Furthermore, policing the unauthorized use of our products is difficult. Litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. This litigation could result in substantial costs and diversion of resources and could significantly harm our business.
The communications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. 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. Any claims asserting that our products infringe or may infringe proprietary rights of third parties, if determined adversely to us, could significantly harm our business. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert the efforts of our technical and management personnel, cause product shipment delays or require us to enter into royalty or licensing agreements, any of which could significantly harm our business. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. In the event a claim against us was successful and we could not obtain a license to the relevant technology on acceptable terms or license a substitute technology or redesign our products to avoid infringement, our business would be significantly harmed.
We have an agreement with a third party that also uses the Airstar trademark for one of its products. Under the terms of this agreement, we have rights to the Airstar trademark in China and the third party has trademark rights outside of China.
EMPLOYEES
As of December 1, 1999, we employed a total of 877 full-time employees. We also from time to time employ part-time employees and hire contractors. Of the total number of full-time employees, 215 are in research and development, 135 in manufacturing, 406 in marketing, sales and support, and 121 in administration. We have 720 employees located in China, including 212 employees at the Zhejiang manufacturing joint venture, with the remaining 157 employees located in the United States. In addition, the Guangdong manufacturing joint venture has 119 employees. Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. We believe that our employee relations are good.
FACILITIES
Our corporate headquarters are located in a 25,756 square foot leased facility in Alameda, California. We use this facility for sales, marketing, administration, purchasing and research and development. Our lease expires in January 2003. Our main research and development facility is located in a 27,238 square foot facility in Iselin, New Jersey, under a lease which expires in July 2002. We also have research and development facilities in Hefei and Hangzhou. We lease two facilities in China for manufacturing and multiple offices for sales, marketing, support and administration in China. Our Zhejiang joint venture manufacturing facility is a 83,926 square foot facility with a lease that expires in March 2002. Our Guangdong joint venture manufacturing facility is a 44,250 square foot facility with a lease that expires on December 31, 1999. We are currently renegotiating this lease. We believe our current facilities are well maintained, are in good operating condition and will be adequate to meet our anticipated level of operations over the next twelve months.
LEGAL PROCEEDINGS
We may become involved in legal proceedings from time to time in the ordinary course of business. As of the date of this prospectus, we are not involved in any pending material legal proceedings.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages as of September 30, 1999, are as follows:
NAME AGE POSITION(S)
---- -------- -----------
Masayoshi Son............................. 42 Chairman of the Board of Directors
Hong Liang Lu............................. 44 President, Chief Executive Officer and
Director
Ying Wu................................... 40 Vice Chairman of the Board of Directors,
Executive Vice President and Chief
Executive Officer, China Operations
Michael Sophie............................ 42 Vice President of Finance, Chief Financial
Officer and Assistant Secretary
Bill Huang................................ 37 Vice President, Chief Technology Officer
Shao-Ning J. Chou......................... 37 Executive Vice President and Chief
Operating Officer, China Operations
Paul Berkowitz............................ 47 Vice President, International Sales
Gerald Soloway............................ 50 Vice President, Engineering
Yoshitaka Kitao........................... 48 Director
Charles Xue............................... 46 Vice Chairman of the Board of Directors
and Secretary
Thomas J. Toy............................. 44 Director
Chauncey Shey............................. 42 Director
|
MASAYOSHI SON has been our Chairman of the Board since October 1995. For more than 15 years, Mr. Son has been President and Chief Executive Officer of SOFTBANK CORP., a leading global provider of Internet content, technology and services. Mr. Son is currently a director of Cisco Systems, Inc., E*Trade Group, Inc. and Ziff-Davis, Inc. Mr. Son holds a B.A. in Economics from the University of California at Berkeley.
HONG LIANG LU has been our President and Chief Executive Officer and a director since June 1991. Mr. Lu co-founded UTStarcom under its prior name, Unitech Telecom, Inc., in June 1991 which subsequently acquired StarCom Network Systems, Inc. in September 1995. From 1986 through December 1990, Mr. Lu was President and Chief Executive Officer of Kyocera Unison, a majority-owned subsidiary of Kyocera International, Inc. From 1983 until its merger with Kyocera in 1986, he was President and Chief Executive Officer of Unison World, Inc., a software development company. From 1979 to 1983 he was Vice President and Chief Operating Officer of Unison World, Inc. Mr. Lu holds a B.S. in Civil Engineering from the University of California at Berkeley.
YING WU has been our Executive Vice President and Vice Chairman of the Board of Directors since October 1995. Mr. Wu has also been the President of one of our subsidiaries, UTStarcom China, since October 1995. From 1992 to 1995, Mr. Wu was a co-founder and co-owner of StarCom Network Systems, Inc., a company that marketed and distributed third party telecommunications equipment. From 1988 to 1991, Mr. Wu was a member of the technical staff of Bellcore Laboratories. From 1987 through 1988, Mr. Wu was a consultant at AT&T Bell Labs. He holds a B.S. in Electrical Engineering from Beijing Industrial University and an M.S. in Electrical Engineering from the New Jersey Institute of Technology.
MICHAEL SOPHIE has been our Vice President of Finance and Chief Financial Officer since August 1999. Prior to joining our company, Mr. Sophie held executive positions at P-Com, Inc. from August 1993 to August 1999 as Vice President Finance, Chief Financial Officer and Group President. From 1989 through 1993, Mr. Sophie was Vice President of Finance at Loral Fairchild Corporation. He holds
a B.S. degree from California State University, Chico and an M.B.A. from the University of Santa Clara.
BILL HUANG has been our Chief Technology Officer since September 1999. From December 1996 to September 1999, he was our Vice President of Strategic Product Planning. From June 1995 to December 1996, Mr. Huang served as our Vice President, China Operations. From 1994 to June 1995, Mr. Huang was our Director, Engineering. From 1992 to 1994, he was a Member of the Technical Staff and Project Leader at AT&T Systems. Mr. Huang serves on the board of Shenzhen Gin De (Group) Ltd., a real estate investment company in China. Mr. Huang holds a B.S. in Electrical Engineering from Huazhong University of Science & Technology, and an M.S. in Electrical Engineering and Computer Sciences from the University of Illinois.
SHAO-NING J. CHOU has been our Executive Vice President and Chief Operating Officer of China Operations since January 1999. From April 1997 to January 1999, he was Vice President of China Operations and from July 1996 to April 1997, he served as Vice President of Engineering. From 1995 to 1996, he was director of engineering for wireless systems and software with Lucent Technologies Microelectronics IC group. From 1993 to 1995, he was a Technical Manager for the Global Wireless product group with AT&T consumer products where he led multiple development teams for handset and wireless personal base station products. From 1985 to 1993, Mr. Chou was team leader and a member of the technical staff for advanced digital communication research in Bell Laboratories where he led and engaged in data communication equipment and multimedia product development. Mr. Chou holds a B.S. in Electrical Engineering from City College of New York, an M.S. in Engineering from Princeton University and an M.B.A. from the State University of New Jersey, Rutgers.
PAUL BERKOWITZ has been our Vice President of International Sales since July 1997. From July 1996 to July 1997, he was our Vice President of Product Management & Planning, and from January to June 1996, he served as our Vice President of Engineering. From 1994 to 1995, Mr. Berkowitz was Director of Application Software of AT&T Network Systems where he managed, among other things, an international team in marketing, architecture, and development of software involving a portfolio of advanced GUI and client-server products for telecommunications services. Between 1992 and 1994, he led the planning and development effort for a 1 Gigabit/sec Asynchronous Transfer Mode switch support Wide Area Network services including TDM and Frame Relay in the AT&T Paradyne Unit. Mr. Berkowitz has been granted four patents and holds a B.S. and an M.S. in Electrical Engineering from Columbia University.
GERALD SOLOWAY has been our Vice President of Engineering since January 1999. From April 1998 to January 1999, he served as our Director of Strategic Marketing. Prior to this, Dr. Soloway worked for Lucent Technologies, formerly Bell Labs, for 29 years. At Lucent, Dr. Soloway held executive positions in Consumer Products, Business Terminal Development, PBX Systems Engineering, Key System Development and Access Systems Development. He holds a Ph.D. from Polytechnic Institute of New York, an M.S. from New York University, and a B.S. from Cooper Union, all in Electrical Engineering. Dr. Soloway also holds seven patents in communications and computer graphics technology.
YOSHITAKA KITAO has been a director since April 1998. Mr. Kitao has served as Executive Vice President and Chief Financial Officer of SOFTBANK CORP. since July 1995 and President and Chief Executive Officer of SOFTBANK Contents Partners Corporation since May 1997. From June 1992 to May 1995, Mr. Kitao was the general manager of the Corporate Finance and Service department of Nomura Securities Co., Ltd. Mr. Kitao is a director of INSWEB Corporation and Ziff-Davis, Inc. Mr. Kitao holds a B.A. in Economics from Keio University and a B.A. in Economics from Cambridge University.
CHARLES XUE has been our Vice Chairman of the Board of Directors since 1995. Prior to our acquisition of StarCom Network Systems, Inc., from 1991 to 1995, Mr. Xue served as our Chairman of
the Board. Mr. Xue has served as Chairman of the Board and Chief Executive Officer of C&A Investment, Inc., a real estate investment company, since 1989 and Chairman of the Board and Chief Executive Officer of United Medical Industrial Group Inc. since 1991. Mr. Xue is a director of Asia Pacific Wire & Cable Corporation Limited. Mr. Xue has an M.A. in Asian Studies with a specialization in Chinese foreign relations from the University of California at Berkeley and is a graduate of the Master's program of the Beijing Academy of Social Science.
THOMAS J. TOY has been a director since July 1995. Mr. Toy is managing director of PacRim Venture Partners, a professional venture capital firm specializing in investments in the information technology sector. Prior to that he was a partner at Technology Funding, a professional venture capital firm, from 1987 to 1999. While at Technology Funding, Mr. Toy was Managing Director of Corporate Finance and headed the firm's investment committee. Mr. Toy is also a director of White Electronic Designs Inc. Mr. Toy holds B.A. and M.M. degrees from Northwestern University.
CHAUNCEY SHEY has been a director since October 1995. From October 1995 to July 1999, Mr. Shey was our Executive Vice President in charge of Research and Development. From March to October 1995, he was Executive Vice President of StarCom Network Systems, Inc., where he worked in research and development as well as in operation and strategy planning. From March 1991 to March 1995, he was Executive Vice President of StarCom Products, Inc., a consulting business that developed software products and provided expertise in the fields of computers and telecommunications. In that position he was responsible for operations, financial management and marketing. From December 1990 to December 1991, Mr. Shey was a consultant at Bell Labs. He holds a B.S. in Electrical Engineering from Shanghai Jiao Tong University and an M.S. in Computer Science from the State University of New York at New Paltz.
CLASSIFIED BOARD OF DIRECTORS
Our Board of Directors will be divided into three classes of directors who will serve in staggered three-year terms upon the closing of this offering. As a result, approximately one-third of the Board of Directors will be elected each year. Provisions in our bylaws and certificate of incorporation allow the Board of Directors to fill vacancies on or increase the size of the Board of Directors. These provisions, along with having a classified board of directors, may make it difficult for our stockholders to remove incumbent directors and fill vacancies with their own nominees to gain control of the Board.
Our Board of Directors has designated that Messrs. Toy and Xue will serve as Class I Directors, whose terms expire at the 2000 annual meeting of stockholders. Messrs. Kitao and Shey will serve as Class II Directors whose terms will expire at the 2001 annual meeting of stockholders. Messrs. Lu, Son and Wu will serve as Class III Directors whose terms will expire at the 2002 annual meeting of stockholders.
BOARD COMMITTEES
Our Board of Directors has established three standing committees: the Executive Committee, the Audit Committee and the Compensation Committee. The Executive Committee approves and authorizes material agreements and obligations up to $3.0 million in value. The Executive Committee consists of Messrs. Lu, Kitao and Toy.
Among other functions, the Audit Committee makes recommendations to the Board of Directors regarding the appointment of independent auditors for the annual audit of our financial statements, reviews the results and scope of the audit and other services provided by our independent auditors, reviews our financial statements, and reviews and evaluates our internal audit and control functions. The Audit Committee consists of Messrs. Kitao, Toy and Xue.
The Compensation Committee reviews and approves the compensation and benefits of our executive officers, grants stock options under our stock option plans and makes recommendations to the Board of Directors regarding these matters. The Compensation Committee consists of Messrs. Toy and Xue.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Board or the Compensation Committee and the board of directors or compensation committee of any other company and no interlocking relationship has existed in the past.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their service on the Board or any Committee of the Board. They are entitled to reimbursement of all reasonable out-of-pocket expenses incurred in connection with their attendance at Board or Committee meetings. To the extent that a director is an employee, the director can participate in our 1997 stock plan and, upon stockholder approval, in our 2000 employee stock purchase plan.
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation received during the fiscal year ended December 31, 1998 by our Chief Executive Officer and each of our other four most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
--------------------------- -------- -------- ------------ ------------ ---------------
Hong Liang Lu...................... $223,176 $ -- $ -- -- $5,475
President and Chief Executive
Officer
Ying Wu............................ 199,833 -- -- -- 7,043
Executive Vice President and
Chief Executive Officer, China
Operations
Shao-Ning J. Chou.................. 158,333 -- -- -- 7,194
Executive Vice President and
Chief Operating Officer, China
Operations
Chauncey Shey...................... 154,667 -- -- -- 2,850
Executive Vice President,
Research and Development(2)
Paul Berkowitz..................... 140,167 -- -- -- 3,082
Vice President, International
Sales
|
(1) Consists of health insurance premiums paid by us on behalf of the officers.
(2) Mr. Shey served as our Executive Vice President, Research and Development until July 1999.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
We did not grant any stock options or stock appreciation rights to any of the executive officers named in the Summary Compensation Table above during the fiscal year ended December 31, 1998.
OPTION EXERCISES AND HOLDINGS
The following table provides summary information concerning the shares of our common stock subject to outstanding stock options held as of December 31, 1998 by each of the executive officers named in the Summary Compensation Table above. These officers did not exercise any stock options during the year ended December 31, 1998.
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Hong Liang Lu..................... -- -- 133,332 66,668 $ 372,327 $174,993
Ying Wu........................... -- -- 926,480 -- 3,378,131 --
Shao-Ning J. Chou................. -- -- 216,138 167,562 710,096 527,489
Chauncey Shey..................... -- -- 926,480 -- 3,378,131 --
Paul Berkowitz.................... -- -- 438,924 13,332 1,590,916 26,664
|
(1) The value of unexercised in-the-money options is calculated based on the fair market value of our common stock, which our Board of Directors determined to be $4.50 per share on December 31, 1998, minus the exercise price for the shares, multiplied by the number of shares underlying the option.
EMPLOYEE BENEFIT PLANS
1992 OMNIBUS EQUITY INCENTIVE PLAN. On April 12, 1992, the Board of Directors adopted our 1992 Omnibus Equity Incentive Plan, which our stockholders ratified on December 9, 1994. Under the 1992 plan, directors, employees and consultants were eligible to acquire shares of common stock pursuant to options, stock purchase rights and stock appreciation rights. At the time of adoption, 2,400,000 shares of common stock were reserved for issuance under the 1992 plan. As of December 14, 1999, there were options to purchase 41,728 shares of common stock outstanding under the 1992 plan. On July 31, 1995, the Board of Directors elected not to grant any further options under the 1992 plan.
THE 1995 STOCK PLAN. On July 31, 1995, the Board of Directors adopted, and in October 1995, our stockholders approved, our 1995 Stock Plan. Under the 1995 plan, officers, employees and consultants were eligible to acquire shares of common stock pursuant to options or stock purchase rights. At the time of adoption, 3,705,232 shares of common stock were reserved for issuance under the 1995 plan. In 1995 and 1996, our Board and stockholders added an additional 5,400,000 shares to the 1995 plan, raising the total number of authorized shares reserved under the 1995 plan to 9,105,232. As of December 14, 1999, there were options to purchase 6,167,644 shares of common stock outstanding under the 1995 plan. On January 31, 1997, the Board of Directors elected not to grant any further options under the 1995 plan. Upon the adoption of the 1997 plan, all remaining unissued shares under the 1995 plan not already subject to options or other awards ceased to be reserved for issuance under the 1995 plan.
THE 1997 STOCK PLAN. On January 31, 1997, the Board of Directors adopted, and our stockholders approved, our 1997 Stock Plan. Under the 1997 plan, officers, employees and consultants are eligible to receive options to purchase shares of common stock and stock purchase rights. In December 1999, the Board of Directors amended the 1997 plan, which we expect the stockholders to approve shortly before the closing of this offering. Under the amended plan, we are authorized to issue up to 10,524,574
shares of common stock. During the term of the 1997 plan, the number of shares issuable under the plan will be increased annually on the first day of each fiscal year beginning in 2001 by an amount equal to the lesser of 6,000,000 shares or 4% of the outstanding shares of our common stock on that date, or a lesser amount determined by the Board. The plan terminates in January 2007, but may be terminated earlier by the Board of Directors. As of December 14, 1999, there were options to purchase 6,221,970 shares of common stock outstanding under the 1997 plan. The Compensation Committee administers the 1997 plan.
Options granted under the 1997 plan may be incentive stock options, or ISOs, which are intended to qualify for favorable federal income tax treatment under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended, or non-qualified stock options, or NSOs, which do not so qualify. The Compensation Committee selects the eligible persons to whom options will be granted and determines the grant date, amounts, exercise prices, vesting periods and other relevant terms of the options, including whether the options will be ISOs or NSOs. The exercise price of ISOs granted under the 1997 plan may not be less than 100% of the fair market value of our common stock on the grant date, while the exercise price of NSOs can be determined by the Compensation Committee in its discretion. Options are generally not transferable during the life of the optionee.
Options vest and become exercisable as determined by the Compensation Committee. Options may generally be exercised at any time after they vest and before their expiration date as determined by the Compensation Committee. However, no option may be exercised more than 10 years after the grant date. Options will generally terminate (i) 12 months after the death or permanent disability of an optionee and (ii) 90 days after termination of employment for any other reason. The aggregate fair market value of the shares of common stock represented by ISOs that become exercisable in any calendar year may not exceed $100,000. Options in excess of this limit are treated as NSOs.
In the event we are merged with or into another corporation, or all or substantially all of our assets are sold, each outstanding option will be assumed or an equivalent option or right will be substituted by the successor corporation or its parent or subsidiary. If the successor corporation refuses to assume or substitute for the option or right, the options or rights will automatically vest and become exercisable in full for a period of at least fifteen days, after which time the option will terminate.
Under the 1997 plan, we may grant stock purchase rights to eligible participants. Any shares purchased pursuant to stock purchase rights will be subject to a restricted stock purchase agreement. Unless the Compensation Committee determines otherwise, this agreement will grant us a right to repurchase the stock upon the voluntary or involuntary termination of the employee for any reason, including death or disability. The purchase price for repurchased shares will be the original price paid and may be paid by cancellation of any indebtedness owed to us. The shares of stock subject to the right of repurchase lapse over time.
As of December 14, 1999, an aggregate of 18,856,646 shares of common stock were authorized for issuance under our stock plans, 12,431,342 of which were subject to outstanding options and 4,266,926 of which were available for grant.
2000 EMPLOYEE STOCK PURCHASE PLAN. In December 1999, the Board of Directors adopted the 2000 Employee Stock Purchase Plan. Subject to meeting federal and state securities law requirements and obtaining stockholder approval, the stock purchase plan will become effective upon the consummation of this offering, or as soon as practicable thereafter.
The purpose of the stock purchase plan is to provide a competitive equity compensation program and to provide our employees with an opportunity and incentive to acquire an ownership interest in our company, which more closely aligns the interests of our employees and stockholders. We have reserved 2,000,000 shares of common stock for sale under the stock purchase plan. The number of shares reserved for sale under the plan will be increased annually on the first day of each fiscal year beginning in 2001 by an amount equal to the lesser of 4,000,000 shares or 2% of the outstanding shares
of our common stock on that date, or a lesser amount determined by the Board of Directors. The stock purchase plan will be administered by the Board or a committee appointed by the Board.
The stock purchase plan is implemented by offering periods, the duration of which may not exceed 24 months. Offering periods may contain interim purchase periods. Shares purchased under the stock purchase plan will be held in separate accounts for each participant. The first offering period shall begin on the effective date of this offering and shall end on the last trading day on or before January 31, 2002.
Employees will be eligible to participate in the stock purchase plan if they are employed by us for more than 20 hours per week and more than five months in a calendar year. The stock purchase plan permits eligible employees to purchase our common stock through payroll deductions, which may not exceed 15% of the employee's total compensation. Stock may be purchased under the plan at a price equal to 85% of the fair market value of our stock on either the date of purchase or the first day of the offering period, whichever is lower. However, the Board of Directors may in its discretion provide that the price at which shares of common stock are purchased under the plan shall be 85% of the fair market value of our shares on the date of purchase. Participants may not purchase shares of common stock having a value greater than $25,000 during any calendar year.
Participants may increase or decrease their payroll deductions at any time during an offering period, subject to limits imposed by the Board of Directors. If a participant withdraws from the stock purchase plan, any contributions that have not been used to purchase shares shall be refunded. A participant who has withdrawn may not participate in the stock purchase plan again until the next offering period. In the event of retirement or cessation of employment for any reason, any contributions that have not yet been used to purchase shares will be refunded to the participant, or to the participant's designated beneficiary in the case of death, and a certificate will be issued for the full shares in the participant's account.
The Board of Directors may terminate or amend the stock purchase plan, subject to stockholder approval in some circumstances. Unless terminated earlier by the Board, the stock purchase plan will have a term of 10 years.
EMPLOYMENT AGREEMENTS
Mr. Lu is a party to an employment and non-competition agreement dated October 6, 1995. Under this agreement, Mr. Lu is to be paid $150,000 annually, which amount may be increased by the Board of Directors, and is entitled to a bonus each year as determined by the Board. Although Mr. Lu's employment is "at will," we must give him 60 days notice of termination for any reason other than voluntary termination, termination as a result of death of disability or termination for cause.
Mr. Wu is a party to an employment and non-competition agreement dated October 6, 1995. Under this agreements, Mr. Wu is to be paid $150,000 annually, which amount may be increased by the Board of Directors, and is entitled to a bonus each year as determined by the Board. Although Mr. Wu's employment is "at will," we must give him 60 days notice of termination for any reason other than voluntary termination, termination as a result of death of disability or termination for cause.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
We have adopted provisions in our certificate of incorporation that limit the personal liability of our directors for monetary damages arising from their breach of fiduciary duty as directors to the fullest extent permitted by Delaware law. This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or recession.
Our certificate of incorporation also authorizes us to indemnify our officers, directors, employees and agents who are made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, to the fullest extent permitted under Delaware law.
As permitted by the Delaware General Corporation Law, our bylaws which will become effective upon the completion of this offering provide that:
- we are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law;
- we are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law;
- we may indemnify our other employees and agents to the extent that we indemnify our officers and directors; and
- the rights to indemnification provided in the bylaws are not exclusive.
We have entered into indemnification agreements with each of our current directors and some of our executive officers. In addition, we intend to enter into indemnification agreements with each of our other executive officers. These agreements provide our directors and executive officers with additional protection regarding the scope of the indemnification set forth in our certificate of incorporation and bylaws.
We currently have a directors' and officers' insurance policy. At present, there is no pending litigation or proceeding involving any director, officer or employee of ours in which indemnification by us is sought. In addition, we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
RELATED PARTY TRANSACTIONS
COMMON STOCK AND PREFERRED STOCK ISSUANCES
Since January 1, 1996, we have issued and sold in private placement transactions shares of our common stock, preferred stock and warrants for the purchase of our common stock to our executive officers, directors and/or greater than 5% stockholders as described below.
From October 1995 to December 1996 in three separate closings, we issued and sold an aggregate of 14,492,752 shares of Series B preferred stock at an average share price of $2.07 per share to SOFTBANK Holdings Inc., a wholly owned subsidiary of SOFTBANK CORP. Masayoshi Son, our Chairman of the Board, is President and Chief Executive Officer of SOFTBANK CORP. and Yoshitaka Kitao, one of our directors, is Executive Vice President and Chief Financial Officer of SOFTBANK CORP. SOFTBANK Holdings Inc. has subsequently transferred its shares of Series B preferred stock to SOFTBANK America Inc., a wholly owned subsidiary of SOFTBANK Holdings Inc.
From December 1996 to February 1997, we issued and sold 12,209,302 shares of Series C preferred stock at $3.44 per share and 1,379,754 shares of Series C preferred stock at $4.13 per share. The investors in the Series C financing included SOFTBANK Ventures, Inc., a wholly owned subsidiary of SOFTBANK CORP., which purchased 2,034,884 shares of Series C preferred stock for $7,000,000 in cash and SOFTBANK Holdings Inc., which purchased 10,174,418 shares of Series C preferred stock for $12,718.02 in cash and $34,987,281.98 payable in accordance with a promissory note. The promissory note has been paid in full. SOFTBANK Holdings Inc. has subsequently transferred its shares of Series C preferred stock to SOFTBANK America Inc., a wholly owned subsidiary of SOFTBANK Holdings Inc.
In October 1997, the Company issued and sold 8,032,128 shares of Series D preferred stock at $6.225 per share to SOFTBANK Holdings, which purchased 5,918,410 shares of Series D preferred stock and SOFTBANK Contents Fund, a Japanese partnership of which SOFTBANK Partners is a managing partner, which purchased 2,113,718 shares of Series D preferred stock. SOFTBANK Holdings Inc. and SOFTBANK Contents Fund have subsequently transferred their shares of Series D preferred stock to SOFTBANK America Inc., a wholly owned subsidiary of SOFTBANK Holdings Inc.
From October 1997 to March 1998, we issued an aggregate of 30,269,318 shares of Series E preferred stock in a one-for-one exchange for shares of our common stock pursuant to an Exchange Agreement and a Regulation S Exchange Agreement. All of our stockholders were eligible to participate in the exchange on a pro rata basis. Stockholders who received shares of Series E Preferred stock as part of the exchange include: Hong Lu, our President, Chief Executive Officer and one of our directors, who received 3,121,182 shares; Ying Wu, our Vice Chairman of the Board of Directors, Executive Vice President and Chief Executive Officer, China Operations, who received 2,971,776 shares; Yalang Wang Wu, the wife of Mr. Wu, who received 160,000 shares; Chauncey Shey, one of our directors, who received 2,575,776 shares; Charles Xue, our Vice Chairman of the Board of Directors and Secretary, who received 2,105,554 shares; Bill Huang, our Vice President and Chief Technology Officer, who received 256,000 shares; Paul Berkowitz, our Vice President of International Sales, who received 187,536 shares; William Wittmeyer, then one of our directors, who received 21,328 shares; UT Finance LTD, which received 363,640 shares; and Technology Funding Ventures IV and V, for which Thomas J. Toy, one of our directors, was a partner, received an aggregate of 581,824 shares.
Following the Series E share exchange, several of our stockholders sold an aggregate of 5,459,944 shares of Series E preferred stock at $5.445 per share to SOFTBANK Holdings, Inc. and SOFTBANK Contents Fund. Stockholders who sold shares to SOFTBANK Holdings include: Hong Lu, our President, Chief Executive Officer and one of our directors, who sold 200,000 shares; Ying Wu, our Vice Chairman of the Board of Directors, Executive Vice President and Chief Executive Officer, China Operations, who sold 400,000 shares; Chauncey Shey, one of our directors, who sold 400,000 shares;
Charles Xue, our Vice Chairman of the Board of Directors and Secretary, who sold 300,000 shares; Bill Huang, our Vice President and Chief Technology Officer, who sold 20,000 shares; William Wittmeyer, then one of our directors, who sold 21,328 shares; and Technology Funding Ventures IV and V, which sold an aggregate of 581,824 shares. SOFTBANK Holdings and SOFTBANK Contents Fund later transferred the 5,459,944 shares to SOFTBANK America Inc.
In August 1999, we distributed all of the shares of DirecTouch Communications Limited, a wholly owned subsidiary, to our stockholders on a pro rata basis. Stockholders who received this distribution of DirecTouch shares included: SOFTBANK America Inc., which received 30,177,968 shares; SOFTBANK Ventures Inc., which received 2,034,884 shares; Hong Lu, who received 3,086,872 shares; Ying Wu, who received 2,745,696 shares; Yalan Wang Wu, Ying Wu's wife, who received 160,000 shares; Ashley Wu, Mr. Wu's daughter, who received 21,040 shares; Richard Wu, Mr. Wu's son, who received 21,040 shares; Wu Partners, a California limited partnership, which received 2,200,000 shares; Chauncey Shey, who received 2,175,776 shares; Qiwei Qiu, Trustee of the Rebecca Shey Trust--1997 UTA dated December 20, 1997, who received 12,000 shares; Shey Partners, a California limited partnership, which received 2,740,000 shares; Bill Huang, who received 433,016 shares; Alexander Huang, Mr. Huang's son, who received 2,000 shares; Helen Huang, Mr. Huang's daughter, who received 2,000 shares; Paul Berkowitz, who received 45,208 shares; Patricia Berkowitz, Mr. Berkowitz's wife, who received 61,120 shares; and Paul Berkowitz as custodian for his children Amy, Karen and Lisa, who received an aggregate of 42,000 shares. In connection with the distribution of DirecTouch shares, we adopted a 1999 Special Stock Option Plan to distribute options to purchase shares of DirecTouch common stock to each of our optionees who held vested options. We distributed options to purchase an aggregate of 7,024,242 shares of DirecTouch common stock. Optionees who received the vested options to purchase DirecTouch shares included: Hong Lu, who received options to purchase 133,336 shares; Ying Wu, who received options to purchase 962,480 shares; Chauncey Shey, who received options to purchase 926,480 shares; Bill Huang, who received options to purchase 353,334 shares; Shao-Ning J. Chou, who received options to purchase 288,938 shares; Paul Berkowitz, who received options to purchase 432,256 shares; and Gerald Soloway, who received options to purchase 14,000 shares.
From November 1999 through December 1999, we issued and sold an aggregate of 6,152,106 shares of Series F preferred stock at $8.1273 per share. The investors that participated in the financing included Intel Pacific, Inc., which purchased 4,306,474 shares of Series F preferred stock for $35,000,006. Intel has the option to purchase up to an additional 615,210 shares of our Series F preferred stock at $8.1273 per share. The option expires on January 13, 2000.
In December 1999, we acquired our Wacos, Inc. subsidiary through a statutory merger. The outstanding shares of Wacos common stock and preferred stock were converted into shares of our Series G preferred stock. The Wacos stockholders who received our Series G preferred stock in the merger included: SOFTBANK America Inc., which received 3,691,534 shares; Hong Lu, who received 39,582 shares; Ying Wu, who received 35,984 shares; Chauncey Shey, who received 35,984 shares; Bill Huang, who received 359,844 shares; and Paul Berkowitz, who received 14,392 shares.
LOANS
In June 1996, we loaned Bill Huang, our Vice President and Chief Technology Officer and one of our stockholders, the sum of $138,554.22 to purchase a house. The loan bears simple interest at the rate of 6% per annum, with annual payments of $17,759.51 due and payable beginning June 1, 1997 with the last payment due June 1, 2006. The outstanding balance, including accrued interest, as of November 30, 1999 was $146,615.
In June 1998, we entered into a loan agreement in which SOFTBANK CORP. agreed to loan us up to $55,000,000 in multiple installments. The first installment of $25,000,000 was made on June 30, 1998. This loan has been repaid in full.
In February 1999, we loaned Bill Huang $153,453 to allow him to exercise expiring stock options. The loan is secured by a deed of trust. The loan bears no interest and is due and payable within three years.
CERTAIN BUSINESS RELATIONSHIPS
In October 1995, we entered into a Contract on Joint Development of Internet
Services with China Jitong Communications Co., Ltd. This contract was superseded
in June 1998 by the Information Service Project Contract between UTStarcom
(China) Ltd., our subsidiary, and Jitong, whereby we agreed to provide equipment
to Jitong for this project. In connection with this arrangement, we entered into
a Payment Agent Contract with UTStarcom China, Jitong and SOFTBANK, under which
SOFTBANK agreed to provide a support fund of U.S. $10 million for our equipment
and Jitong's construction costs. On August 30, 1999, we entered into a contract
termination agreement with Jitong, SOFTBANK and UTStarcom China under which the
parties agreed to terminate all existing contracts and agreements regarding the
project. Under the termination agreement, Jitong agreed to repay SOFTBANK the
equivalent of $11.6 million. On September 24, 1999, Jitong made an installment
payment of the equivalent of $6.0 million. Jitong's final payment to SOFTBANK of
the equivalent of $5.6 million is due on December 31, 1999.
We believe that all of the transactions set forth above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. We intend that all future transactions, including loans, between us and our officers, directors, principal stockholders and their affiliates will be approved by a majority of the Board of Directors, including a majority of the independent and disinterested directors on the Board of Directors, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us regarding the beneficial ownership of our common stock as of December 14, 1999, and as adjusted to reflect the sale of shares of common stock offered by this prospectus, by:
- each stockholder who is known by us to beneficially own more than 5% of our common stock;
- each of our executive officers listed on the Summary Compensation Table under "Management;"
- each of our directors; and
- all of our executive officers and directors as a group.
PERCENT
NUMBER OF SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) BEFORE OFFERING AFTER OFFERING
------------------------------------ ---------------- --------------- --------------
Entities affiliated with SOFTBANK CORP.(2)......... 46,686,514 59.4%
c/o SOFTBANK CORP.
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103-8501 JAPAN
Masayoshi Son(3)................................... 46,686,514 59.4%
c/o SOFTBANK CORP.
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103-8501 JAPAN
Yoshitaka Kitao(4)................................. 46,686,514 59.4%
c/o SOFTBANK CORP.
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103-8501 JAPAN
Ying Wu(5)......................................... 6,110,240 7.7%
c/o UTStarcom (China) Ltd.
11th Floor, CNT Manhattan Building
No. 6 Chao Yang Men Be Da Jie Street
Beijing, 100027 China
Chauncey Shey(6)................................... 5,497,146 6.9%
788 Hong Xu Road, #43
Suite 1501
Shanghai, 201103 China
Intel Pacific, Inc.(7)............................. 4,921,684 6.2%
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Hong Lu(8)......................................... 3,326,454 4.2%
Charles Xue........................................ 1,917,328 2.4%
Thomas J. Toy...................................... -- --
Shao-Ning J. Chou(9)............................... 337,034 *
Paul Berkowitz(10)................................. 610,910 *
All executive officers and directors as a
group (12 persons)(11)........................... 65,728,182 80.3%
|
* Less than 1%.
(1) Assumes no exercise of the underwriters' over-allotment option. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting power or investment power with respect to securities. All shares of
common stock subject to options exercisable within 60 days following
December 14, 1999 are deemed to be outstanding and beneficially owned by
the person holding those options for the purpose of computing the number of
shares beneficially owned and the percentage ownership of that person. They
are not, however, deemed to be outstanding and beneficially owned for the
purpose of computing the percentage ownership of any other person.
Accordingly, percent ownership is based on: (i) before this offering,
78,597,194 shares of common stock outstanding as of December 14, 1999 plus
any shares issuable pursuant to options held by the person or group in
question which may be exercised within 60 days of December 14, 1999; and
(ii) after this offering, an additional shares to be issued in
the offering. Except as indicated in the other footnotes to this table and
subject to applicable community property laws, based on information
provided by persons named in the table, each person or entity has sole
voting and investment power with respect to the shares shown as
beneficially owned.
(2) Includes 40,960,096 shares registered in the name of SOFTBANK America, Inc., a Delaware corporation, and 2,034,884 shares registered in the name of SOFTBANK Ventures, Inc., a Japanese corporation. SOFTBANK America, Inc., is a wholly owned subsidiary of SOFTBANK Holdings Inc., a Massachusetts corporation. SOFTBANK Holdings Inc. and SOFTBANK Ventures, Inc., are wholly owned subsidiaries of SOFTBANK CORP., a Japanese corporation.
(3) Represents 46,686,514 shares beneficially owned by entities affiliated with SOFTBANK CORP. Mr. Son is President, Chief Executive Officer and major stockholder of SOFTBANK CORP. Mr. Son disclaims beneficial ownership of these shares except to the extent of his proportionate ownership interest of SOFTBANK CORP.
(4) Represents 46,686,514 shares beneficially owned by entities affiliated with SOFTBANK CORP. Mr. Kitao is Executive Vice President and Chief Financial Officer of SOFTBANK CORP. Mr. Kitao disclaims beneficial ownership of these shares except to the extent of his proportionate ownership interest of SOFTBANK CORP.
(5) Includes 2,200,000 shares registered in the name of Wu Partners, a California Limited Partnership, of which Mr. Wu is general partner. Includes 160,000 shares registered in the name of Yalan Wang Wu, 21,040 shares registered in the name of Ashley Wu, and 21,040 shares registered in the name of Richard Wu. Yalan Wang Wu is Mr. Wu's wife and Ashley Wu and Richard Wu are Mr. Wu's children. Mr. Wu may be deemed the beneficial owner of the shares. Includes 926,480 shares issuable upon exercise of options that are exercisable within 60 days of December 14, 1999.
(6) Includes 2,740,000 shares owned by Shey Partners, a California Limited Partnership, of which Mr. Shey is a general partner and 12,000 shares registered in the name of Qiwei Qiu, trustee of the Rebecca Shey Trust--1997 UTA dated December 20, 1997. Qiwei Qiu, trustee, is Mr. Shey's wife and Rebecca Shey is Mr. Shey's daughter. Mr. Shey may be deemed the beneficial owner of the shares. Includes 926,480 shares issuable upon exercise of options that are exercisable within 60 days of December 14, 1999.
(7) Includes 615,210 shares issuable upon exercise of an option that is exercisable within 60 days of December 14, 1999.
(8) Includes 200,000 shares issuable upon exercise of options that are exercisable within 60 days of December 14, 1999.
(9) Includes 337,034 shares issuable upon exercise of options that are exercisable within 60 days of December 14, 1999.
(10) Includes 14,000 shares held as custodian for Amy Beth Berkowitz, 14,000 shares held as custodian for Karen Louise Berkowitz, and 14,000 shares held as custodian for Lisa Ann Berkowitz under the New Jersey Uniform Gifts to Minors Act. Also includes 61,120 shares registered in the name of Patricia Berkowitz. Amy Beth Berkowitz, Karen Louise Berkowitz and Lisa Ann Berkowitz are Mr. Berkowitz's children. Patricia Berkowitz is Mr. Berkowitz's spouse. Includes 445,590 shares issuable upon exercise of options that are exercisable within 60 days of December 14, 1999.
(11) Includes 3,295,580 shares issuable upon exercise of options that are exercisable within 60 days of December 14, 1999.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist of shares of common stock, $0.00125 par value, and 5,000,000 shares of preferred stock, $0.00125 par value.
The following is a summary of the material terms of our common stock and preferred stock. Please see our certificate of incorporation, filed as an exhibit to the registration statement of which this prospectus is a part, for more detailed information.
COMMON STOCK
As of December 14, 1999, there were 78,597,194 shares of common stock outstanding held of record by 143 stockholders, after giving effect to the conversion of all shares of preferred stock outstanding. Additionally, options to purchase an aggregate of 12,431,342 shares of common stock were outstanding under our stock plans. The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. Subject to preferences that may be applicable to outstanding preferred stock, the holders of common stock are entitled to receive ratably any dividends as may be declared from time to time by the Board of Directors out of funds legally available for dividends. If our company is liquidated, dissolved or wound up, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, conversion or redemption rights. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred stock will be converted into an aggregate of 69,762,112 shares of common stock. Thereafter, up to 5,000,000 shares of undesignated preferred stock will be authorized for issuance. Our Board of Directors has the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences and privileges of any preferred stock it determines to issue. Any or all of these rights may be greater than the rights of the common stock.
The issuance of preferred stock may have the effect of delaying or preventing a change in control of our company or make removal of our management more difficult. Additionally, the issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could also cause the market price of our common stock to decline. At present, we have no plans to issue any shares of preferred stock.
WARRANTS
As of December 14, 1999, warrants to purchase an aggregate of 532,000 shares of our common stock were outstanding. One warrant is for the purchase of 32,000 shares of common stock at an exercise price of $2.50 per share and expires on February 5, 2008. The other warrant is for the purchase of 500,000 shares of common stock at an exercise price of $6.25 per share. The warrant for 500,000 shares expires on the earlier of December 11, 2003 or the closing of this offering.
REGISTRATION RIGHTS
Under an agreement dated December 14, 1999, the holders of 49,639,742 shares of common stock and warrants to purchase approximately 532,000 shares of common stock are entitled to have us register these shares under the Securities Act. Subject to the terms of the agreement, the holders may require us on one occasion to register these securities for public resale at our expense. Demand for
registration may be made by the holders of at least one-third of the shares that are entitled to this registration. Furthermore, the holders have the right to require us on not more than two occasions during any twelve-month period, to register all or a portion of their shares with registration rights on Form S-3 under the Securities Act. We are also limited from registering securities for our own account for 90 days after an effective registration initiated by these holders. In addition, if we intend to register any of our common stock either for our own account or for the account of other security holders, holders possessing registration rights must consent to the offering and can elect to participate in the offering. All registration rights are subject to conditions and limitations, including the right of the underwriters of an offering to limit the number of shares included in such registration.
ANTI-TAKEOVER PROVISIONS UNDER DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law regulating corporate takeovers, which prohibits us from engaging in a "business combination" with an "interested stockholder," for a period of three years after the date the person became an interested stockholder unless:
- prior to that date, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
- on or subsequent to that date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
A "business combination" is defined to include mergers, asset or stock sales and other transactions resulting in financial benefit to a stockholder. Except as specified in Section 203, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of our outstanding voting stock.
Our certificate of incorporation and bylaws do not exclude us from the restrictions imposed under Section 203. The existence of Section 203 would be expected to have the effect of discouraging hostile takeover attempts or delaying changes in control of our company, which could depress the market price of our common stock and deprive stockholders of opportunities to realize a premium on shares of common stock held by them.
CHARTER AND BYLAW PROVISIONS REGARDING ANTI-TAKEOVER PROVISIONS
Some provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a change in control of our company or management that a stockholder may consider favorable. These provisions include:
- authorizing the Board of Directors to issue additional preferred stock;
- prohibiting cumulative voting in the election of directors;
- limiting the persons who may call special meetings of stockholders;
- prohibiting stockholder action by written consent;
- creating a classified Board of Directors pursuant to which our directors are elected for staggered three year terms; and
- establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Boston EquiServe LLP. The transfer agent's telephone number is (781) 575-3010. The transfer agent's address is 150 Royall Street, Canton, Massachusetts 02021.
LISTING
We expect our common stock to be approved for listing on the Nasdaq National Market under the trading symbol "UTSI."
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the material United States federal income and estate tax consequences of the ownership and disposition of common stock that may be relevant to you if you are a non-United States Holder. In general, a "non-United States Holder" is any person or entity that is, for United States federal income tax purposes, a foreign corporation, a nonresident alien individual, a foreign partnership or a foreign estate or trust. This discussion is based on current law, which is subject to change, possibly with retroactive effect, or different interpretations. This discussion is limited to non-United States Holders who hold shares of common stock as capital assets. Moreover, this discussion is for general information only and does not address all of the tax consequences that may be relevant to you in light of your personal circumstances, nor does it discuss special tax provisions which may apply to you if you relinquished United States citizenship or residence.
If you are an individual, you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year (counting for such purposes all of the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year). Resident aliens are subject to United States federal income tax as if they were United States citizens.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY UNITED STATES STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to non-United States Holders generally are subject to withholding of United States federal income tax at a 30% rate or a lower rate as may be specified by an applicable income tax treaty. However, as long as more than 80% of our gross income (including the gross income actually distributed to us by our subsidiaries) over the three taxable years prior to a dividend payment is derived from income outside the United States, a substantial percentage of the dividend will not be subject to United States withholding tax. The percentage of a dividend payment not subject to withholding generally will be the percentage that our gross income from outside the United States (including the gross income actually distributed to us by our subsidiaries) bears to our total gross income. To claim the benefit of a lower rate under an income tax treaty, you must properly file with the payor an IRS Form 1001, or successor form, claiming an exemption from or reduction in withholding under the applicable tax treaty.
If dividends are considered effectively connected with the conduct of a trade or business by you within the United States and, where a tax treaty applies, are attributable to a United States permanent establishment of yours, those dividends will not be subject to withholding tax, but instead will be subject to United States federal income tax on a net basis at applicable graduated individual or corporate rates, provided an IRS Form 4224, or successor form, is filed with the payor. If you are a foreign corporation, any effectively connected dividends may, under certain circumstances, be subject to an additional "branch profits tax" at a rate of 30% or a lower rate as may be specified by an applicable income tax treaty.
Unless the payor has knowledge to the contrary, dividends paid prior to January 1, 2001 to an address outside the United States are presumed to be paid to a resident of such country for purposes of the withholding discussed above and for purposes of determining the applicability of a tax treaty rate. However, recently finalized Treasury Regulations pertaining to United States federal withholding tax provide that you must comply with certification procedures, or, in the case of payments made outside the United States with respect to an offshore account, certain documentary evidence procedures, directly or under certain circumstances through an intermediary, to obtain the benefits of a reduced rate under an income tax treaty with respect to dividends paid after December 31, 2000. In addition, these regulations will require you, if you provide an IRS Form 4224 or successor form, as discussed above, to also provide your identification number. If you are eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
As a non-United States Holder, you generally will not be subject to United States federal income tax on any gain recognized on the sale or other disposition of common stock unless:
- the gain is considered effectively connected with the conduct of a trade or business by you within the United States and, where a tax treaty applies, is attributable to a United States permanent establishment of yours (and, in which case, if you are a foreign corporation, you may be subject to an additional branch profits tax equal to 30% or a lower rate as may be specified by an applicable income tax treaty).
- you are an individual who holds the common stock as a capital asset and are present in the United States for 183 or more days in the taxable year of the sale or other disposition and other conditions are met; or
- we are or have been a "United States real property holding corporation", or a USRPHC, for United States federal income tax purposes. We believe that we are not currently, and are likely not to become, a USRPHC. If we were to become a USRPHC, then gain on the sale or other disposition of common stock by you generally would not be subject to United States federal income tax provided the common stock was "regularly traded" on an established securities market and you do not actually or constructively own more than 5% of the common stock during the shorter of the five-year period preceding the disposition or your holding period.
FEDERAL ESTATE TAX
If you are an individual, common stock held at the time of your death will be included in your gross estate for United States federal estate tax purposes, and may be subject to United States federal estate tax, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the IRS and to each of you the amount of dividends paid to you and the tax withheld with respect to those dividends, regardless or whether withholding was required. Copies of the information returns reporting those dividends and withholding may also be made available to the tax authorities in the country in which you reside under the provisions of an applicable income tax treaty or other applicable agreements.
Backup withholding is generally imposed at the rate of 31% on certain payments to persons that fail to furnish the necessary identifying information to the payor. Backup withholding generally will not apply to dividends paid prior to January 1, 2001 to a non-United States Holder at an address outside the United States, unless the payor has knowledge that the payee is a United States person. In the case
of dividends paid after December 31, 2000, the recently finalized Treasury Regulations provide that you generally will be subject to withholding tax at a 31% rate unless you certify your non-United States status.
The payment of proceeds of a sale of common stock effected by or through a United States office of a broker is subject to both backup withholding and information reporting unless you provide the payor with your name and address and you certify your non-United States status or you otherwise establish an exemption. In general, backup withholding and information reporting will not apply to the payment of the proceeds of a sale of common stock by or through a foreign office of a broker. If, however, such broker is, for United States federal income tax purposes, a United States person, a controlled foreign corporation, or a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, or, in addition, for periods after December 31, 2000, a foreign partnership that at any time during its tax year either is engaged in the conduct of a trade or business in the United States or has as partners one of more United States persons that, in the aggregate, hold more than 50% of the income or capital interest in the partnership, such payments will be subject to information reporting, but not backup withholding, unless such broker has documentary evidence in its records that you are a non-United States Holder and certain other conditions are met or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is furnished in a timely manner to the IRS.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for our common stock. Future sales of substantial amounts of our common stock in the public market, or the possibility of these sales, could cause the trading price of our common stock to decrease.
Upon completion of this offering, we will have outstanding shares of common stock, assuming no exercise of the underwriters' over-allotment options and no exercise of outstanding options or warrants to purchase common stock after December 14, 1999. Of these shares, the shares sold in this offering will be freely tradable without restriction, except for shares purchased by our affiliates, as defined in Rule 144 under the Securities Act, which would be subject to the limitations and restrictions described below.
The remaining 78,597,194 shares of common stock outstanding upon completion of this offering will be "restricted securities" as defined in Rule 144. These shares may be sold in the public market only if registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 of the Securities Act, which are summarized below.
Holders of substantially all of these restricted securities, including all of our officers and directors and the entities affiliated with them, have entered into lock-up agreements. The agreements provide that, subject to limited exceptions, the holders will not sell, directly or indirectly, any common stock for a period of 180 days after the date of this prospectus without the prior consent of Merrill Lynch.
On the date the lock-up agreement expires, 72,445,088 of the restricted securities will become eligible for sale pursuant to Rule 144. The remaining 6,152,106 shares of common stock will be eligible for sale under Rule 144 at varying times after expiration of the lock-up period.
In general, under Rule 144, beginning 90 days after the date of this prospectus, a person, or persons whose shares are aggregated, who has beneficially owned restricted securities for at least one year, including persons who may be deemed to be our "affiliates," would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock or the average weekly trading volume of our common stock during the four calendar weeks before the sale. Sales under Rule 144 are also subject to manner of sale and notice requirements, as well as the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Shares issued upon exercise of options granted by us prior to the date of this prospectus will be available for sale in the public market under Rule 701 of the Securities Act. Rule 701 provides that, beginning 90 days after the date of this prospectus, persons other than affiliates may sell shares of our common stock acquired from us in connection with our stock option plans, subject only to the manner of sale provisions of Rule 144. Beginning 90 days after the date of this prospectus, affiliates may sell these shares of our common stock subject to all provisions of Rule 144 except the one year minimum holding period.
As of December 14, 1999, options to purchase an aggregate of 12,431,342 shares of common stock were outstanding under our stock option plans. Shortly after this offering, we intend to file registration statements on Form S-8 under the Securities Act to register 2,000,000 shares of common stock reserved for issuance under our employee stock purchase plan and 16,698,268 shares of common stock reserved for issuance under our stock option plans. Any vested shares registered under these registration statements will be available for sale in the open market immediately upon effectiveness of the
registration statement, subject to the expiration of the lock-up period and Rule 144 volume limitations applicable to our affiliates.
In addition, after this offering, the holders of 49,639,742 shares of common stock and warrants to purchase 532,000 shares of common stock are entitled to registration rights. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration statement, subject to the expiration of the lock-up period.
UNDERWRITING
GENERAL
We intend to offer our common stock in the United States and Canada through the U.S. underwriters and outside the United States and Canada through the international managers. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC and U.S. Bancorp Piper Jaffray Inc. are acting as U.S. representatives for the U.S. underwriters named below. Subject to the terms and conditions in a U.S. purchase agreement among us and the U.S. underwriters, and concurrently with the sale of shares of our common stock to the international managers, we have agreed to sell to the U.S. underwriters, and each of the U.S. underwriters severally and not jointly has agreed to purchase from us, the number of shares of our common stock listed opposite its name below.
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Banc of America Securities LLC..............................
U.S. Bancorp Piper Jaffray Inc..............................
-------
Total.............................................
=======
|
We have also entered into an international purchase agreement with the international managers for the sale of the shares of our common stock outside the United States and Canada for whom Merrill Lynch International, Bank of America International Limited and U.S. Bancorp Piper Jaffray Inc. are acting as lead managers. Subject to the terms and conditions in the international purchase agreement, and concurrently with the sale of shares of our common stock to the U.S. underwriters pursuant to the U.S. purchase agreement, we have agreed to sell to the international managers and the international managers severally have agreed to purchase from us shares of our common stock. The initial public offering price per share and the total underwriting discount per share of our common stock are identical under the U.S. purchase agreement and the international purchase agreement.
Subject to the terms and conditions in the U.S. purchase agreement and the international purchase agreement, the U.S. underwriters and the international managers have agreed to purchase all of the shares of our common stock being sold pursuant to each of the purchase agreements if any shares of our common stock are purchased. If a U.S. underwriter or an international manager defaults, the U.S. purchase agreement and the international purchase agreement provide that the purchase commitments of the nondefaulting U.S. underwriters and international managers may be increased or the purchase agreements may be terminated. The closings for the sale of shares of our common stock to be purchased by the U.S. underwriters and the international managers are conditioned on one another.
We have agreed to indemnify the U.S. underwriters and the international managers against some liabilities, including liabilities under the Securities Act, and to contribute to payments the U.S. underwriters and the international managers may be required to make in respect of those liabilities.
The U.S. underwriters and the international managers are offering the shares of our common stock, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of various legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreements, such as the receipt of officer's certificates and legal opinions. The U.S. underwriters and the international managers reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised us that the U.S. underwriters propose initially to offer the shares of our common stock to the public at the initial public offering price on the cover page of this prospectus, and to dealers at that price less a concession not in excess of $ per share of our common stock. The U.S. underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share of our common stock to other dealers. After the initial public offering, the public offering price, concession and discount may be changed.
The following table shows the per share and total public offering price, underwriting discount to be paid by us to the U.S. underwriters and the international managers and the proceeds before expenses to us. This information assumes either no exercise or full exercise by the U.S. underwriters and the international managers of their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price..................................... $ $ $
Underwriting discount..................................... $ $ $
Proceeds, before expenses, to UTStarcom................... $ $ $
|
The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
We have granted an option to the U.S. underwriters, to purchase up to additional shares of our common stock at the public offering price on the cover page of this prospectus less the underwriting discount. The U.S. underwriters may exercise this option for 30 days from the date of this prospectus solely to cover any over-allotments. If the U.S. underwriters exercise this option, each U.S. underwriter will be obligated, subject to conditions contained in the U.S. purchase agreement, to purchase a number of additional shares of our common stock proportionate to that U.S. underwriter's initial amount reflected in the table above.
We have also granted options to the international managers, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of our common stock to cover any over-allotments on terms similar to those granted to the U.S. underwriters.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an intersyndicate agreement that provides for the coordination of their activities. Under the intersyndicate agreement, the U.S. underwriters and the international managers may sell shares of our common stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell shares of our common stock will not offer to sell or sell shares of our common stock to non-U.S. or non-Canadian persons or to persons they believe intend to resell to non-U.S. or non-Canadian persons, except in the case of transactions under the intersyndicate agreement. Similarly, the international managers and any dealer to whom they sell shares of our common stock will not offer
to sell or sell shares of our common stock to U.S. persons or Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions under the intersyndicate agreement.
RESERVED SHARES
At our request, the U.S. underwriters and the international managers have reserved for sale, at the initial public offering price, up to shares, or %, of the shares of our common stock offered by this prospectus for sale to some of our directors, officers and employees and their family members, and other persons with relationships with us. The number of shares of our common stock available for sale to the general public will be reduced to the extent those persons purchase the reserved shares. Any reserved shares which are not orally confirmed for purchase within one day of the pricing of this offering will be offered by the U.S. underwriters and the international managers to the general public on the same terms as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We, our executive officers, directors and substantially all of our stockholders, have agreed, with exceptions, not to sell or transfer any shares of our common stock for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Specifically, we and these other individuals have agreed not to directly or indirectly:
- offer, pledge, sell or contract to sell any shares of our common stock;
- sell any option or contract to purchase any shares of our common stock;
- purchase any option or contract to sell any shares of our common stock;
- grant any option, right or warrant for the sale of any shares of our common stock;
- lend or otherwise dispose of or transfer any shares of our common stock;
- request or demand that we file a registration statement related to the shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any shares of our common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
This lockup provision applies to shares of our common stock and to securities convertible into or exchangeable or exercisable for or repayable with shares of our common stock. It also applies to shares of our common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
NASDAQ NATIONAL MARKET LISTING
We expect our common stock will be quoted on the Nasdaq National Market under the symbol "UTSI."
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us, the U.S. representatives and the lead managers. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:
- the valuation multiples of publicly traded companies that the U.S. representatives and the lead managers believe to be comparable to us;
- our financial information;
- the history of, and the prospects for, our company and the industry in which we compete;
- an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;
- the present state of our development; and
- the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.
An active trading market for the shares of our common stock may not develop. It is also possible that after the offering the shares of our common stock will not trade in the public market at or above the initial public offering price.
The U.S. underwriters and the international managers do not expect to sell more than 5% of the shares of our common stock in the aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the Securities and Exchange Commission may limit the U.S. underwriters and the international managers and selling group members from bidding for and purchasing shares of our common stock. However, the U.S. representatives and the lead managers may engage in transactions that stabilize the price of our common stock, such as bids or purchases to peg, fix or maintain that price.
If the U.S. underwriters and the international managers create a short position in our common stock in connection with this offering, i.e., if they sell more shares of our common stock than are listed on the cover page of this prospectus, the U.S. representatives and the lead managers may reduce that short position by purchasing shares of our common stock in the open market. The U.S. representatives and the lead managers may also elect to reduce any short position by exercising all or part of the over-allotment option described above. Purchases of shares of our common stock to stabilize its price or to reduce a short position may cause the price of shares of our common stock to be higher than it might be in the absence of these purchases.
The U.S. representatives and the lead managers may also impose a penalty bid on the U.S. underwriters and the international managers and selling group members. This means that if the U.S. representatives and the lead managers purchase shares of our common stock in the open market to reduce their short position or to stabilize the price of these shares, they may reclaim the amount of the selling concession from the U.S. underwriters and the international managers and selling group members who sold those shares. The imposition of a penalty bid may also affect the price of shares of our common stock in that it discourages resales of those shares.
Neither we nor any of the U.S. underwriters or the international managers makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of shares of our common stock. In addition, neither we nor any of the U.S. underwriters or the international managers makes any representation that the U.S. representatives or the lead managers will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed upon for UTStarcom by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters as to the laws in China are being passed upon for UTStarcom by Jun He Law Offices, Beijing, China. Certain legal matters in connection with this offering will be passed upon for the underwriters by Shearman & Sterling, Menlo Park, California.
EXPERTS
Our consolidated financial statements as of December 31, 1997 and 1998, and September 30, 1999, and for each of the years ended December 31, 1997 and 1998, and for the nine-month period ended September 30, 1999 have been included in this prospectus and in the registration statement of which this prospectus is a part in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given upon the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act. This prospectus, which is a part of the registration statement, does not contain all of the information set forth in the registration statement, including items contained in the exhibits to the registration statement. For further information about our company and the common stock being offered by this prospectus, you should see the registration statement and the exhibits, financial statements and notes filed with the registration statement. Statements made in this prospectus concerning other documents are not necessarily complete. The registration statement, including exhibits, financial statements and notes, may be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may be obtained from the Commission upon payment of fees prescribed by the Commission. Information on the operation of the public reference room may be obtained by calling the Commission at 1-800-SEC-0330. These reports and other information about our company may also be inspected without charge at a Web site maintained by the Commission at http://www.sec.gov.
UTSTARCOM, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants........................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Stockholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... F-30 Pro Forma Combined Statement of Operations--Year Ended December 31, 1998......................................... F-31 Pro Forma Combined Statement of Operations--Nine Months Ended September 30, 1999.................................. F-32 Pro Forma Combined Balance Sheet as of September 30, 1999... F-33 Notes to Unaudited Pro Forma Combined Financial Information............................................... F-34 |
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of UTStarcom, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of UTStarcom, Inc. and subsidiaries at December 31, 1997, 1998 and September 30, 1999 and the results of their operations and their cash flows for each of the years ended December 31, 1996, 1997 and 1998, and for the nine months ended September 30, 1999 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audits 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 PricewaterhouseCoopers LLP San Francisco, California December 16, 1999 |
UTSTARCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of
$1,500 and $14,292 at December 31, 1998 and
September 30, 1999..................................... $31,481 $ 17,626 $ 35,275
Accounts receivable, net of allowance for doubtful
accounts of $3,312, $3,957 and $5,718 at December 31,
1997, 1998 and September 30, 1999...................... 29,669 59,995 84,593
Receivable from related parties.......................... 3,333 24,829 4,012
Inventories, net of allowance for obsolete inventory of
$1,779, $2,445 and $3,699 at December 31, 1997, 1998
and September 30, 1999................................. 15,189 19,540 28,388
Other.................................................... 1,664 2,569 6,053
------- -------- --------
Total current assets....................................... 81,336 124,559 158,321
Property, plant and equipment, net......................... 6,726 8,345 7,902
Investment in affiliated companies......................... 1,676 3,496 5,200
Intangible assets, net..................................... 1,608 1,585 1,473
Net assets from discontinued operations.................... 3,557 2,146 --
Other...................................................... 1,033 1,990 3,787
------- -------- --------
Total assets............................................. $95,936 $142,121 $176,683
======= ======== ========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $18,242 $ 15,101 $ 21,161
Payable to related parties............................... -- 1,311 1,311
Third party debt......................................... 1,579 10,865 27,968
Debt to shareholder...................................... -- 26,250 14,356
Income taxes payable..................................... 365 1,297 2,457
Advance billings......................................... -- -- 2,665
Other.................................................... 5,735 13,423 22,939
------- -------- --------
Total current liabilities.................................. 25,921 68,247 92,857
------- -------- --------
Minority interest in consolidated subsidiaries............. 2,142 2,667 3,902
Stockholders' equity:
Convertible preferred stock: $.00125 par value; authorized:
80,200,000 shares; issued 57,518,068 at December 31,
1997, 59,635,754 at December 31, 1998, and 59,086,306 at
September 30, 1999; liquidation value of $167,829 at
September 30, 1999....................................... 72 74 73
Common stock: $.00125 par value; authorized: 123,614,032
shares; issued and outstanding: 9,807,006 at
December 31, 1997, 9,172,864 at December 31, 1998, and
10,049,174 at September 30 1999, including shares held in
treasury................................................. 12 12 13
Common stock warrant....................................... -- 1,983 389
Additional paid-in capital................................. 85,864 87,639 93,179
Deferred stock compensation................................ -- -- (5,270)
Accumulated deficit........................................ (15,647) (15,174) (4,938)
Notes receivable from shareholders......................... -- (369) (557)
Cumulative translation adjustment.......................... 172 95 95
------- -------- --------
70,473 74,260 82,984
Less cost of common stock held in treasury, 1,240,000
shares at December 31, 1997, 1,340,694 shares at
December 31, 1998, and 1,348,386 shares at September 30,
1999..................................................... (2,600) (3,053) (3,060)
------- -------- --------
Total stockholders' equity................................. 67,873 71,207 79,924
------- -------- --------
Total liabilities, minority interest, and stockholders'
equity................................................. $95,936 $142,121 $176,683
======= ======== ========
|
The accompanying notes are an integral part of these consolidated financial statements.
UTSTARCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
Net sales.......................................... $35,542 $75,597 $105,167 $79,878 $124,701
Cost of sales...................................... 22,322 48,795 65,246 48,670 72,677
------- ------- -------- ------- --------
Gross profit....................................... 13,220 26,802 39,921 31,208 52,024
Operating expenses:
Selling, general and administrative expenses..... 8,042 21,211 23,233 17,672 24,096
Research and development expenses................ 3,899 8,228 12,694 8,494 12,490
Amortization of deferred stock compensation...... -- -- -- -- 3,521
Amortization of intangible assets................ 42 40 120 65 112
------- ------- -------- ------- --------
Total operating expenses........................... 11,983 29,479 36,047 26,231 40,219
------- ------- -------- ------- --------
Operating income (loss)............................ 1,237 (2,677) 3,874 4,977 11,805
Interest income.................................... 677 2,738 1,711 2,450 1,384
Interest expenses.................................. (89) (756) (1,924) (2,684) (2,269)
Other income (expenses)............................ 270 5 (1,031) (101) 198
Equity in net income (loss) of affiliated
companies........................................ (291) (161) (596) (646) 984
------- ------- -------- ------- --------
Income (loss) before income taxes and minority
interest......................................... 1,804 (851) 2,034 3,996 12,102
Income tax expense (benefit)....................... 575 400 1,414 828 (1,023)
------- ------- -------- ------- --------
Income (loss) before minority interest............. 1,229 (1,251) 620 3,168 13,125
Minority interest in (earnings) loss of
consolidated subsidiaries........................ (743) 228 746 134 (1,233)
------- ------- -------- ------- --------
Income (loss) from continuing operations........... 486 (1,023) 1,366 3,302 11,892
Income (loss) from discontinued operations......... 301 1,413 (893) (796) (1,656)
------- ------- -------- ------- --------
Net income (loss)................................ 787 390 473 2,506 10,236
Mandatorily redeemable convertible preferred stock
dividend requirement............................. (1,097) -- -- -- --
------- ------- -------- ------- --------
Net income (loss) applicable to common stock..... $ (310) $ 390 $ 473 $ 2,506 $ 10,236
======= ======= ======== ======= ========
Basic earnings (loss) per share:
Income (loss) from continuing operations......... $ (0.07) $ (0.14) $ 0.18 $ 0.42 $ 1.38
Income (loss) from discontinued operations....... 0.03 0.19 (0.12) (0.10) (0.19)
------- ------- -------- ------- --------
Net income (loss)................................ $ (0.04) $ 0.05 $ 0.06 $ 0.32 $ 1.19
======= ======= ======== ======= ========
Diluted earnings (loss) per share:
Income (loss) from continuing operations......... $ (0.07) $ (0.14) $ 0.02 $ 0.04 $ 0.16
Income (loss) from discontinued operations....... 0.03 0.19 (0.01) (0.01) (0.02)
------- ------- -------- ------- --------
Net income (loss)................................ $ (0.04) $ 0.05 $ 0.01 $ 0.03 $ 0.14
======= ======= ======== ======= ========
Shares used in per-share calculation--basic...... 8,344 7,320 7,582 7,792 8,640
======= ======= ======== ======= ========
Shares used in per-share calculation--diluted.... 8,344 7,320 77,050 76,220 73,532
======= ======= ======== ======= ========
|
The accompanying notes are an integral part of these consolidated financial statements.
UTSTARCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PREFERRED STOCK
--------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
-------------------- --------------------- --------------------- ---------------------
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT
--------- -------- ---------- -------- ---------- -------- ---------- --------
Balances, December 31,
1996.......................
Exchange of common for
preferred stock............
Common stock issued upon
exercise of options........
Common stock dividend........
Reacquired common stock......
Common stock issued upon
exercise of warrants.......
Accreted dividends on
preferred stock............
Reclassification of preferred
stock to equity upon
elimination of mandatory
redemption feature......... 2,850,000 $4 14,492,752 $18 13,589,056 $17 8,032,128 $10
Translation adjustment.......
Distribution to
stockholders...............
Net income...................
--------- -- ---------- --- ---------- --- ---------- ---
Balances, December 31,
1997....................... 2,850,000 4 14,492,752 18 13,589,056 17 8,032,128 10
Common stock issued upon
exercise of options........
Stock dividend...............
Exchange of common for
preferred stock............
Contribution from
stockholders...............
Non-employee stock options
expenses...................
Stock warrant issued as
capital distribution.......
Reacquired common stock......
Notes receivable from
stockholders...............
Translation adjustment.......
Net income...................
--------- -- ---------- --- ---------- --- ---------- ---
Balances, December 31,
1998....................... 2,850,000 4 14,492,752 18 13,589,056 17 8,032,128 10
Common stock issued upon
exercise of options........
Reacquired common stock......
Stock reclassification.......
Amendment to stock warrant
issued as capital
distribution...............
Notes receivable from
stockholders...............
Deferred compensation related
to grant of stock
options....................
Amortization of deferred
stock compensation.........
Employee stock options
expenses...................
Distribution to
stockholders...............
Net income...................
--------- -- ---------- --- ---------- --- ---------- ---
Balances, September 30,
1999....................... 2,850,000 $4 14,492,752 $18 13,589,056 $17 8,032,128 $10
========= == ========== === ========== === ========== ===
PREFERRED STOCK
----------------------
SERIES E COMMON STOCK ADDITIONAL DEFERRED
---------------------- ---------------------- PAID-IN ACCUMULATED STOCK
ISSUED AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
----------- -------- ----------- -------- ---------- ----------- ------------
Balances, December 31,
1996....................... 25,055,312 $31 $ 12,338 $(11,459)
Exchange of common for
preferred stock............ 18,554,132 $23 (18,554,132) (23)
Common stock issued upon
exercise of options........ 184,002 210
Common stock dividend........ 2,540,000 3 13,825
Reacquired common stock......
Common stock issued upon
exercise of warrants....... 581,824 1 199
Accreted dividends on
preferred stock............ 4,578 (4,578)
Reclassification of preferred
stock to equity upon
elimination of mandatory
redemption feature......... 130,544
Translation adjustment.......
Distribution to
stockholders............... (75,830)
Net income................... 390
----------- --- ----------- --- -------- -------- -------
Balances, December 31,
1997....................... 18,554,332 23 9,807,006 12 85,864 (15,647) --
Common stock issued upon
exercise of options........ 483,544 1 479
Stock dividend............... 945,850 1 54,150
Exchange of common for
preferred stock............ 1,171,836 1 (1,171,836) (1)
Contribution from
stockholders............... 2,867
Non-employee stock options
expenses................... 412
Stock warrant issued as
capital distribution....... (1,983)
Reacquired common stock......
Notes receivable from
stockholders...............
Translation adjustment.......
Net income................... 473
----------- --- ----------- --- -------- -------- -------
Balances, December 31,
1998....................... 20,671,818 25 9,172,864 12 87,639 (15,174) --
Common stock issued upon
exercise of options........ 319,170 244
Reacquired common stock...... 7,692
Stock reclassification....... (549,448) (1) 549,448 1
Amendment to stock warrant
issued as capital
distribution............... 1,594
Notes receivable from
stockholders...............
Deferred compensation related
to grant of stock
options.................... 8,791 $(8,791)
Amortization of deferred
stock compensation......... 3,521
Employee stock options
expenses................... 1,461
Distribution to
stockholders............... (6,550)
Net income................... 10,236
----------- --- ----------- --- -------- -------- -------
Balances, September 30,
1999....................... 20,122,370 $24 10,049,174 $13 $ 93,179 $ (4,938) $(5,270)
=========== === =========== === ======== ======== =======
NOTES CUMULATIVE COMMON TOTAL
RECEIVABLE TRANSLATION STOCK TREASURY STOCKHOLDERS'
FROM STOCKHOLDERS ADJUSTMENT WARRANT STOCK EQUITY
----------------- ----------- -------- -------- -------------
Balances, December 31,
1996....................... $197 $(1,500) $ (393)
Exchange of common for
preferred stock............ --
Common stock issued upon
exercise of options........ 210
Common stock dividend........ 13,828
Reacquired common stock...... (1,100) (1,100)
Common stock issued upon
exercise of warrants....... 200
Accreted dividends on
preferred stock............ --
Reclassification of preferred
stock to equity upon
elimination of mandatory
redemption feature......... 130,593
Translation adjustment....... (25) (25)
Distribution to
stockholders............... (75,830)
Net income................... 390
----- ---- ------- ------- --------
Balances, December 31,
1997....................... -- 172 -- (2,600) 67,873
Common stock issued upon
exercise of options........ 480
Stock dividend............... 1
Exchange of common for
preferred stock............ --
Contribution from
stockholders............... 2,867
Non-employee stock options
expenses................... 412
Stock warrant issued as
capital distribution....... $ 1,983 --
Reacquired common stock...... (453) (453)
Notes receivable from
stockholders............... $(369) (369)
Translation adjustment....... (77) (77)
Net income................... 473
----- ---- ------- ------- --------
Balances, December 31,
1998....................... (369) 95 1,983 (3,053) 71,207
Common stock issued upon
exercise of options........ 244
Reacquired common stock...... (7) (7)
Stock reclassification....... --
Amendment to stock warrant
issued as capital
distribution............... (1,594) --
Notes receivable from
stockholders............... (188) (188)
Deferred compensation related
to grant of stock
options.................... --
Amortization of deferred
stock compensation......... 3,521
Employee stock options
expenses................... 1,461
Distribution to
stockholders............... (6,550)
Net income................... 10,236
----- ---- ------- ------- --------
Balances, September 30,
1999....................... $(557) $ 95 $ 389 $(3,060) $ 79,924
===== ==== ======= ======= ========
|
The accompanying notes are an integral part of these consolidated financial statements.
UTSTARCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 787 $ 390 $ 473 $ 2,506 $ 10,236
Adjustments to reconcile net income to net cash used in
operating activities:
(Income) loss from discontinued opeations................. (301) (1,413) 893 796 1,656
Depreciation and amortization............................. 512 1,255 2,520 1,214 1,977
Net loss on sale of assets................................ -- -- 73 254 470
Amortization of deferred stock compensation............... -- -- -- -- 3,521
Non-employee stock option expenses........................ -- -- 411 -- 1,461
Equity in net income (loss) of affiliated companies....... 291 161 596 646 (984)
Provision for doubtful accounts........................... 360 2,653 645 124 1,761
Provision for inventory obsolescence...................... 784 1,612 666 1,910 1,254
Minority interest......................................... 743 (228) (779) (135) 1,233
Changes in operating assets and liabilities:
Accounts receivable and receivable from related
parties............................................... (15,583) (22,371) (52,451) (55,001) (11,102)
Inventories............................................. (3,255) (10,535) (5,080) (3,600) (10,102)
Other current and non-current assets.................... 827 (4,262) (874) (3,403) (2,989)
Deferred tax assets..................................... (59) (59) (1,348) (1,348) (2,697)
Accounts payable and payable to related parties......... 2,899 2,379 (1,956) (1,774) (5,835)
Income taxes payable.................................... 328 (151) 930 1,833 1,160
Other current liabilities............................... 363 4,638 8,635 6,746 9,016
Deferred revenue........................................ (1,063) (475) -- 31 2,664
-------- -------- -------- -------- --------
Net cash (used in) provided by continuing operations........ (12,367) (26,406) (46,646) (49,201) 2,700
Net cash (used in) provided by discontinued operations...... 204 23 207 244 (530)
-------- -------- -------- -------- --------
Net cash (used in) provided by operating activities......... (12,163) (26,383) (46,439) (48,957) 2,170
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (2,491) (3,244) (2,751) (2,358) (2,483)
Investment in affiliates, net of cash acquired.............. (3,659) (321) 1,097 995 (719)
Proceeds from disposal of property.......................... -- -- -- -- 997
Restricted cash............................................. 5,000 -- -- -- --
-------- -------- -------- -------- --------
Net cash used in continuing operations...................... (1,150) (3,565) (1,654) (1,363) (2,205)
Net cash (used in) provided by discontinued operations...... 149 (133) (36) (36) 179
-------- -------- -------- -------- --------
Net cash used in investing activities....................... (1,001) (3,698) (1,690) (1,399) (2,026)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................... 47 410 480 273 56
Issuance of subsidiary common stock to minority
stockholders.............................................. 346 -- -- -- --
Reacquired common stock..................................... (1,500) (1,100) (453) -- (7)
Distribution of cash to shareholders........................ -- (50,820) -- -- --
Proceeds from borrowing..................................... 438 1,147 48,122 43,313 31,935
Payments on borrowing....................................... (16) (1,128) (13,627) (9,528) (14,830)
Issuance of preferred stock................................. 26,968 55,678 -- -- --
Reacquired preferred stock.................................. (2,070) -- -- -- --
Payments on shareholder note receivable..................... -- 35,000 -- -- --
Advance from affiliate...................................... (5,000) 4,042 -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing activities of continuing
operations................................................ 19,213 43,229 34,522 34,058 17,154
Effects of exchange rates on cash........................... 21 (25) (77) (58) --
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 6,070 13,123 (13,684) (16,356) 17,298
Less cash (used in) provided by discontinued operations..... 353 (110) 171 208 (351)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 5,717 13,233 (13,855) (16,564) 17,649
Cash and cash equivalents at beginning of period............ 12,531 18,248 31,481 31,481 17,626
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 18,248 $ 31,481 $ 17,626 $ 14,917 $ 35,275
======== ======== ======== ======== ========
|
The accompanying notes are an integral part of these consolidated financial statements.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION:
UTStarcom, Inc. (the Company), a Delaware corporation, provides communications equipment including network access systems, optical transmission products and subscriber terminal products for service providers that operate wireless and wireline networks. The Company's operations are conducted primarily by its foreign subsidiaries that manufacture, distribute, and support the Company's products in international markets, principally the People's Republic of China (China).
The following lists the Company's active subsidiaries, its percentage ownership, and business each subsidiary operates as of September 30, 1999:
PERCENTAGE
NAME OWNED TYPE OF OPERATIONS
---- ---------- ------------------
UTStarcom-China (UTSC).............. 100% Marketing and sales of telecom equipment
Hangzhou UTStarcom, Ltd. (HUTS)..... 88% Manufacturing of telecom equipment
Guangdong UTStarcom, Ltd. (GUTS).... 51% Manufacturing of telecom equipment
Wacos, Inc. (Wacos)................. 51% Conducting research & development
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the accounts of the Company and its wholly and majority (50 percent or more) owned subsidiaries, except for GUTS which is accounted for using the equity method as the Company does not have voting control over all significant matters. All significant intercompany accounts and transactions have been eliminated in preparation of the consolidated financial statements. Minority interest in consolidated subsidiaries and equity in affiliated companies are shown separately in the consolidated financial statements. Investments in affiliated companies, of which none represent greater than 10 percent ownership, are accounted for using the cost method.
UNAUDITED INTERIM FINANCIAL INFORMATION:
The accompanying interim statement of operations and cash flows for the nine months ended September 30, 1998 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and financial statements for the period ended September 30, 1999 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's results of operations and cash flows for the nine months ended September 30, 1998. The financial data and other information related to this period that are disclosed in these notes to consolidated financial statements are unaudited.
RESTATEMENT AND RECLASSIFICATION:
The consolidated financial statements of the Company have been restated to reflect the disposition of Nanjing UTStarcom, Ltd. (NUTS). (See Note 4). Accordingly, the revenues, costs and expenses, assets and liabilities and cash flows of these discontinued operations have been excluded from the respective captions in the Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows, and have been reported through the dates of dispositions as
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
"Net assets from discontinued operations", "Income (loss) from discontinued operations" and "Net cash (used in) provided by discontinued operations" for all periods presented.
Certain reclassifications have been made in the prior years financial statements to conform with the 1999 presentation.
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 disclosures 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.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of highly liquid investments with original maturity of three months or less at date of purchase. Restricted cash at December 31, 1998 and September 30, 1999 consisted of the following:
1998 1999
-------- --------
Collateral for letters of credit........................... $ -- $ 1,488
Cash in escrow............................................. -- 11,304
Cash collateral............................................ 1,500 1,500
------ -------
$1,500 $14,292
====== =======
|
Restricted cash balances are expected to be released within three months of being recorded and are treated as part of cash and cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost or market, net of allowance for obsolescence. Cost is computed using standard cost, which approximates to actual cost on a first-in, first-out basis.
WARRANTY COSTS:
A warranty is provided under the terms of the Company's contract for a period not greater than one year. The Company provides for these costs at the time of revenue recognition based upon prior experience.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost and are stated net of accumulated depreciation. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets, generally ranging from two to ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvements or the term of the lease.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in the results of operations. The Company generally depreciates its assets over the following periods:
Buildings................................................... 10 years Leasehold improvements...................................... 2-10 years Automobiles................................................. 5 years Equipment and furniture..................................... 2-7 years |
INTANGIBLE ASSETS:
Intangible assets are the excess of costs of acquired companies over the fair value of net assets acquired (goodwill) and are amortized on a straight-line basis generally over 5 years.
IMPAIRMENT OF LONG-LIVED ASSETS:
Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), requires that long-lived assets and certain intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If undiscounted expected future cash flows are less than the carrying value of the assets, an impairment loss is to be recognized based on the fair value of the assets. The Company considers the requirements of SFAS 121 on an ongoing basis.
STOCK-BASED COMPENSATION
The Company accounts for employee stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
The value of warrants, options or stock exchanged for services is expensed over the period benefitted. The warrants and options are valued using the Black-Scholes option pricing model. To calculate the expense, the Company uses either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components and is effective for periods beginning after December 15, 1997. The Company's comprehensive income approximated net income for all periods presented.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES:
Deferred income taxes are established based on enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company does not provide for U.S Federal taxes on undistributed earnings of its foreign subsidiaries or affiliates as they are considered to be reinvested for an indefinite period.
REVENUE RECOGNITION:
Revenue from product sales of hardware is recognized when title is passed, all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Revenues and estimated profits on longer term contracts, typically lasting no more than three to four months, are generally recognized under the percentage of completion method based on the costs incurred relative to total estimated costs. Percentage of completion profit estimates are revised periodically based on changes in facts and any losses on contracts are recognized immediately. The introduction of longer term contracts in 1999 led to advance billings of $2,665 being recognized on the balance sheet.
SEGMENT REPORTING:
Effective May 1, 1998, the Company adopted the Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that an enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company has determined that they operate in a single segment as defined by SFAS 131, providing communications equipment through an integrated suite of network access systems, optical transmission products and subscriber terminal products. Adoption of this standard does not affect the Company's results of operations or financial position.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial instruments consist of cash and cash equivalents, accounts receivable and payable, and debt. The carrying amounts of cash and cash equivalents, accounts receivable and payable approximate their fair values because of the short term nature of those instruments. The carrying amounts of debt approximate their fair values because of either the short maturity or the variable interest rates of those instruments.
FOREIGN CURRENCY TRANSLATIONS:
Operations of the Company's subsidiaries are conducted primarily in China and the financial statements of those subsidiaries are translated from China's Renminbi, as functional currency, into U.S. Dollars in accordance with the Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52"). Accordingly, all foreign currency assets and liabilities are translated at period-end exchange rates, while revenue and expenses are translated at the average exchange rate for the period. The effects of translating the financial statements of foreign subsidiaries into U.S. dollars
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
are reported as a cumulative translation adjustment, a separate component of stockholders' equity. Foreign currency translation gains and losses have not been material for 1997, 1998 and the nine months ended September 30, 1999.
EARNINGS (LOSS) PER SHARE:
The Company computes earnings (loss) per share pursuant to the Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Basic earnings (loss) per share is computed by dividing income or loss applicable to common stockholders by the weighted average number of shares of the Company's common stock outstanding during the period. Diluted earnings (loss) per share is determined in the same manner as basic earnings (loss) per share except that the number of shares is increased assuming exercise of dilutive stock options and warrants using the treasury stock method and conversion of the Company's convertible preferred stock. (See Note 3)
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. EARNINGS (LOSS) PER SHARE:
The following table presents the calculation of basic and diluted earnings
(loss) per share:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ------------ ----------- ----------- ----------
(UNAUDITED)
Numerator:
Income (loss) from continuing
operations......................... $ 486 $ (1,023) $ 1,366 $ 3,302 $ 11,892
Mandatory redeemable convertible
preferred stock dividend
requirement........................ (1,097) -- -- -- --
----------- ------------ ----------- ----------- ----------
Income (loss) from continuing
operations after preferred stock
dividend requirement............... (611) (1,023) 1,366 3,302 11,892
Income (loss) from discontinued
operations......................... 301 1,413 (893) (796) (1,656)
----------- ------------ ----------- ----------- ----------
Net income (loss) applicable to
common stock....................... $ (310) $ 390 $ 473 $ 2,506 $ 10,236
=========== ============ =========== =========== ==========
Denominator:
Weighted-average shares
outstanding........................ 8,344 7,320 7,582 7,792 8,640
Dilutive warrants.................... -- -- 10 6 14
Dilutive convertible preferred
shares............................. -- -- 63,608 62,722 59,086
Dilutive options..................... -- -- 5,850 5,700 5,792
----------- ------------ ----------- ----------- ----------
8,344 7,320 77,050 76,220 73,532
=========== ============ =========== =========== ==========
Basic earnings (loss) per share:
Income (loss) from continuing
operations......................... $ (0.07) $ (0.14) $ 0.18 $ 0.42 $ 1.38
Income (loss) from discontinued
operations......................... 0.03 0.19 (0.12) (0.10) (0.19)
----------- ------------ ----------- ----------- ----------
$ (0.04) $ 0.05 $ 0.06 $ 0.32 $ 1.19
=========== ============ =========== =========== ==========
Diluted earnings (loss) per share:
Income (loss) from continuing
operations......................... $ (0.07) $ (0.14) $ 0.02 $ 0.04 $ 0.16
Income (loss) from discontinued
operations......................... 0.03 0.19 (0.01) (0.01) (0.02)
----------- ------------ ----------- ----------- ----------
$ (0.04) $ 0.05 $ 0.01 $ 0.03 $ 0.14
=========== ============ =========== =========== ==========
|
4. DISCONTINUED OPERATIONS:
During September 1999, the Company closed NUTS in China. NUTS, which was 100% owned, was engaged in telephone network and internet network services unrelated to the remaining Company operations. NUTS sold substantially all of its assets prior to closure. The close of NUTS was accounted for as a discontinued operation.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company's previous interests in the net revenues and expenses of NUTS'
operations prior to September 30, 1999 are classified separately as income
(loss) from discontinued operations in the income statements. The components of
the income or loss are summarized as follows:
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
Net sales............................... $3,141 $8,499 $4,457 $ 298
Operating expenses and cost of sales.... 2,840 7,029 5,345 1,369
------ ------ ------ -------
Operating income (loss)................. 301 1,470 (888) (1,071)
Other income (expenses)................. -- (57) (5) (585)
------ ------ ------ -------
Income (loss) from discontinued
operations............................ $ 301 $1,413 $ (893) $(1,656)
====== ====== ====== =======
|
The Company's previous interest in the net assets and liabilities of NUTS is classified as net assets from discontinued operations in the Company's balance sheets. The components of these net assets are summarized below:
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
Current assets................................. $ 7,339 $2,650 --
Noncurrent assets.............................. 211 182 --
Current liabilities............................ (3,993) (686) --
------- ------ ------
Net assets from discontinued operations........ $ 3,557 $2,146 --
======= ====== ======
|
The Company's cash flow statements include separately the cash flows from discontinued operations.
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
Cash paid during the period for:
Interest........................... $119 $ 184 $ 564 $341 $2,493
Income taxes....................... $548 $1,654 $1,076 $523 $1,120
|
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: (CONTINUED)
Noncash investing and financing activities were as follows:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
Note received for mandatorily redeemable
convertible preferred stock.................. $35,000 $ -- $ -- $ -- $ --
Exchange of common stock for preferred stock... $ -- $35,253 $ -- $ -- $ --
Share in APIC of minority shareholder in
Wacos........................................ $ -- $ -- $2,867 $2,867 $ --
Distribution of net assets to shareholders..... $ -- $25,010 $1,983 $ -- $4,956
|
6. ACQUISITION OF COMPANIES:
During 1996, the Company invested approximately $955 into Zhejiang Unitel Telecom Equipment, Ltd. (UTL) for an additional 19% ownership interest, thereby increasing its ownership to 70%. During 1997, the Company merged UTL into HUTS, thereby owning 86% of the combined new entity. Concurrent with this combination, the Company acquired approximately a 2% additional interest in the combined entity for $780 in cash, which increased its ownership interest to 88%. The purchase of additional interest in the new entity was accounted for as a purchase resulting in an insignificant excess of the purchase price over the fair value of the net assets acquired.
In February 1996, the Company purchased a 65% interest in NST for approximately $1,200. This transaction was accounted for as a purchase resulting in an intangible asset for the insignificant excess of the purchase price of NST over the fair value of the net assets. The accounts of NST have been included in the consolidated financial statements subsequent to February 1996.
In September 1996, the Company purchased a 49% interest in GUTS for approximately $1,200. In February 1998, the Company acquired an additional 2% interest in GUTS for $80, increasing its ownership interest to 51%. However, because the Company does not have voting control over all significant matters of GUTS, the investment in and results of operations of GUTS are included in the consolidated financial statements using the equity method of accounting. The purchase of the additional interest in GUTS has been accounted for as a purchase resulting in an intangible asset for the insignificant excess of the purchase price of GUTS over the fair value of the net assets.
In February 1997, the Company purchased a 49% interest in Wacos for approximately $322. From 1997 through June 1998, the Company recorded its interest in Wacos operations using the equity method of accounting. Since July 1998, when Wacos reacquired 150,000 shares of its common stock and the Company's ownership increased to 51%, Wacos has been included in the consolidated financial statements of the Company. The purchase of the additional interest in Wacos has been accounted for as a purchase resulting in an intangible asset for the insignificant excess of the purchase price of Wacos over the fair value of the net assets.
7. DISTRIBUTION TO SHAREHOLDERS:
In August 1999 the Company distributed to its shareholders the net assets of a previously consolidated yet unrelated business which was acquired in 1997. This business, which operated in a
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. DISTRIBUTION TO SHAREHOLDERS: (CONTINUED)
dissimilar market segment, has been managed and financed, in all significant respects, as if it were autonomous from the Company. These financial statements have been prepared as if the acquired business was distributed on the original date of purchase in 1997. The original purchase price totalling $75,830 comprised cash of $50,820, notes payable and other acquisition costs of $11,185, the issuance of 2,540,000 shares of UTStarcom common stock valued at $13,825 and additional shares of UTStarcom stock and warrants to be determined based on the post acquisition performance of the acquired business. Common and Series E preferred stock was issued in 1998 and subsequently amended in 1999. A warrant to purchase common stock with a Black-Scholes value of $1,983 was issued in 1998 and was subsequently amended in 1999, resulting in a net value of $389 at September 30, 1999.
8. INVENTORIES:
As of December 31, 1997, 1998 and September 30, 1999 inventories consist of the following:
1997 1998 1999
-------- -------- --------
Raw materials.................................... $10,252 $ 9,572 $16,877
Work in process.................................. 3,221 6,518 3,673
Finished goods................................... 3,495 5,895 11,537
------- ------- -------
$16,968 $21,985 $32,087
Less allowance for obsolete inventory............ 1,779 2,445 3,699
------- ------- -------
$15,189 $19,540 $28,388
======= ======= =======
|
9. PROPERTY, PLANT AND EQUIPMENT:
As of December 31, 1997, 1998, and September 30, 1999 property, plant and equipment consists of the following:
1997 1998 1999
-------- -------- --------
Buildings......................................... $ 465 $ 362 $ 388
Leasehold improvements............................ 399 128 958
Automobiles....................................... 872 903 1,099
Equipment and furniture........................... 6,479 10,670 11,010
------ ------- -------
8,215 12,063 13,455
Less accumulated depreciation..................... 1,489 3,718 5,553
------ ------- -------
$6,726 $ 8,345 $ 7,902
====== ======= =======
|
Depreciation expense was $453, $1,215, $2,402 and $1,865 for the years ended December 31, 1996, 1997, 1998 and the nine months ended September 30, 1999 respectively.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. INTANGIBLE ASSETS:
As of December 31, 1997, 1998, and September 30, 1999 intangible assets consists of the following:
1997 1998 1999
-------- -------- --------
Excess of purchase price over net assets acquired... $1,721 $1,816 $1,816
Less accumulated amortization....................... 113 231 343
------ ------ ------
$1,608 $1,585 $1,473
====== ====== ======
|
Amortization expense was $42, $40, $120 and $112 for the years ended December 31, 1996, 1997, 1998 and the nine months ended September 30, 1999 respectively.
11. RELATED PARTY DEBT:
Payable to related parties and debt to shareholder at December 31, 1998 and September 30, 1999 consist of the following:
1998 1999
-------- --------
Payable to related party(1)............................... $ 1,311 $ 1,311
======= =======
Debt to shareholder--SOFTBANK CORP.(2).................... $26,250 $ 9,055
Debt to shareholder--SOFTBANK CORP.(3).................... -- 5,301
------- -------
Total debt to shareholder................................. $26,250 $14,356
======= =======
|
(1) Amount bears interest at a rate of 5.5% per annum and has no scheduled payment terms.
(2) In June 1998, the Company entered into a loan agreement with SOFTBANK CORP. (SOFTBANK), the Company's principal shareholder, for the total amount of $25,000. As of September 30, 1999, a $9,055 balance was outstanding including $55 of accrued interest. The loan bears interest at 10% per annum and must be repaid on the earlier of (a) two business days after the close of an initial public offering of the Company's equity securities or (b) two years after the last drawdown date.
(3) Jitong, a company in China with which the Company had a management consulting agreement, paid UTSC Renminbi 44,000 ($5,301) for the repayment of a loan made by SOFTBANK to Jitong. Repayment of this amount to SOFTBANK is planned for the first quarter of 2000. This payable is a non interest bearing balance.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
12. THIRD PARTY DEBT:
The following represents the outstanding borrowings at December 31, 1998 and September 30, 1999:
NOTE RATE MATURITY 1997 1998 1999
---- ------------------- ----------------- -------- -------- --------
Bank of China(1).......... From 5.58% to 6.40% From 1/00 to 7/00 $1,566 $ 9,398 $26,506
Industrial & Commercial
Bank of China(2)........ 6.57% 2/00 -- 1,446 1,446
Other..................... Various Various 13 21 16
------------------- ----------------- ------ ------- -------
Total debt................ $1,579 $10,865 $27,968
====== ======= =======
|
(1) Guaranteed by the Company and the minority shareholder of HUTS. This represents drawings on the Company's line of credit with the bank. This line of credit allows for borrowings of up to $48,193; therefore, $21,687 is available under this facility at September 30, 1999.
(2) Collateralized by $1,500 deposited with the bank and is classified as other assets. This line of credit allows for borrowings of up to $1,446 and matures on February 3, 2000.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. OTHER CURRENT LIABILITIES:
Other current liabilities at December 31, 1997, 1998 and September 30, 1999 consist of the following:
1997 1998 1999
-------- -------- --------
Customer deposits................................. $1,025 $ 605 $ 1,137
Accrued contract costs............................ 2,453 7,204 12,650
Accrued compensation and bonus.................... 837 1,944 2,602
Accrued other taxes............................... -- -- 1,724
Warranty costs.................................... 548 997 1,997
Other............................................. 872 2,673 2,829
------ ------- -------
$5,735 $13,423 $22,939
====== ======= =======
|
14. PROVISION FOR INCOME TAXES:
United States and foreign income (loss) before income taxes, loss on discontinued operations, and minority interest were as follows:
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
United States........................ $(1,499) $ 274 $(3,996) $(6,606)
Foreign.............................. 3,303 (1,125) 6,030 18,708
------- ------- ------- -------
$ 1,804 $ (851) $ 2,034 $12,102
======= ======= ======= =======
|
Undistributed foreign earnings at September 30, 1999 amounted to $27,835.
The components of the provision for income taxes are as follows:
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
CURRENT:
Federal................................. $123 $176 $ 0 $ 272
State................................... 2 50 1 18
Foreign................................. 509 190 934 985
DEFERRED:
Federal................................. (19) 113 632 (1,625)
State................................... (40) 15 (239) 30
Foreign................................. -- (144) 86 (703)
---- ---- ------ -------
$575 $400 $1,414 $(1,023)
==== ==== ====== =======
|
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. PROVISION FOR INCOME TAXES: (CONTINUED)
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. A summary of the components of net deferred tax assets is as follows:
U.S. CHINA TOTAL
-------- -------- --------
DECEMBER 31, 1997:
Deferred tax assets:
Net operating loss carryforward................... $ 10 $ -- $ 10
Allowances and reserves........................... 154 144 298
Tax credit carryforwards.......................... 863 -- 863
------- ------ -------
Total deferred tax assets....................... 1,027 144 1,171
Deferred tax liabilities:
Accelerated depreciation.......................... (181) -- (181)
------- ------ -------
846 144 990
Valuation allowances.............................. (734) -- (734)
------- ------ -------
Net deferred tax assets......................... $ 112 $ 144 $ 256
======= ====== =======
|
U.S. CHINA TOTAL
-------- -------- --------
DECEMBER 31, 1998:
Deferred tax assets:
Net operating loss carryforward................... $ 1,459 $ -- $ 1,459
Allowances and reserves........................... 629 454 1,083
Tax credit carryforwards.......................... 1,168 1,168
------- ------ -------
Total deferred tax assets....................... 3,256 454 3,710
Deferred tax liabilities:
Accelerated depreciation.......................... (280) (280)
------- ------ -------
2,976 454 3,430
Valuation allowances.............................. (1,629) (1,629)
------- ------ -------
Net deferred tax assets......................... $ 1,347 $ 454 $ 1,801
======= ====== =======
|
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. PROVISION FOR INCOME TAXES: (CONTINUED)
U.S. CHINA TOTAL
-------- -------- --------
SEPTEMBER 30, 1999:
Deferred tax assets:
Net operating loss carryforward................... $ 2,095 $ -- $ 2,095
Allowances and reserves........................... 2,976 1,158 4,134
Tax credit carryforwards.......................... 2,367 2,367
------- ------ -------
Total deferred tax assets....................... 7,438 1,158 8,596
Deferred tax liabilities:
Accelerated depreciation.......................... (284) (284)
------- ------ -------
7,154 1,158 8,312
Valuation allowances.............................. (3,967) (3,967)
------- ------ -------
Net deferred tax assets......................... $ 3,187 $1,158 $ 4,345
======= ====== =======
|
Net deferred tax assets are included in other assets on the balance sheet.
As of September 30, 1999, the Company has research and development credit carryforwards of approximately $1,025 for federal tax purposes expiring in varying amounts between 2001 and 2012. Due to changes in the Company's ownership, the amount of research and development credit carryforwards available to offset future federal income tax liabilities may be limited. The amount of such limitation, if any, has not been determined. Management believes that the Company's ability to use their deferred tax assets is limited based on the expectation that they will not be able to fully utilize either the tax net operating losses of Wacos, or the research and development credits created in Wacos and the Company's other research and development center in the US. The Company has created a partial valuation allowance in consideration of these expectations.
UTSC and HUTS were granted tax holidays which started to phase out in 1999. The net impact of these tax holidays was to decrease net loss by approximately $835 in 1997, increase net income by approximately $305 for the year ended December 31, 1998, and increase net income of UTSC and HUTS by approximately $3,050 for the nine months ended September 30, 1999. One time tax refunds of $360 were received during the nine months ended September 30, 1999.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. PROVISION FOR INCOME TAXES: (CONTINUED)
The difference between the Company's effective income tax rate and the Federal statutory rate is reconciled below:
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
Federal statutory rate................................. (34)% 34 % 34 %
State taxes, net of federal income tax benefit......... (2) (6) (1)
Permanent differences.................................. (4) 9 (7)
Effect of difference in foreign taxes rates............ (33) (19) (32)
Change in valuation allowance.......................... 117 44 18
Other.................................................. 3 7 (34)
--- --- ---
Effective rate......................................... 47 % 69 % (22)%
=== === ===
|
15. CONVERTIBLE PREFERRED STOCK:
The Company is authorized to issue 80,200,000 shares of convertible
preferred stock, of which: (1) 4,000,000 shares are designated as Series A,
(2) 16,000,000 shares as Series B, (3) 14,000,000 shares as Series C,
(4) 8,200,000 shares as Series D, and (5) 38,000,000 shares as Series E.
Each share of preferred stock is convertible into common stock at the option of the holder on a one-for-one basis, subject to certain adjustments. Each series of preferred stock will automatically convert upon the earliest of the closing date of an underwritten public offering of the Company's common stock with aggregate proceeds of at least $8,000, or at the option of the holders of the outstanding shares of such series. The Company has reserved common shares sufficient to cover any conversion.
Holders of the preferred stock are entitled to one vote for each share of common stock into which such shares may be converted.
Each share of Series A, Series B, Series C, Series D and Series E preferred stock entitles the holder to receive annual noncumulative dividends of $0.05, $0.104, $0.172, $0.311 and $0.272, respectively, in preference to holders of shares of common stock, if and when declared by the Board of Directors. No dividends have been declared to date.
In the event of any liquidation or dissolution, the holders of Series A, Series B, Series C, Series D and Series E would be entitled to receive $1.00, $2.12, $3.44, $6.225, and $1.90 per share, respectively, plus all declared but unpaid dividends prior and in preference to any distribution to holders of common stock. After payment has been made to the holders of the preferred stock, any remaining assets shall be distributed ratably among the holders of the preferred and common stock based on the number of shares of common stock held, or, in the case of preferred stock, the number of shares of common stock which the preferred stock could be converted into. If the Company's assets are insufficient to provide for a full preference amount for the preferred stock outstanding, then such assets shall be distributed ratably among the holders of the preferred stock in proportion to the preferential amount each such holder would be entitled to receive.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
15. CONVERTIBLE PREFERRED STOCK: (CONTINUED)
At December 31, 1996, preferred shares and accreted dividends were classified outside of stockholders' equity because of their mandatory redemption feature. In December 1997, the shareholders approved the Eighth Amended and Restated Certificate of Incorporation, which eliminated the mandatory redemption and cumulative annual dividend features of all outstanding series of preferred stock. Accordingly, the preferred stock was recorded in stockholders' equity, and the accreted dividends amounting to $270, $1,097 and $4,578 in 1995, 1996 and 1997, respectively, were recorded in additional paid-in capital.
During 1997, the Company offered to all its common stockholders the option of exchanging shares of common stock for shares of Series E preferred stock. As of September 30, 1999, the exchange had been completed, and the Company had issued 14,581 shares of Series E preferred stock in connection with this exchange.
16. STOCKHOLDERS' EQUITY:
In connection with the grant of certain stock options to employees, the Company recorded deferred stock compensation of $8,791 during the nine months ended September 30, 1999, representing the difference between the deemed fair value of common stock for accounting purposes and the option exercise price of these options at the date of grant. Deferred compensation is presented as a reduction of stockholders' equity, with amortization recorded over the four year vesting period. The Company recorded amortization of deferred stock compensation of approximately $3,521 during the nine months ended September 30, 1999. At September 30, 1999 approximately $5,270 remained to be amortized over the corresponding vesting period of each respective option, generally four years. The amortization expense relates to options awarded to employees in all operating expense categories.
17. COMMON STOCK WARRANTS:
In May 1994, the Company issued warrants to purchase 582,000 shares of common stock at $0.345 per share through May 31, 1999. These warrants were issued in conjunction with the Company's Series A preferred stock financing. The warrants were exercised for $200 in October 1997.
In December 1998, the Company issued warrants to purchase 2,000,000 shares of common stock at $6.25 per share as part of the acquisition and distribution of assets to the Company's shareholders as discussed in Note 7. The fair value of the warrants ($1,983) was determined using a Black-Scholes model. On September 30, 1999, the Company amended the distribution value, and the number of shares which may be issued upon exercise of the warrant was reduced to 500,000 shares. The fair value of the warrants was reduced to $389.
18. STOCK OPTION PLANS:
1992 OMNIBUS EQUITY INCENTIVE PLAN. On April 12, 1992, the Board of Directors adopted our 1992 Omnibus Equity Incentive Plan, which our stockholders ratified on December 9, 1994. Under the 1992 plan, directors, employees and consultants were eligible to acquire shares of common stock pursuant to options, stock purchase rights and stock appreciation rights. At the time of adoption, 2,400,000 shares of common stock were reserved for issuance under the 1992 plan. On July 31, 1995, the Board of Directors elected not to grant any further options under the 1992 plan.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
18. STOCK OPTION PLANS: (CONTINUED)
THE 1995 STOCK PLAN. On July 31, 1995, the Board of Directors adopted, and in October 1995, our stockholders approved, our 1995 Stock Plan. Under the 1995 plan, officers, employees and consultants were eligible to acquire shares of common stock pursuant to options or stock purchase rights. At the time of adoption, 3,705,232 shares of common stock were reserved for issuance under the 1995 plan. In 1995 and 1996, our Board and stockholders added an additional 5,400,000 shares to the 1995 plan, raising the total number of authorized shares reserved under the 1995 plan to 9,105,232. On January 31, 1997, the Board of Directors elected not to grant any further options under the 1995 plan. Upon the adoption of the 1997 plan, all remaining unissued shares under the 1995 plan not already subject to options or other awards ceased to be reserved for issuance under the 1995 plan.
THE 1997 STOCK PLAN. On January 31, 1997, the Board of Directors adopted, and our stockholders approved, our 1997 Stock Plan. Under the 1997 plan, officers, employees and consultants are eligible to receive options to purchase shares of common stock and stock purchase rights. Under the plan, we are authorized to issue up to 5,289,462 shares of common stock.
Options under the Company's stock option plans may be either "Incentive Stock Options", as defined under Section 422 of the Internal Revenue Code, or "Nonqualified Options". A summary of activity under the Plans follows:
WEIGHTED
SHARES AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES EXERCISE PRICE
---------------- ---------- --------------
Options Outstanding December 31, 1995......... 10,689,462 4,380,224 $0.91
Options Granted............................... (3,444,162) 3,444,162 $1.28
Options Exercised............................. -- (53,328) $0.88
Options Forfeited or Expired.................. 12,000 (12,000) $0.94
---------- ----------
Options Outstanding December 31, 1996......... 7,257,300 7,759,058 $1.07
Options Granted............................... (1,735,178) 1,735,178 $2.50
Options Exercised............................. -- (184,002) $1.14
Options Forfeited or Expired.................. (1,733,838) (358,886) $2.06
---------- ----------
Options Outstanding December 31, 1997......... 3,788,284 8,951,348 $1.31
Options Granted............................... (2,611,198) 2,611,198 $3.53
Options Exercised............................. -- (483,544) $1.00
Options Forfeited or Expired.................. 1,120,010 (1,424,380) $2.71
---------- ----------
Options Outstanding December 31, 1998......... 2,297,096 9,654,622 $1.72
Options Granted............................... (2,717,332) 2,717,332 $4.50
Options Exercised............................. -- (326,862) $0.75
Options Forfeited or Expired.................. 573,376 (593,102) $3.56
---------- ----------
Options Outstanding September 30, 1999........ 153,140 11,451,990 $2.21
========== ==========
|
Options to purchase 7,485,050 shares were exercisable as of September 30, 1999.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
18. STOCK OPTION PLANS: (CONTINUED)
The following table summarizes information with respect to stock options outstanding as of September 30, 1999:
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF SHARES CONTRACTUAL AVERAGE SHARES AVERAGE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------- ----------- ------------- -------------- ----------- --------------
$0.626 160,000 0.085 $0.63 160,000 $0.63
$0.854 5,033,192 1.19 $0.85 5,033,192 $0.85
$0.938-$2.277 2,091,886 3.375 $1.88 1,717,136 $1.93
$2.500-$4.000 1,418,594 3.97 $3.25 481,586 $3.40
$4.098 21,326 3.465 $4.10 21,326 $4.10
$4.500 2,726,992 4.68 $4.50 71,810 $4.50
--------------------- ---------- ----- ----- --------- -----
$0.626-$4.500 11,451,990 2.755 $2.21 7,485,050 $1.30
===================== ========== ===== ===== ========= =====
|
The Company has elected to account for employee stock-based compensation under APB 25 and has provided the following information as required by SFAS 123, "Accounting for Stock-Based Compensation."
The following assumptions were used to calculate the fair value of the options granted:
1996 1997 1998 1999
-------- -------- -------- --------
Expected remaining term in years............. 3.5 2.8 3.51 1.73
Weight average risk-free interest rate....... 6.22% 5.67% 4.91% 5.00%
Expected dividend rate....................... 0.00% 0.00% 0.00% 0.00%
|
Because the Company does not have actively traded equity securities, volatility is not considered in determining the fair value of stock-based awards to employees.
The weighted average fair value per share of those options granted in 1996, 1997, 1998 and 1999 was $0.25, $0.22, $0.82 and $3.49, respectively.
In addition the Company granted 2,717,332 options to non-employees in the nine months to September 30, 1999. Using a volatility of 40% a compensation expense of $1,461 was calculated using the Black-Scholes model and charged to selling, general and administrative expenses.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
18. STOCK OPTION PLANS: (CONTINUED)
Using the above method and assumptions, the Company's net income (loss) applicable to common stock and earnings (loss) per share, on a pro forma basis, would have been:
EARNINGS EARNINGS
(LOSS) (LOSS)
NET INCOME PER SHARE PER SHARE
(LOSS) BASIC DILUTED
---------- --------- ---------
YEAR ENDED:
DECEMBER 31, 1996:
Actual....................................... $ (310) $(0.04) $(0.04)
======= ====== ======
Pro forma.................................... $ (467) $(0.06) $(0.06)
======= ====== ======
DECEMBER 31, 1997:
Actual....................................... $ 390 $ 0.05 $ 0.05
======= ====== ======
Pro forma.................................... $ 43 $ 0.01 $ 0.01
======= ====== ======
DECEMBER 31, 1998:
Actual....................................... $ 473 $ 0.06 $ 0.01
======= ====== ======
Pro forma.................................... $ (2) $ 0.00 $ 0.00
======= ====== ======
NINE MONTHS ENDED:
SEPTEMBER 30, 1999:
Actual....................................... $10,236 $ 1.19 $ 0.14
======= ====== ======
Pro forma.................................... $ 8,931 $ 1.04 $ 0.12
======= ====== ======
|
These pro forma results are not necessarily indicative of results which may be expected in the future as additional grants are made each year and options vest over several years.
19. COMMITMENTS AND CONTINGENCIES:
LEASES:
The Company and its subsidiaries lease certain facilities under noncancelable operating leases, which expire at various dates through September 30, 2003. The minimum future lease payments under the leases at September 30, 1999 are as follows:
OPERATING LEASES
----------------
Years ending:
September 30, 2000........................................ $1,461
September 30, 2001........................................ 1,349
September 30, 2002........................................ 1,165
September 30, 2003........................................ 425
------
Total minimum lease payments.............................. $4,400
======
|
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
19. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Total rent expense for the years ended December 31, 1997, 1998 and the nine months ended September 30, 1999 aggregated is $1,376, $1,846, and $1,426, respectively.
LITIGATION:
The Company and its subsidiaries may become involved in legal proceedings, claims and litigation from time to time arising in the ordinary course of business. In the opinion of management, the outcome of such current legal proceedings, claims and litigation will not have a material effect on the Company's consolidated operating results, cash flows or financial position.
GUARANTEE:
In conjunction with a sale of equipment, HUTS has guaranteed a bank loan incurred by a UTSC customer. As of September 30, 1999, the total amount of debt guaranteed by the Company was $1,552. The debt carries an interest rate of 6.993% per annum and is payable in 3 installments with the final installment due December 30, 2001.
20. 401(k) PLAN:
The Company adopted a 401(k) plan for employees during 1995. All employees are eligible to participate immediately after employment. Matching contributions are at the discretion of the Company. The Company made no matching contribution to the plan during 1996, 1997, 1998 or the nine months ended September 30, 1999.
21. OPERATING RISKS:
FINANCIAL RISKS:
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents and accounts receivable. The Company places its temporary cash investments with several financial institutions. Approximately $4,877, $11,444 and $25,475 of the Company's cash was on deposit in foreign accounts at December 31, 1997, 1998 and September 30, 1999, respectively. The Company invests excess cash in highly liquid investments with original maturity of three months or less, such as certificates of deposit and money market funds, which the Company believes have limited exposure to risk.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS:
No customer in the continuing operations accounted for more than 10% of the Company's sales during 1997 and 1998. The company's first and second largest customers accounted for 21.5% and 15.9% of the Company's sales and 31% and 6% of the accounts receivable respectively, as of September 30, 1999. Over 90% of the Company's sales during the nine month period ended September 30, 1999 were to China government affiliated entities or state owned enterprises. Accounts receivable balances from these China government affiliated entities or state owned enterprises were $86,129 as of September 30, 1999. The Company extends credit to its customers generally without requiring collateral. The Company monitors its exposure for credit losses and maintains allowances for uncollectible accounts.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
21. OPERATING RISKS: (CONTINUED)
No vendor accounted for more than 10% of the Company's cost of sales during 1997 and 1998. One vendor accounted for 26% of the Company's cost of sales and 23% of accounts payable as of September 30, 1999.
COUNTRY RISKS:
Over 99% of the Company's sales for the nine months ended September 30, 1999 were made in China. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in China, and by the general state of China's economy. The Company's operations in China are subject to special considerations and significant risks not typically associated with companies in the United States. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by, among other things, changes in the political, economic and social conditions in China, and by changes in governmental policies with respect to laws and regulations, changes in China's telecommunications industry and regulatory rules and policies, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.
Specifically, remittances from China which are of a capital nature, such as the repayment of bank loans denominated in foreign currencies, require approval from appropriate governmental authorities before Renminbi can be used to purchase foreign currency. Although the payment of cash dividends is permitted so long as the subsidiaries have sufficient reserves and adequate amounts of Renminbi to purchase foreign currency, regulations restrict the ability of the subsidiaries to transfer funds to the Company through intercompany loans and advances. The Company had net assets at September 30, 1999 of approximately $50,000 located in China compared to the Company's total net assets of $80,000.
22. SUBSEQUENT EVENTS:
In December 1999, the Board of Directors authorized the management of the Company to file a Registration Statement with the Securities and Exchange Commission concerning the proposed sale of the shares of its common stock to the public. Upon completion of this proposed sale, all outstanding shares of the Company's convertible preferred stock will automatically convert into common stock. Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion of the convertible preferred stock upon the Company's initial public offering, is disclosed in the accompanying unaudited pro forma stockholders' equity balance sheet.
In December 1999, the Board of Directors authorized a two for one stock split of the Company's authorized and issued shares of common and preferred stock. The share information in the accompanying financial statements and related notes has been retroactively restated to reflect the effect of this stock split for all periods presented.
In November and December 1999, the Company closed its Series F financing where 6,152,106 shares were sold at a per share price of $8.1273 for a total purchase price of $50,000. As a condition of investment, one investor was issued an option to purchase up to an additional 615,210 shares of the Company's Series F Preferred Stock at $8.1273 for a total purchase price of $5,000. The option expires January 13, 2000.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
22. SUBSEQUENT EVENTS: (CONTINUED)
Recent financing rounds of preferred stock included a yield enhancement feature pursuant to which the preferred shares convert into common shares on a one-for-one basis at a price below the expected offering price upon the completion of the Company's initial public offering. This will result in a charge in net income in the fiscal period ending December 31, 1999 of approximately $14,751.
ACQUISITION:
In December 1999, the Company completed the purchase of the minority interest in its Wacos subsidiary. At the date of purchase the minority interest accounted for 5,028,508 shares, or 45.8%, of the total Wacos shares outstanding.
925,043 shares of the minority interest were acquired for a total purchase price of $12,064 using 832,182 shares of Series G preferred stock valued at $8.1273 per share and $242 of common stock options valued using Black-Scholes. Under the terms of the Wacos acquisition agreement, Wacos shareholders received 0.899614 shares of the Company's Series G preferred stock for each Wacos share for a total value of approximately $6,761.
4,103,465 of Wacos minority interest's shares were held by SOFTBANK, the majority owner of the Company's voting stock. The Company acquired SOFTBANK's 4,103,465 Wacos shares for 3,691,534 shares of Series G preferred stock. The acquisition of SOFTBANK's holding occurred as an exchange of shares between companies under common control. As a transfer between companies under common control the Company will account for the acquired stock at SOFTBANK's historic cost.
The preliminary allocation of the Company's aggregate purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed as allocated pro rata to the non-SOFTBANK minority interest, was based primarily on independent appraisals of estimates of fair value and is summarized as follows:
Purchased research and development... $ 4,075
Fair value of net assets acquired.... 134
Fair value of identified intangible
assets............................. 251
Excess of costs of acquiring Wacos
over fair value of net assets
(goodwill)......................... 7,604
-------
Total purchase price................. $12,064
=======
|
The Company does not believe that the final purchase price allocation will differ significantly from this preliminary purchase price allocation.
At the time of the Wacos acquisition, Wacos was engaged in three distinct in-process research and development projects in relation to its IP-based switching system. These projects were in various stages of development but none had reached the point where technological feasibility had been established.
The values of Wacos in-process research and development projects were estimated by an excess income approach. Management revenue and operating expense projections were used to forecast the after-tax net incomes for each of the relevant future product lines. These forecasted net incomes were reduced by appropriate amounts to reflect a fair return on the net tangible and collateral intangible
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
22. SUBSEQUENT EVENTS: (CONTINUED)
assets expected to be employed in realizing the forecasted net incomes. The resulting forecasted "excess" income figures were discounted to present value using a 37.5% rate of return, reflecting the technological, market and other risks associated with the subject technologies and future products. The discounted excess incomes were summed and then, in accordance with methodology approved by the Securities and Exchange Commission, reduced by an appropriate percentage completion factor for each project to account for the anticipated remaining research and development efforts.
The excess for the purchase price over the fair market values of the tangible and identified intangible assets acquired has been recorded as goodwill, and is being amortized on a straight-line basis over a period of three to five years.
In December 1999, the Board of Directors adopted the 2000 Employee Stock Purchase Plan. Subject to meeting federal and state securities law requirements and obtaining stockholder approval, the stock purchase plan will become effective at the consummation of this offering, or as soon as practicable thereafter. The maximum number of shares of the Company's common stock which will be made available for sale under the Stock Purchase Plan will be 2,000,000 shares plus an annual increase to occur on the first day of each fiscal year beginning in 2001 equal to the lesser of 4,000,000 shares or 2% of the outstanding shares on that date, or a lesser amount as determined by the Board of Directors. The Stock Purchase Plan will be administered by the Board or a committee appointed by the Board. The Stock Purchase Plan is implemented by offering periods, the duration of which may not exceed 24 months. Offering periods may contain interim purchase periods. The first offering period will begin on the effective date of this offering and will end on the last trading day on or before January 31, 2002.
In December 1999, the Board of Directors amended the 1997 Plan, which authorized the issuance of up to 10,524,574 shares of common stock under this plan. During the term of the 1997 Plan, the number of shares will be increased annually on the first day of each fiscal year beginning in 2001 by an amount equal to the lesser of 6,000,000 shares or 4% of the outstanding shares on that date, or a lesser amount as determined by the Board of Directors.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information set forth below gives effect to the Company's acquisition of Wacos as if it had occurred on January 1, 1998.
See notes to unaudited pro forma combined financial information for further detail on the accounting treatment.
On December 14, 1999, the Company acquired the assets of Wacos, Inc. for approximately $12.1 million. The unaudited pro forma combined balance sheet is based on the individual unaudited balance sheets of UTStarcom, Inc. and Wacos, Inc. appearing elsewhere in this prospectus and has been prepared to reflect the acquisition by the Company of the assets of Wacos as of September 30, 1999. The unaudited pro forma combined statements of operations is based on individual historical results of operations of the Company and Wacos for the year ended December 31, 1998 and for the nine months ended September 30, 1999, after giving effect to the acquisition of Wacos as if it had occurred at the beginning of each of the periods presented. Wacos has been a consolidated subsidiary since July 1, 1998 and as such these unaudited pro forma combined financial statements reflect certain adjustments, including adjustments to reflect the amortization of intangible assets and goodwill acquired. These adjustments are preliminary and are based on our best estimates. A third party valuation of the assets acquired will be used to finalize these adjustments. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes of the Company.
The unaudited pro forma combined financial statements should be read in conjunction with the consolidated financial statements and notes thereto of UTStarcom. The unaudited pro forma combined financial information set forth below does not purport to represent what the consolidated results of operations or financial condition of the Company would actually have been if the acquisition and related transactions had in fact occurred on such date or to project the future consolidated results of operations or financial condition of the Company.
UTSTARCOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
PRO FORMA
UTS WACOS COMBINED ADJUSTMENTS TOTAL
-------- -------- --------- ----------- --------
Net sales.............................................. $105,167 $ 53 $105,220 $ (53) $105,167
Cost of sales.......................................... 65,246 22 65,268 (22) 65,246
-------- ------- -------- ------- --------
Gross profit........................................... 39,921 31 39,952 (31) 39,921
Operating expenses:
Selling, general and administrative expenses......... 23,233 23,233 23,233
Research and development expenses.................... 12,694 4,766 17,460 (2,805) 14,655
Amortization of intangible assets.................... 120 120 2,534 2,654
-------- ------- -------- ------- --------
Total operating expenses............................... 36,047 4,766 40,813 (271) 40,542
-------- ------- -------- ------- --------
Operating income (loss)................................ 3,874 (4,735) (861) (240) (621)
Interest income (expenses)............................. (213) 79 (134) (10) (144)
Other income (expenses)................................ (1,031) 36 (995) (995)
Equity in net income (loss) of affiliated companies.... (596) (596) 927 331
-------- ------- -------- ------- --------
Income (loss) before income taxes and minority
interest............................................. 2,034 (4,620) (2,586) 1,157 (1,429)
Income tax expense (benefit)........................... 1,414 136 1,550 (123) 1,427
-------- ------- -------- ------- --------
Income (loss) before minority interest................. 620 (4,756) (4,136) (1,280) (2,856)
Minority interest in (earnings) loss of consolidated
subsidiaries......................................... 746 746 (1,167) (421)
-------- ------- -------- ------- --------
Income (loss) from continuing operations............... $ 1,366 $(4,756) $ (3,390) $ 113 $ (3,277)
======== ======= ======== ======= ========
Earnings (loss) per common share--basic................ $ (0.04)
========
Earnings (loss) per common share--diluted.............. $ (0.04)
========
Shares used in per-share calculation--basic............ 76,051
========
Shares used in per-share calculation--diluted.......... 76,051
========
|
See accompanying notes to unaudited pro forma combined financial information.
UTSTARCOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------
PRO FORMA
UTS WACOS(7) COMBINED ADJUSTMENTS TOTAL
-------- ---------- --------- ----------- --------
Net sales.............................................. $124,701 $124,701 $ $124,701
Cost of sales.......................................... 72,677 72,677 72,677
-------- -------- -------- ------- --------
Gross profit........................................... 52,024 52,024 52,024
Operating expenses:
Selling, general and administrative expenses......... 24,096 24,096 24,096
Research and development expenses.................... 12,490 12,490 12,490
Amortization of deferred stock compensation.......... 3,521 3,521 3,521
Amortization of intangible assets.................... 112 112 1,900(2) 2,012
-------- -------- -------- ------- --------
Total operating expenses............................... 40,219 40,219 1,900 42,119
-------- -------- -------- ------- --------
Operating income (loss)................................ 11,805 11,805 (1,900) 9,905
Interest income (expenses)............................. (885) (885) (885)
Other income (expenses)................................ 198 198 198
Equity in net income (loss) of affiliated companies.... 984 984 984
-------- -------- -------- ------- --------
Income (loss) before income taxes and minority
interest............................................. 12,102 12,102 (1,900) 10,202
Income tax expense (benefit)........................... (1,023) (1,023) (1,023)
-------- -------- -------- ------- --------
Income (loss) before minority interest................. 13,125 13,125 (1,900) 11,225
Minority interest in (earnings) loss of consolidated
subsidiaries......................................... (1,233) (1,233) (1,233)
-------- -------- -------- ------- --------
Income (loss) from continuing operations............... $ 11,892 $ 11,892 $(1,900) $ 9,992
======== ======== ======== ======= ========
Earnings per common share--basic....................... $ 0.13
========
Earnings per common share--diluted..................... $ 0.12
========
Shares used in pro forma per-share
calculation--basic................................. 79,013
========
Shares used in pro forma per-share
calculation--diluted............................... 84,947
========
|
See accompanying notes to unaudited pro forma combined financial information.
UTSTARCOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 1999
----------------------------------- PRO FORMA
UTSTARCOM WACOS(7) COMBINED ADJUSTMENTS TOTAL
---------- ---------- --------- ----------- --------
ASSETS
Current assets:
Cash and cash equivalents........................ $ 35,275 $ 35,275 $50,000 (3) $ 85,275
Accounts receivable, net of allowance for
doubtful accounts.............................. 84,593 84,593 84,593
Receivable from related parties.................. 4,012 4,012 4,012
Inventories, net of allowance for obsolete
inventory...................................... 28,388 28,388 28,388
Other............................................ 6,053 6,053 6,053
-------- ---------- -------- ------- --------
Total current assets............................... 158,321 158,321 208,321
Property, plant and equipment, net................. 7,902 7,902 7,902
Investment in affiliated companies................. 5,200 5,200 5,200
Intangible assets, net............................. 1,473 1,473 7,855 (4) 9,328
Other.............................................. 3,787 3,787 3,787
-------- ---------- -------- ------- --------
Total assets....................................... $176,683 $ -- $176,683 $57,855 $234,538
======== ========== ======== ======= ========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................................. $ 21,161 $ 21,161 $ 21,161
Payable to related parties....................... 1,311 1,311 1,311
Third party debt................................. 27,968 27,968 27,968
Debt to shareholder.............................. 14,356 14,356 14,356
Income taxes payable............................. 2,457 2,457 2,457
Advance billings................................. 2,665 2,665 2,665
Other............................................ 22,939 22,939 22,939
-------- ---------- -------- ------- --------
Total current liabilities.......................... 92,857 -- 92,857 -- 92,857
-------- ---------- -------- ------- --------
Minority interest in consolidated subsidiaries..... 3,902 3,902 3,902
Stockholders' equity:
Convertible preferred stock: $.00125 par value;
authorized: 80,200,000 shares; issued and
outstanding: 59,086,306 and liquidation value of
$167,829 at September 30, 1999................... 73 73 (73)(5) --
Common stock: $.00125 par value; authorized:
123,614,032 shares; issued and outstanding:
10,049,174, including shares held in treasury at
September 30, 1999............................... 13 13 81 (5) 94
Common stock warrant............................... 389 389 389
Additional paid-in capital......................... 93,179 93,179 74,433 167,612
Deferred stock compensation........................ (5,270) (5,270) (5,270)
Accumulated deficit................................ (4,938) (4,938) (16,586)(6) (21,524)
Notes receivable from shareholders................. (557) (557) (557)
Cumulative translation adjustment.................. 95 95 95
-------- ---------- -------- ------- --------
82,984 -- 82,984 57,855 140,839
Less cost of common stock held in treasury,
1,348,386 shares at September 30, 1999........... (3,060) (3,060) (3,060)
-------- ---------- -------- ------- --------
Total stockholders' equity......................... 79,924 -- 79,924 57,855 137,779
-------- ---------- -------- ------- --------
Total liabilities, minority interest, and
stockholders' equity........................... $176,683 $ -- $176,683 $57,855 $234,538
======== ========== ======== ======= ========
|
See accompanying notes to unaudited pro forma combined financial information.
UTSTARCOM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(A) Pro forma adjustments for the unaudited pro forma combined balance sheet as of September 30, 1999 and statement of operations for the year ended December 31, 1998 and the nine months ended September 30, 1999 are as follows:
(1) Represents the operations of Wacos included within the consolidated operations of UTStarcom from July 1, 1998 to December 31, 1998;
(2) Represents the allocation of the purchase price to goodwill and other intangible assets;
(3) Represents the cash received on issuance of Series F preferred stock;
(4) Represents the allocation of purchase price for Wacos to goodwill and other intangible assets, which will be amortized over a period of three to five years. The intangible assets acquired are believed to include assembled workforce and goodwill. We are in the process of finalizing a third party valuation to determine the allocation of intangible assets. Once we have made a final allocation, changes may be appropriate. The impact of changes could be material;
(5) Represents the issuance of 6,152,106 shares of Series F preferred stock at $8.1273 per share in November and December 1999 in connection with a private round of financing, and 4,523,700 shares of Series G preferred stock in December 1999 in connection with our acquisition of Wacos, Inc. and to give effect to the conversion of all outstanding shares of preferred stock into common stock upon the completion of this offering;
(6) Represents the yield enhancement feature based on recent financings. See Note 22 of the consolidated financial statements; and
(7) No separate balance sheet or statement of operations is included for Wacos as Wacos has been included in UTStarcom consolidated financial statements for the nine months September 30, 1999. In addition no minority interest remained in the consolidated balance sheet as the minority interest was not required to contribute for losses.
(B) Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share for the year ended December 31, 1998 and the nine months ended September 30, 1999 is computed based on the weighted average number of common shares outstanding, the assumed conversion of the Company's Series A, B, C, D, E, F and G preferred stock into shares of the Company's common stock that will be effective upon the closing of the Company's initial public offering, as if such conversion had occurred on January 1, 1998 or at the date of original issuance, if later, and the issuance of an option to purchase additional Series F preferred stock issued as part of the Series F preferred stock financing round. The resulting pro forma adjustment includes an increase (decrease) in the weighted average number of shares used to compute basic net income (loss) per share of 68,259 and 70,373 and to compute diluted net income (loss) per share of (169) and 11,415 for the year ended December 31, 1998 and the nine months ended September 30, 1999, respectively.
Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
SHARES
[LOGO]
COMMON STOCK
MERRILL LYNCH & CO.
BANC OF AMERICA SECURITIES LLC
U.S. BANCORP PIPER JAFFRAY
, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 2000
P_R_O_S_P_E_C_T_U_S
SHARES
[LOGO]
COMMON STOCK
This is UTStarcom, Inc.'s initial public offering of common stock. The international managers will offer shares outside the United States and Canada and the U.S. underwriters will offer shares in the United States and Canada.
We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares. After pricing of this offering, we expect that the common stock will be quoted on the Nasdaq National Market under the symbol "UTSI."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE OF THIS PROSPECTUS.
PER SHARE TOTAL
--------- -----
Public offering price...................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to UTStarcom, Inc. ............. $ $
|
The international managers may also purchase up to an additional shares from UTStarcom at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. The U.S. underwriters may similarly purchase up to an aggregate of an additional shares from UTStarcom.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
We expect that the shares of common stock will be ready for delivery in New York, New York on or about , 2000.
The date of this prospectus is , 2000.
UNDERWRITING
GENERAL
We intend to offer our common stock outside the United States and Canada through the international managers and in the United States and Canada through the U.S. underwriters. Merrill Lynch International, Bank of America International Limited and U.S. Bancorp Piper Jaffray Inc. are acting as lead managers for the international managers named below. Subject to the terms and conditions described in an international purchase agreement among us and the international managers, and concurrently with the sale of shares of our common stock to the U.S. underwriters, we have agreed to sell to the international managers, and each of the international managers severally and not jointly has agreed to purchase from us, the number of shares of our common stock listed opposite its name below.
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
Merrill Lynch International.................................
Bank of America International Limited.......................
U.S. Bancorp Piper Jaffray Inc..............................
----------
Total.............................................
==========
|
We have also entered into a U.S. purchase agreement with the U.S. underwriters for the sale of the shares of common stock in the United States and Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC and U.S. Bancorp Piper Jaffray Inc. are acting as U.S. representatives. Subject to the terms and conditions in the U.S. purchase agreement, and concurrently with the sale of shares of our common stock to the international managers pursuant to the international purchase agreement, we have agreed to sell to the U.S. underwriters and the U.S. underwriters severally have agreed to purchase from us shares of our common stock. The initial public offering price per share and the total underwriting discount per share of our common stock are identical under the international purchase agreement and the U.S. purchase agreement.
Subject to the terms and conditions in the international purchase agreement and the U.S. purchase agreement, the international managers and the U.S. underwriters have agreed to purchase all of the shares of our common stock being sold pursuant to each of the purchase agreements if any shares of our common stock are purchased. If an international manager or a U.S. underwriter defaults, the U.S. purchase agreement and the international purchase agreement provide that the purchase commitments of the nondefaulting international managers or U.S. underwriters may be increased or the purchase agreements may be terminated. The closings for the sale of shares of our common stock to be purchased by the international managers and the U.S. underwriters the are conditioned on one another.
We have agreed to indemnify the international managers and the U.S. underwriters against some liabilities, including liabilities under the Securities Act, and to contribute to payments the international managers and the U.S. underwriters may be required to make in respect of those liabilities.
The international managers and the U.S. underwriters are offering the shares of our common stock, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of various legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreements, such as the receipt of officer's certificates and legal opinions. The international managers and the U.S. underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The lead managers have advised us that the international managers propose initially to offer the shares of our common stock to the public at the initial public offering price on the cover page of this prospectus, and to dealers at that price less a concession not in excess of $ per share of our common stock. The international managers may allow, and the dealers may reallow, a discount not in excess of $ per share of our common stock to other dealers. After the initial public offering, the public offering price, concession and discount may be changed.
The following table shows the per share and total public offering price, underwriting discount to be paid by us to the international managers and the U.S. underwriters and the proceeds before expenses to us. This information assumes either no exercise or full exercise by the international managers and the U.S. underwriters of their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price.................................... $ $ $
Underwriting discount.................................... $ $ $
Proceeds, before expenses, to UTStarcom.................. $ $ $
|
The expenses of the offerings, not including the underwriting discount, are estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
We have granted an option to the international managers to purchase up to additional shares of our common stock at the public offering price on the cover page of this prospectus less the underwriting discount. The international managers may exercise this option for 30 days from the date of this prospectus solely to cover any over-allotments. If the international managers exercise this option, each international manager will be obligated, subject to conditions contained in the international purchase agreement, to purchase a number of additional shares of our common stock proportionate to that international manager's initial amount reflected in the table above.
We have also granted an option to the U.S. underwriters, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of our common stock to cover any over-allotments on terms similar to those granted to the international managers.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an intersyndicate agreement that provides for the coordination of their activities. Under the intersyndicate agreement, the international managers and the U.S. underwriters may sell shares of our common stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the intersyndicate agreement, the international managers and any dealer to whom they sell shares of our common stock will not offer to sell or sell shares of our common stock to U.S. or Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions under the intersyndicate agreement. Similarly, the U.S. underwriters and any dealer to whom they sell shares of our common stock will not offer to sell or sell shares of our
common stock to non-U.S. or non-Canadian persons or to persons they believe intend to resell to non-U.S. or non-Canadian persons, except in the case of transactions under the intersyndicate agreement.
RESERVED SHARES
At our request, the international managers and the U.S. underwriters have reserved for sale, at the initial public offering price, up to , or %, of the shares of our common stock offered by this prospectus for sale to some of our directors, officers and employees and their family members and other persons with relationships with us. The number of shares of our common stock available for sale to the general public will be reduced to the extent those persons purchase the reserved shares. Any reserved shares that are not orally confirmed for purchase within one day of the pricing of this offering will be offered by the international managers and the U.S. underwriters to the general public on the same terms as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We, our executive officers, directors and substantially all of our stockholders, have agreed, with exceptions, not to sell or transfer any shares of our common stock for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Specifically, we and these other individuals have agreed not to directly or indirectly:
- offer, pledge, sell or contract to sell any shares of our common stock;
- sell any option or contract to purchase any shares of our common stock;
- purchase any option or contract to sell any shares of our common stock;
- grant any option, right or warrant for the sale of any shares of our common stock;
- lend or otherwise dispose of or transfer any shares of our common stock;
- request or demand that we file a registration statement related to the shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any shares of our common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
This lockup provision applies to shares of our common stock and to securities convertible into or exchangeable or exercisable for or repayable with shares of our common stock. It also applies to shares of our common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
NASDAQ NATIONAL MARKET LISTING
We expect that our common stock will be quoted on the Nasdaq National Market under the symbol "UTSI."
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us, the lead managers and the U.S. representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:
- the valuation multiples of publicly traded companies that the lead managers and the U.S. representatives believe to be comparable to us;
- our financial information;
- the history of, and the prospects for, our company and the industry in which we compete;
- an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;
- the present state of our development; and
- the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.
An active trading market for the shares of our common stock may not develop. It is also possible that after the offering the shares of our common stock will not trade in the public market at or above the initial public offering price.
The international managers and the U.S. underwriters do not expect to sell more than 5% of the shares of our common stock in the aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the Securities and Exchange Commission may limit the international managers and the U.S. underwriters and selling group members from bidding for and purchasing common stock. However, the lead managers and the U.S. representatives may engage in transactions that stabilize the price of our common stock, such as bids or purchases to peg, fix or maintain that price.
If the international managers and the U.S. underwriters create a short position in our common stock in connection with this offering, i.e., if they sell more shares of our common stock than are listed on the cover page of this prospectus, the lead managers and the U.S. representatives may reduce that short position by purchasing shares of our common stock in the open market. The lead managers and the U.S. representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. Purchases of shares of our common stock to stabilize its price or to reduce a short position may cause the price of shares of our common stock to be higher than it might be in the absence of these purchases.
The lead managers and the U.S. representatives may also impose a penalty bid on the international managers and the U.S. underwriters and selling group members. This means that if the lead managers and the U.S. representatives purchase shares of our common stock in the open market to reduce their short position or to stabilize the price of these shares, they may reclaim the amount of the selling concession from the international managers and the U.S. underwriters and selling group members who sold those shares. The imposition of a penalty bid may also affect the price of shares of our common stock in that it discourages resales of those shares.
Neither we nor any of the international managers or the U.S. underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of shares of our common stock. In addition, neither we nor any of the international managers or the U.S. underwriters makes any representation that the lead managers or the U.S. representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
UK SELLING RESTRICTIONS
Each international manager has agreed that:
- it has not offered or sold and will not offer or sell any shares of our common stock to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring;
holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom; and
- it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of shares of our common stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 as amended by the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or is a person to whom such document may otherwise lawfully be issued or passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction, except in the United States, that would permit a public offering of the shares of our common stock, or the possession, circulation or distribution of this prospectus or any other material relating to us or shares of our common stock in any jurisdiction where action for that purpose is required. Accordingly, the shares of our common stock may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the shares of our common stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price on the cover page of this prospectus.
Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
SHARES
[LOGO]
COMMON STOCK
MERRILL LYNCH INTERNATIONAL
BANK OF AMERICA INTERNATIONAL LIMITED
U.S. BANCORP PIPER JAFFRAY
, 2000
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale and distribution of the securities being registered. All amounts are estimates except the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market listing fee.
AMOUNT TO
BE PAID
---------
Securities and Exchange Commission registration fee......... $33,000
NASD filing fee............................................. 13,000
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses.................................. 10,000
Transfer agent and registrar fees...........................
Director and officer insurance premiums.....................
Miscellaneous expenses......................................
-------
Total.......................................................
=======
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, we can indemnify any person who is, or is threatened to be made, a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative other than action by us or on our behalf, by reason of the fact that such person is or was one of our officers or directors, or is or was serving at our request as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such officer or director acted in good faith and in a manner he or she reasonably believed to be in or not opposed to our best interests, and, for criminal proceedings, had no reasonable cause to believe his or her conduct was illegal. Under Delaware law, we may also indemnify officers and directors in an action by us or on our behalf under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to us in the performance of his or her duty. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, we must indemnify him or her against the expenses which such officer or director actually and reasonably incurred.
Our certificate of incorporation contains a provision to limit the personal liability of our directors for violations of their fiduciary duty. This provision eliminates each director's liability to us or our stockholders for monetary damages to the fullest extent permitted by Delaware law. The effect of this provision is to eliminate the personal liability of directors for monetary damages for actions involving a breach of their fiduciary duty of care, including any such actions involving gross negligence.
Our bylaws provide for indemnification of our officers and directors to the fullest extent permitted by applicable law.
We have entered, or concurrently with this offering, will enter, into indemnification agreements with our directors and officers, a form of which is attached as Exhibit 10.1 and incorporated by
II-1
reference to this registration statement. The indemnification agreements provide indemnification to our directors and officers under certain circumstances for acts or omissions which may not be covered by directors' and officers' liability insurance. We intend to obtain directors' and officers' liability insurance, which will insure against liabilities that our directors or officers may incur in such capacities.
The purchase agreement, a form of which is attached as Exhibit 1.1 to this registration statement, provides for indemnification by the underwriters of us and our officers and directors, and by us of the underwriters, for certain liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 1996, we have issued and sold the following securities which were not registered under the Securities Act:
(i) Between October 1995 and December 1996, we issued and sold 14,492,752 shares of our Series B preferred stock to one investor for an aggregate purchase price of $29,999,996.64.
(ii) Between December 1996 and January 1997, we issued and sold 13,589,056 shares of our Series C preferred stock to six investors for an aggregate purchase price of $46,746,352.64.
(iii) In October 1997, we issued and sold 8,032,128 shares of our Series D preferred stock to two investors for an aggregate purchase price of $49,999,996.80.
(iv) In October 1997, we issued 13,686,000 shares of our common stock to an entity in connection with our acquisition of Talent Group (International), Limited.
(v) In October 1997, we issued and sold 581,824 shares of common stock to an entity for an aggregate purchase price of $200,002 upon the entity's exercise of warrants.
(vi) Between October 1997 and March 1998, we issued an aggregate of 30,269,318 shares of our Series E preferred stock in a one-to-one exchange of our common stock held by participating stockholders.
(vii) In February 1998, we issued a warrant to purchase 32,000 shares of our common stock at an exercise price of $2.50 per share to one investor.
(viii) In September 1999, we issued a warrant to purchase 500,000 shares of our common stock at an exercise price of $6.25 per share to one investor.
(ix) Between November 1999 and December 1999, we issued and sold an aggregate of 6,152,106 shares of our Series F preferred stock to three investors for an aggregate purchase price of $50,000,011.
(x) In December 1999, we issued an aggregate of 4,523,700 shares of our Series G preferred stock in connection with the acquisition of our subsidiary, Wacos, Inc., through a merger.
The sales and issuances of securities in the transactions described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving any public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensations as provided under Rule 701. The recipients of securities in each such transaction represented to us their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBITS
---------------------
1.1 * Form of U.S. Purchase Agreement.
1.2 * Form of International Purchase Agreement.
2.1 Distribution Agreement dated July 30, 1999 between
UTStarcom, Inc. and DirecTouch Communications Limited.
2.2 Agreement and Plan of Merger dated December 14, 1999 between
UTStarcom, Inc. and Wacos, Inc.
3.1 Twelfth Amended and Restated Certificate of Incorporation of
UTStarcom, Inc. as currently in effect.
3.2 Form of Thirteenth Amended and Restated Certificate of
Incorporation of UTStarcom, Inc. to be filed following the
closing of the offering pursuant to this registration
statement.
3.3 Bylaws of UTStarcom, Inc. as currently in effect.
3.4 Form of Amended and Restated Bylaws of UTStarcom, Inc., to
be in effect immediately following the closing of the
offering pursuant to this registration statement.
4.1 * Specimen Common Stock Certificate.
4.2 Third Amended and Restated Registration Rights Agreement
dated December 14, 1999.
5.1 * Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement.
10.2 1992 Omnibus Equity Incentive Plan and form of related
agreement.
10.3 1995 Stock Plan and forms of related agreements.
10.4 1997 Stock Plan, as amended, and forms of related
agreements.
10.5 2000 Employee Stock Purchase Plan and forms of related
agreements.
10.6 Common Stock Purchase Warrant dated February 5, 1998 between
UTStarcom, Inc. and Lintech Limited.
10.7 Common Stock Purchase Warrant dated September 20, 1999
between UTStarcom, Inc. and Talent Group International, Ltd.
10.8 Employment and Non-Competition Agreement dated October 6,
1995 between UTStarcom, Inc. and Hong Lu.
10.9 Employment and Non-Competition Agreement dated October 6,
1995 between UTStarcom, Inc. and Ying Wu.
10.10* Product Manufacture & License Agreement dated May 13, 1997
between UTStarcom, Inc. and Tollgrade Communications, Inc.
10.11* Sales Agreement dated February 12, 1999 between UTStarcom
(China) Ltd. and BaoDing Telecommunication Bureau, Hebei
Province.
10.12* Sales Contract dated August 23, 1999 between UTStarcom
(China) Ltd. and Xi'an Telecommunication Bureau.
10.13* Technical License and Assistance Agreement dated
November 2, 1999 between UTStarcom, Inc. and Mitsubishi
Electric Corporation.
|
II-3
EXHIBITS
---------------------
10.14* Technical Assistance Agreement dated October 1, 1999 between
Matsushita Communication Industrial Co. Ltd. and UTStarcom,
Inc.
10.15* Joint Product Development and Marketing Memorandum and
Understanding dated September 2, 1999 between UTStarcom,
Inc. and Matsushita Communication Industrial Co., Ltd.
10.16* Joint Patent Filing Agreement dated December 1, 1998 between
UTStarcom, Inc. and Matsushita Communication Industrial Co.,
Ltd.
10.17 Loan Agreement dated June 15, 1998 between UTStarcom, Inc.
and SOFTBANK Corp.
10.18* Loan Agreements between Bank of China and UTStarcom Hangzhou
Telecommunications Co., Ltd.
10.19* Joint Venture Agreement dated July 31, 1997 between
UTStarcom, Inc. and Zhejiang Telecommunication Equipment
Factory.
10.20* Joint Venture Agreement dated December 8, 1995 between
UTStarcom, Inc. and Chinese Guangdong Nanfeng
Telecommunication Group Co. Ltd.
10.21* Joint Venture Agreement dated September 12, 1997 between
UTStarcom, Inc. and Zhejiang Nantian Post and
Telecommunication Development Group Co. Ltd.
10.22* Lease dated December 23, 1997 between UTStarcom, Inc. and
Tech Center Partners.
10.23* Lease Agreement dated April 1995, as amended, between
UTStarcom, Inc. and Metro Park Associates.
10.24* Lease Agreements dated December 31, 1997 and May 14, 1998
between Guangdong UTStarcom Telecom Co., Ltd. and Guangdong
Southern Telecom Group Huizhou Company.
10.25* Lease Contract dated December 15, 1996 between UTStarcom
(Hangzhou) Telecommunications Co., Ltd. and Yile Village,
Gudang Township.
21.1 List of Subsidiaries of UTStarcom, Inc. (see Note 1 to Notes
to Consolidated Financial Statements).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
|
* To be filed by amendment.
(b) Financial Statement Schedule
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the certificate of incorporation, the bylaws of Registrant, Indemnification Agreements entered into between the Registrant and its directors and certain of its officers,
II-4
Underwriting Agreement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, UTStarcom, Inc. has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Alameda, State of California, on the 17th day of December, 1999.
UTSTARCOM, INC.
By: /s/ HONG LIANG LU
-----------------------------------------
Hong Liang Lu
PRESIDENT AND CHIEF EXECUTIVE OFFICER
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and appoint Hong Liang Lu and Michael Sophie, and each of them, his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, or any related registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated:
NAME TITLE DATE
---- ----- ----
/s/ MASAYOSHI SON
--------------------------------- Chairman of the Board of Directors December 17, 1999
Masayoshi Son
/s/ HONG LIANG LU President, Chief Executive Officer
--------------------------------- and Director (Principal Executive December 17, 1999
Hong Liang Lu Officer)
/s/ MICHAEL SOPHIE Chief Financial Officer and
--------------------------------- Assistant Secretary (Principal December 17, 1999
Michael Sophie Financial and Accounting Officer)
/s/ YING WU
--------------------------------- Director December 17, 1999
Ying Wu
|
II-6
NAME TITLE DATE
---- ----- ----
/s/ CHARLES XUE
--------------------------------- Director December 17, 1999
Charles Xue
/s/ YOSHITAKA KITAO
--------------------------------- Director December 17, 1999
Yoshitaka Kitao
/s/ CHAUNCEY SHEY
--------------------------------- Director December 17, 1999
Chauncey Shey
/s/ THOMAS TOY
--------------------------------- Director December 17, 1999
Thomas Toy
|
II-7
SCHEDULE I
Condensed Financial Information at December 31, 1997 and 1998 and September 30, 1999 and for each of the years ended December 31, 1996, 1997 and 1998 and the nine months ended September 30, 1999. All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
INDEPENDENT ACCOUNTANTS REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of UTStarcom, Inc.:
Our audits of the consolidated financial statements are referred to in our report dated December 16, 1999, included an audit of the financial statement schedule listed in Item F-1 of this Form S-1. In our opinion, this financial statement schedule presents fairly, in all material respects the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Francisco, California December 16, 1999 |
SCHEDULE I
UTSTARCOM, INC. (UNCONSOLIDATED)
REGISTRANT BALANCE SHEETS
(in thousands, except per share data)
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- --------- --------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 26,487 $ 6,447 $ 8,274
Accounts receivable....................................... 30,195 65,433 31,745
Receivable from related parties........................... -- -- 4,012
Inventories............................................... 834 1,213 8,972
Other..................................................... 87 839 1,937
-------- --------- --------
Total current assets........................................ 57,603 73,932 54,940
Property, plant and equipment, net.......................... 2,279 3,453 3,072
Investment in affiliated companies.......................... 23,228 24,031 24,031
Other....................................................... 845 840 2,375
-------- --------- --------
Total assets................................................ $ 83,955 $ 102,256 $ 84,418
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 13,063 $ 2,542 $ 8,393
Payable to related parties................................ -- 1,311 1,311
Third party debt.......................................... 9 22 17
Debt to shareholder....................................... -- 26,250 9,055
Income taxes payable...................................... -- 884 1,386
Advanced billings......................................... -- -- 500
Other..................................................... 1,499 3,041 3,112
-------- --------- --------
Total current liabilities................................... 14,571 34,050 23,774
-------- --------- --------
Stockholders' equity:
Convertible preferred stock: $0.0125 par value; authorized:
80,200,000 shares; issued and outstanding 57,518,068 at
December 31, 1997, 59,635,754 at December 31, 1998, and
59,086,306 at September 30, 1999; liquidation value of
$167,829 at September 30, 1999............................ 72 74 73
Common stock: $0.00125 par value; authorized:
123,614,032 shares; issued and outstanding: 9,807,006 at
December 31, 1997, 9,172,864 at December 31, 1998, and
10,049,174 September 30, 1999, including shares held in
treasury.................................................. 12 12 13
Common stock warrant........................................ 1,983 389
Additional paid-in capital.................................. 85,862 84,771 90,140
Deferred stock compensation................................. -- -- (5,270)
Accumulated deficit......................................... (13,979) (15,229) (21,101)
Notes receivable from shareholders.......................... -- (369) (557)
Cumulative translation adjustment........................... 17 17 17
-------- --------- --------
71,986 71,259 63,704
Less cost of common stock held in treasury,
1,240,000 shares at December 31, 1997, 1,340,694 shares at
December 31, 1998, and 1,348,386 shares at September 30,
1999...................................................... (2,600) (3,053) (3,060)
-------- --------- --------
Total stockholders' equity.................................. 69,386 68,206 60,644
-------- --------- --------
Total liabilities and stockholders' equity.................. $ 83,955 $ 102,256 $ 84,418
======== ========= ========
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SCHEDULE I
UTSTARCOM, INC. (UNCONSOLIDATED)
CONDENSED INFORMATION AS TO THE
RESULTS OF OPERATIONS
OF THE REGISTRANT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------ -----------------------------------
1996 1997 1998 1998 1999
-------- -------- -------- ---------------- ----------------
(UNAUDITED)
Net sales........................................... $18,976 $44,896 $48,458 $37,839 $47,671
Cost of sales....................................... 12,286 32,718 36,293 26,642 41,654
------- ------- ------- ------- -------
Gross profit........................................ 6,690 12,178 12,165 11,197 6,017
Operating expenses:
Selling, general and administrative expenses...... 3,115 6,074 5,915 4,186 3,988
Research and development expenses................. 4,070 7,500 9,297 6,992 7,740
Amortization of deferred stock compensation....... -- -- -- -- 3,521
------- ------- ------- ------- -------
Total operating expenses............................ 7,185 13,574 15,212 11,178 15,249
------- ------- ------- ------- -------
Operating income (loss)............................. (495) (1,396) (3,047) 19 (9,232)
Interest income..................................... 676 1,344 3,754 2,404 3,637
Interest expense.................................... (9) 1,587 (1,016) (726) (1,313)
Other income (expenses)............................. 295 (8) (925) (2) (270)
------- ------- ------- ------- -------
Income (loss) before income taxes................... 467 1,527 (1,234) 1,695 (7,178)
Income tax expense (benefit)........................ 66 354 394 74 (1,304)
------- ------- ------- ------- -------
Net income (loss)................................... 401 1,173 (1,628) 1,621 (5,874)
======= ======= ======= ======= =======
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SCHEDULE I
UTSTARCOM, INC. (UNCONSOLIDATED)
CONDENSED INFORMATION AS TO THE CASH FLOWS OF THE REGISTRANT
(IN THOUSANDS)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 401 $ 1,173 $ (1,628) $ 1,621 $ (5,874)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization............................. 213 519 841 501 756
Gain (loss) on sale of assets............................. -- (65) 107 -- --
Amortization of deferred stock compensation............... -- -- -- -- 3,521
Stock option expenses for non-employees................... -- -- 411 -- 1,461
Provision for doubtful accounts........................... 19 81 30 60 615
Provision for inventory obsolescence...................... (50) 52 4 4 418
Changes in operating assets and liabilities:
Accounts receivable and receivable from related
parties............................................... (5,974) (20,965) (35,268) (48,977) 22,459
Inventories............................................. 436 (432) (384) (377) (8,178)
Other current and non-current assets.................... (545) (168) 496 (4,257) (912)
Deferred tax assets..................................... -- -- (1,235) 112 (1,840)
Accounts payable and payable to related parties......... 61 392 16,000 30,107 (11,376)
Income taxes payable.................................... -- -- 884 1,511 502
Other current liabilities............................... (5,167) 1,232 2,588 1,634 104
Advance billings........................................ (1,450) (88) -- 31 500
-------- -------- -------- -------- --------
Net cash (used in) provided by operating activities......... (12,056) (18,269) (17,154) (18,030) 2,156
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (989) (1,456) (2,123) (1,331) (1,026)
Investment in affiliates, net of cash acquired.............. (11,509) (8,392) (803) (864) --
Restricted cash............................................. 5,000 -- -- -- --
Proceeds from disposal of property.......................... -- 125 -- -- 653
-------- -------- -------- -------- --------
Net cash used in investing activities....................... (7,498) (9,723) (2,926) (2,195) (373)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................... -- 410 480 273 56
Issuance of subsidiary common stock to minority
stockholders.............................................. 47 -- -- -- --
Reacquired common stock..................................... (1,500) (1,100) (453) -- (7)
Return of investment to shareholders........................ -- (50,820) -- -- --
Proceeds from borrowing..................................... -- -- 13 -- --
Payments on borrowing....................................... (15) (14) -- (7) (5)
Issuance of preferred stock................................. 26,968 55,678 -- -- --
Reacquired preferred stock.................................. (2,070) -- -- -- --
Payments on shareholder note receivable..................... -- 35,000 -- -- --
Advance from affiliates..................................... (5,000) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing activities................... 18,430 39,154 40 266 44
-------- -------- -------- -------- --------
Effects of exchange rates on cash........................... -- (11) -- -- --
-------- -------- -------- -------- --------
Net increase (decrease) in cash............................. (1,124) 11,151 (20,040) (19,959) 1,827
Cash and cash equivalents at beginning of period............ 16,460 15,336 26,487 26,487 6,447
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 15,336 $ 26,487 $ 6,447 $ 6,528 $ 8,274
======== ======== ======== ======== ========
|
The accompanying notes are an integral part of these financial statements.
SCHEDULE I
UTSTARCOM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
UTStarcom, Inc., a Delaware corporation, is the parent company of all UTStarcom, Inc. subsidiaries. The accompanying condensed financial statements reflect the financial position, results of operations and cash flows of UTStarcom, Inc. on a separate basis. All subsidiaries of UTStarcom, Inc. are reflected as investments accounted for at cost. Accordingly, intercompany transactions have not been eliminated. No cash dividends were paid to UTStarcom, Inc. by its subsidiaries during the years ended December 31, 1996, 1997, and 1998 and during the nine months ended September 30, 1999. For accounting policies and other information, see the Notes to Consolidated Financial Statements included elsewhere herein.
EXHIBIT INDEX
EXHIBITS
---------------------
1.1 * Form of U.S. Purchase Agreement.
1.2 * Form of International Purchase Agreement.
2.1 Distribution Agreement dated July 30, 1999 between
UTStarcom, Inc. and DirecTouch Communications Limited.
2.2 Agreement and Plan of Merger dated December 14, 1999 between
UTStarcom, Inc. and Wacos, Inc.
3.1 Twelfth Amended and Restated Certificate of Incorporation of
UTStarcom, Inc., as currently in effect.
3.2 Form of Thirteenth Amended and Restated Certificate of
Incorporation of UTStarcom, Inc. to be filed following the
closing of the offering pursuant to this registration
statement.
3.3 Bylaws of UTStarcom, Inc. as currently in effect.
3.4 Form of Amended and Restated Bylaws of UTStarcom, Inc. to be
in effect immediately following the closing of the offering
pursuant to this registration statement.
4.1 * Specimen Common Stock Certificate.
4.2 Third Amended and Restated Registration Rights Agreement
dated December 14, 1999.
5.1 * Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement.
10.2 1992 Omnibus Equity Incentive Plan and form of related
agreement.
10.3 1995 Stock Plan and forms of related agreements.
10.4 1997 Stock Plan, as amended, and forms of related
agreements.
10.5 2000 Employee Stock Purchase Plan and forms of related
agreements.
10.6 Common Stock Purchase Warrant dated February 5, 1998 between
UTStarcom, Inc. and Lintech Limited.
10.7 Common Stock Purchase Warrant dated September 20, 1999
between UTStarcom, Inc. and Talent Group International, Ltd.
10.8 Employment and Non-Competition Agreement dated October 6,
1995 between UTStarcom, Inc. and Hong Lu.
10.9 Employment and Non-Competition Agreement dated October 6,
1995 between UTStarcom, Inc. and Ying Wu.
10.10* Product Manufacture & License Agreement dated May 13, 1997
between UTStarcom, Inc. and Tollgrade Communications, Inc.
10.11* Sales Agreement dated February 12, 1999 between UTStarcom
(China) Ltd. and BaoDing Telecommunication Bureau, Hebei
Province.
10.12* Sales Contract dated August 23, 1999 between UTStarcom
(China) Ltd. and Xi'an Telecommunication Bureau.
10.13* Technical License and Assistance Agreement dated
November 2, 1999 between UTStarcom, Inc. and Mitsubishi
Electric Corporation.
10.14* Technical Assistance Agreement dated October 1, 1999 between
Matsushita Communication Industrial Co. Ltd. and UTStarcom,
Inc.
10.15* Joint Product Development and Marketing Memorandum and
Understanding dated September 2, 1999 between UTStarcom,
Inc. and Matsushita Communication Industrial Co., Ltd.
|
EXHIBITS
---------------------
10.16* Joint Patent Filing Agreement dated December 1, 1998 between
UTStarcom, Inc. and Matsushita Communication Industrial Co.,
Ltd.
10.17 Loan Agreement dated June 15, 1998 between UTStarcom, Inc.
and SOFTBANK Corp.
10.18* Loan Agreements between Bank of China and UTStarcom Hangzhou
Telecommunications Co., Ltd.
10.19* Joint Venture Agreement dated July 31, 1997 between
UTStarcom, Inc. and Zhejiang Telecommunication Equipment
Factory.
10.20* Joint Venture Agreement dated December 8, 1995 between
UTStarcom, Inc. and Chinese Guangdong Nanfeng
Telecommunication Group Co. Ltd.
10.21* Joint Venture Agreement dated September 12, 1997 between
UTStarcom, Inc. and Zhejiang Nantian Post and
Telecommunication Development Group Co. Ltd.
10.22* Lease dated December 23, 1997 between UTStarcom, Inc. and
Tech Center Partners.
10.23* Lease Agreement dated April 1995, as amended, between
UTStarcom, Inc. and Metro Park Associates.
10.24* Lease Agreements dated December 31, 1997 and May 14, 1998
between Guangdong UTStarcom Telecom Co., Ltd. and Guangdong
Southern Telecom Group Huizhou Company.
10.25* Lease Contract dated December 15, 1996 between UTStarcom
(Hangzhou) Telecommunications Co., Ltd. and Yile Village,
Gudang Township.
21.1 List of Subsidiaries of UTStarcom, Inc. (see Note 1 to Notes
to Consolidated Financial Statements).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
|
* To be filed by amendment.
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
between
UTSTARCOM, INC.
and
DIRECTOUCH COMMUNICATIONS LIMITED
dated as of
July 30, 1999
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITIONS......................................................................................2
Section 1.01 General.................................................................................2
ARTICLE II - ASSUMPTION AND SATISFACTION OF LIABILITIES......................................................6
Section 2.01 Assumption and Satisfaction of Liabilities..............................................6
ARTICLE III - CAPITAL CONTRIBUTION OF UTS....................................................................6
ARTICLE IV - THE DISTRIBUTION................................................................................6
Section 4.01 Cooperation Prior to the Distribution...................................................6
Section 4.02 Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective
as of the Distribution Date.............................................................7
Section 4.03 No Representations or Warranties; Consents..............................................7
Section 4.04 Conveyancing and Assumption Instruments.................................................8
Section 4.05 UTS Board Action; Conditions Precedent to the Distribution..............................8
Section 4.06 The Distribution........................................................................9
ARTICLE V - INDEMNIFICATION..................................................................................9
Section 5.01 Indemnification by UTS..................................................................9
Section 5.02 Indemnification by DirecTouch...........................................................9
Section 5.03 Insurance Proceeds.....................................................................10
Section 5.04 Procedure for Indemnification..........................................................10
Section 5.05 Remedies Cumulative....................................................................12
Section 5.06 Survival of Indemnities................................................................12
ARTICLE VI - CERTAIN ADDITIONAL MATTERS.....................................................................13
Section 6.01 DirecTouch Board.......................................................................13
Section 6.02 Employee Matters.......................................................................13
ARTICLE VII - ACCESS TO INFORMATION AND SERVICES............................................................13
Section 7.01 Provision of Corporate Records.........................................................13
Section 7.02 Access to Information..................................................................14
Section 7.03 Production of Witnesses................................................................14
Section 7.04 Reimbursement..........................................................................14
Section 7.05 Retention of Records...................................................................14
Section 7.06 Confidentiality........................................................................15
Section 7.07 Privileged Matters.....................................................................15
ARTICLE VIII - MISCELLANEOUS................................................................................17
Section 8.01 Complete Agreement; Construction.......................................................17
Section 8.02 Expenses...............................................................................17
-1-
|
TABLE OF CONTENTS
(CONTINUED)
Section 8.03 Governing Law..........................................................................17
Section 8.04 Notices................................................................................17
Section 8.05 Amendments.............................................................................18
Section 8.06 Successors and Assigns.................................................................18
Section 8.07 Termination............................................................................18
Section 8.08 Subsidiaries...........................................................................18
Section 8.09 No Third-Party Beneficiaries...........................................................18
Section 8.10 Titles and Headings....................................................................18
Section 8.11 Exhibits and Schedules.................................................................18
Section 8.12 Legal Enforceability...................................................................19
Section 8.13 Arbitration of Disputes................................................................19
|
LIST OF EXHIBITS
Exhibit A: DirecTouch Bylaws Exhibit B: DirecTouch Certificate Exhibit C: DirecTouch Financial Statements Exhibit D: Inter-company Option Agreement Exhibit E: Stock Transfer Restriction Agreement Exhibit F: UTS Financial Statements |
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this 30th day of July, 1999 between UTStarcom, Inc., a Delaware corporation ("UTS"), and DirecTouch Communications Limited, a British Virgin Islands corporation and wholly-owned subsidiary of UTS ("DirecTouch")
RECITALS
A. WHEREAS, UTS is the holder of all of the issued and outstanding shares of capital stock of DirecTouch;
B. WHEREAS, the Board of Directors of UTS has determined that it is in the best interests of UTS and the stockholders of UTS to separate DirecTouch from UTS and to effect such separation, to distribute all of the outstanding shares of DirecTouch common stock held by UTS to the holders of record of (i) UTS capital stock in the ratio of one share of DirecTouch common stock for every one share of UTS capital stock held by UTS stockholders and (ii) vested options to purchase shares of UTS common stock in the ratio of one vested option to purchase a share of DirecTouch common stock for every one vested option to purchase UTS common stock held by UTS optionholders ((i) and (ii) collectively, the "Distribution");
C. WHEREAS, the exercise price of UTS' options to purchase shares of UTS stock (the "UTS Options") must be adjusted to account for the issuance of the options to purchase shares of DirecTouch (the "DirecTouch Options") consistent with Treasury Regulation Section 1.425-(e)(5)(ii)(b) (the "UTS Option Price Adjustment") as follows: (i) after the Distribution, the aggregate exercise price of the UTS Option and the DirecTouch Option will equal the aggregate exercise price of the UTS Option immediately prior to the Distribution; and (ii) the adjustment shall be calculated so that the pre-Distribution exercise price per share of the UTS Option will be allocated among the adjusted UTS Options and the DirecTouch Options on the basis of the relative fair market values of the underlying Common Stock of UTS and DirecTouch after the Distribution (the valuation of the DirecTouch Common Stock will be based on a post-Distribution market valuation).
D. WHEREAS, in connection with the Distribution, the Board of Directors of UTS has determined that it is in the best interests of UTS, DirecTouch, and the stockholders of each, respectively, to amend certain provisions of the vested options to purchase shares of UTS common stock held by the employees of DirecTouch as of the Distribution Record Date so that these options will continue for the term of the option and will not terminate 90 days after these DirecTouch employees terminate their employment from UTS; and
E. WHEREAS, in connection with the Distribution, UTS and DirecTouch have determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Distribution, and to set forth the agreements that will govern certain matters following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 GENERAL. As used in this Agreement, the following terms shall have the following meanings:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person. For purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. Notwithstanding the foregoing, (i) the Affiliates of UTS shall not include DirecTouch, the DirecTouch Subsidiaries or any other Person which would be an Affiliate of UTS by reason of UTS's ownership of the capital stock of DirecTouch prior to the Distribution or the fact that any officer or director of DirecTouch or any of the DirecTouch Subsidiaries shall also serve as an officer or director of UTS, and (ii) the Affiliates of DirecTouch shall not include UTS or any other Person which would be an Affiliate of DirecTouch by reason of UTS's ownership of capital stock of DirecTouch prior to the Distribution or the fact that any officer or director of DirecTouch or any of the DirecTouch Subsidiaries shall also serve as an officer or director of UTS.
DIRECTOUCH ASSETS: The assets of the DirecTouch Group, including without limitation (i) assets relating to the DirecTouch Business, determined on a basis consistent with the determination of assets included on the DirecTouch Financial Statements, and (ii) any other assets of the DirecTouch Group relating to the DirecTouch Business.
DIRECTOUCH BOARD: The Board of Directors of DirecTouch.
DIRECTOUCH BOOKS AND RECORDS: The books and records (including computerized records) of DirecTouch and the DirecTouch Subsidiaries and all books and records owned by UTS which relate to the DirecTouch Business or are necessary to operate the DirecTouch Business, including, without limitation, all such books and records relating to DirecTouch Employees, all files relating to any Action being assumed by DirecTouch as part of the DirecTouch Liabilities, original corporate minute books, stock ledgers and certificates and corporate seals, and all licenses, leases, agreements and filings, relating to DirecTouch, the DirecTouch Subsidiaries or the DirecTouch Business (but not including the UTS Books and Records, provided that DirecTouch shall have access to, and have the right to obtain duplicate copies of the UTS Books and Records in accordance with the provisions of Article VI).
DIRECTOUCH BYLAWS: The Bylaws of DirecTouch, substantially in the form of EXHIBIT A, to be in effect at the Distribution Date.
DIRECTOUCH CERTIFICATE: The Restated Certificate of Incorporation of DirecTouch, substantially in the form of EXHIBIT B, to be in effect at the Distribution Date.
DIRECTOUCH COMMON STOCK: The common stock, par value $0.01 per share, of DirecTouch.
DIRECTOUCH EMPLOYEES: All of the employees of DirecTouch at the time of the Distribution; PROVIDED HOWEVER, that James Miller and Chauncey Shey shall be employees of both UTS and DirecTouch.
DIRECTOUCH GROUP: DirecTouch and the DirecTouch Subsidiaries, collectively.
DIRECTOUCH LIABILITIES: (i) All of the Liabilities of the
DirecTouch Group under, or to be retained or assumed by DirecTouch or any of
the DirecTouch Subsidiaries pursuant to this Agreement or any of the Related
Agreements, (ii) all Liabilities for payment of outstanding loans of UTS
attributable to the DirecTouch Business existing as of the Distribution Date,
(iii) all Liabilities arising out of or in connection with any of the
DirecTouch Assets or the DirecTouch Business, determined on a basis
consistent with the determination of the Liabilities of DirecTouch included
on the DirecTouch Financial Statement, and (iv) all Liabilities arising out
of or in connection with any claims made by former DirecTouch officers or
employees, whether brought against UTS or DirecTouch.
DIRECTOUCH FINANCIAL STATEMENTS: The Financial Statements for DirecTouch for the years ended 1998 and 1997 attached hereto as EXHIBIT C.
DIRECTOUCH SUBSIDIARIES: All Subsidiaries of DirecTouch at the time of the Distribution.
DISTRIBUTION DATE: The date determined by the UTS Board as the date on which the Distribution shall be effected, which Distribution Date is contemplated by the UTS Board to occur on or about August 5, 1999.
DISTRIBUTION RECORD DATE: The date established by the UTS Board as the date for taking a record of the Holders of UTS Common Stock entitled to participate in the Distribution, which Distribution Record Date has been established as July 15, 1999.
HOLDERS: The holders of record of (i) UTS Capital Stock (as defined below) or (ii) vested options to purchase UTS common stock as of the Distribution Record Date.
INTER-COMPANY OPTION AGREEMENT: The option agreement between UTS and DirecTouch, which agreement shall be entered into on or prior to the Distribution Date in substantially the form of EXHIBIT D attached hereto.
LIABILITIES: Any and all debts, liabilities and obligations, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking.
PERSON: Any individual, corporation, partnership, association, trust, estate or other entity or organization, including any governmental entity or authority.
PRIVILEGES: All privileges that may be asserted under applicable law, including, without limitation, privileges arising under or relating to the attorney-client relationship (including but not limited to the attorney-client and work product privileges), the accountant-client privilege, and privileges relating to internal evaluative processes.
PRIVILEGED INFORMATION: All Information as to which UTS, DirecTouch or any of their Subsidiaries are entitled to assert the protection of a Privilege.
RELATED AGREEMENTS: All of the agreements, instruments, understandings, assignments or other arrangements which are entered into in connection with the transactions contemplated hereby and which are set forth in a writing, including, without limitation, (i) the Inter-Company Option Agreement and (ii) the Stock Transfer Restriction Agreement, attached hereto as EXHIBIT E.
RETAINED ASSETS: The assets of UTS other than the DirecTouch Assets, including without limitation (i) assets relating to the Retained Business, determined on a basis consistent with the determination of assets included on the UTS Financial Statements, (ii) any other assets of UTS and its Affiliates relating to the Retained Business.
RETAINED BUSINESS: The businesses conducted by UTS pursuant to or utilizing the Retained Assets.
RETAINED EMPLOYEES: The individuals employed by UTS and not DirecTouch on the Distribution Date; PROVIDED HOWEVER, James Miller and Chauncey Shey shall be employees of both UTS and DirecTouch.
RETAINED LIABILITIES: All of the Liabilities arising out of or in connection with the Retained Assets or the Retained Business, determined on a basis consistent with the determination of the Liabilities of UTS included on the UTS Financial Statements.
SUBSIDIARY: With respect to any Person, (a) any corporation of which at least a majority in interest of the outstanding voting stock (having by the terms thereof voting power under ordinary circumstances to elect a majority of the directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned or controlled by such Person, by one or more Subsidiaries of such Person, or by such Person and one or more of its Subsidiaries, or (b) any non-corporate entity in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has at least majority ownership interest.
UTS BOARD: The Board of Directors of UTS.
UTS BOOKS AND RECORDS: The books and records (including computerized records) of UTS and all books and records owned by DirecTouch which relate to the Retained Business or are necessary to operate the Retained Business, including, without limitation, all such books and records relating to Retained Employees, all files relating to any Action pertaining to the Retained Liabilities, original corporate minute books, stock ledgers and certificates and corporate seals, and all licenses, leases, agreements and filings, relating to UTS or the Retained Business (but not including the DirecTouch Books and Records, provided that UTS shall have access to, and shall have the right to obtain duplicate copies of, the DirecTouch Books and Records in accordance with the provisions of Article VI).
UTS CAPITAL STOCK: The common stock and preferred stock, par value $0.0025 per share, of UTS.
UTS FINANCIAL STATEMENT: The Financial Statements for UTS for the years ended 1998, 1997 and 1996 attached hereto as EXHIBIT F.
UTS GROUP: UTS and the UTS Subsidiaries, collectively.
UTS SUBSIDIARIES: All Subsidiaries of UTS at the time of the Distribution.
ARTICLE II
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 2.01 ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as set forth in the Inter-company Option Agreement or the other Related Agreements, effective as of and after the Distribution Date, (a) DirecTouch shall, and/or shall cause the DirecTouch Subsidiaries to, assume, pay, perform and discharge in due course all of the DirecTouch Liabilities and (b) UTS shall pay, perform and discharge in due course all of the Retained Liabilities.
ARTICLE III
CAPITAL CONTRIBUTION OF UTS
Section 3.01 Prior to the Distribution Date, UTS hereby agrees to make a
capital contribution to DirecTouch in the amount of $338,835.47 and to cancel
previously existing indebtedness of $338,835.47, owing by DirecTouch to UTS.
UTS acknowledges that no additional shares of DirecTouch Common Stock will be
issued or issuable in connection with or as a result of such capital
contribution or forgiveness of debt, except as may otherwise be provided in a
Related Agreement. The contribution to capital is intended to qualify under
Section 351 of the Internal Revenue Code of 1986, as amended, and shall be
reported on all UTS and DirecTouch tax returns and information statements in
accordance with such intentions, unless otherwise indicated by UTS. UTS and
DirecTouch understand and acknowledge that all of the shares of DirecTouch
Common Stock held by UTS will be distributed by UTS to the holders of
outstanding shares of UTS common stock. Prior to the Distribution Date, UTS
shall return to DirecTouch for cancellation such number of shares of
DirecTouch Common Stock as UTS deems not to be required for purposes of
effecting the Distribution.
ARTICLE IV
THE DISTRIBUTION
Section 4.01 COOPERATION PRIOR TO THE DISTRIBUTION.
(a) CONSENTS. UTS and DirecTouch shall use all reasonable efforts to obtain any third-party consents or approvals necessary or desirable in connection with the transactions contemplated hereby ("Consents").
(b) UTS and DirecTouch will use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary or desirable under
applicable law, to consummate the transactions contemplated under this Agreement and the Related Agreements.
Section 4.02 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION; TRANSFERS DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE. To the extent that any transfers or other actions contemplated by this Agreement shall not have been consummated prior to the Distribution Date, the parties shall cooperate to effect such transfers or other actions as promptly following the Distribution Date as shall be practicable, it nonetheless being agreed and understood by the parties that neither party shall be liable in any manner to any other party for any failure of any of the transfers or assumptions contemplated by this Agreement to be consummated prior to the Distribution Date. Nothing herein shall be deemed to require the transfer of any assets or the assumption of any Liabilities which by their terms or operation of law cannot be transferred or assumed; PROVIDED, HOWEVER, that UTS and DirecTouch shall cooperate to seek to obtain any necessary consents or approvals for the transfer of all assets and assumption of all Liabilities contemplated to be transferred or assumed pursuant to this Agreement. In the event that any such transfer of assets or assumption of Liabilities has not been consummated, effective as of and after the Distribution Date, the party retaining such asset or Liability shall thereafter hold such asset for the party entitled thereto (at the expense of the party entitled hereto) and retain such Liability for the account of the party by whom such Liability is to be assumed, and to whom such asset is to be transferred, or by whom such Liability is to be assumed, as the case may be, in order to place such party, insofar as reasonably possible, in the same position as would have existed had such asset or Liability been transferred or assumed as of the Distribution Date. As and when such assets or Liability becomes transferable or assumable, such transfer or assumption shall be effected forthwith. The parties agree that, as of the Distribution Date, each party hereto shall be deemed to have assumed, in accordance with the terms of this Agreement and the Related Agreements, all of the Liabilities, and all duties, obligations, and responsibilities incident thereto, which such party is required to assume pursuant to the terms hereof and thereof.
Section 4.03 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the parties hereto understands and agrees that no party hereto is, in this Agreement or in any Related Agreement or in any other agreement or document contemplated by this Agreement or otherwise, representing or warranting in any way (i) as to the value or freedom from encumbrance of, or any other matter concerning, any assets of such party or (ii) as to the legal sufficiency to convey title to any asset pursuant to this Agreement or any Related Agreements, it being agreed and understood that all such assets are being transferred "as is, where is" and that the party to which such assets are to be transferred hereunder shall bear the economic and legal risk that any conveyancing of such assets shall prove to be insufficient or that such party's title to any such assets shall be other than good and marketable and free from encumbrances. Similarly, each party hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any agreements or the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable agreements or the requirements of any and all applicable laws or judgments, it being agreed and understood that the party to which any assets are transferred shall bear the economic and legal risk that any necessary consents or approvals are not obtained or that any requirements of laws or judgments are not
compiled with. Notwithstanding the foregoing, the parties shall use reasonable efforts to obtain all consents and approvals, to enter into all agreements and to make all filings and applications which may be required for the consummation of the transactions contemplated by this Agreement, including, without limitation, all applicable regulatory filings or consents under federal or state laws and all necessary consents, approvals, agreements, filings and applications.
Section 4.04 CONVEYANCING AND ASSUMPTION INSTRUMENTS. In connection with the transfers of assets (other than capital stock) and the assumptions of Liabilities contemplated by this Agreement and the Information Statement, the parties shall execute or cause to be executed by the appropriate entities the Conveyancing and Assumption Instruments in such form as the parties shall agree. The transfer of capital stock shall be effected by means of delivery of stock certificates and executed stock powers and notation on the stock record books of the corporation or other legal entities involved.
Section 4.05 UTS BOARD ACTION; CONDITIONS PRECEDENT TO THE DISTRIBUTION. The UTS Board shall, in its discretion, establish any appropriate procedures in connection with the Distribution. In no event shall the Distribution occur unless the following conditions shall have been satisfied:
(a) the DirecTouch Board, comprised as contemplated by
Section 6.01, shall have been elected, and the DirecTouch Certificate and
DirecTouch Bylaws shall have been adopted and shall be in effect;
(b) UTS and DirecTouch shall have obtained all Consents, the failure of which to obtain would, in the determination of the UTS Board, have a material adverse effect on UTS or DirecTouch;
(c) UTS and DirecTouch shall have entered into the Related Agreements; PROVIDED, HOWEVER, that (i) any such condition may be waived by the UTS Board in its sole discretion, and (ii) the satisfaction of such conditions shall not create any obligation on the part of UTS or any other party hereto to effect the Distribution or in any way limit UTS's power of termination set forth in Section 8.07 or alter the consequences of any such termination from those specified in such Section.
(d) UTS shall have granted vested options pursuant to the 1999 Special Stock Option Plan to every holder of vested options to purchase UTS common stock in the ratio of one vested option to purchase a share of DirecTouch common stock for every vested option to purchase a share of UTS common stock held by the UTS option holder as of the Distribution Record Date (the "Spin-off Options").
(e) UTS shall have effected the UTS Option Price Adjustment with respect to every UTS Option so that the aggregate exercise price of each UTS Option and DirecTouch Option will equal the aggregate exercise price of each UTS Option immediately prior to the Distribution.
(f) UTS shall have amended the vested options to purchase UTS common stock held by all the DirecTouch Employees as of the Distribution Record Date excluding Jim Miller and Chauncey Shey (the "DirecTouch Amendment Optionees") so that these vested options (the "Amended Options") will remain exercisable as if such DirecTouch Amendment Optionees remained employed by UTS; PROVIDED, HOWEVER, that upon the termination of these DirecTouch Amendment Optionees from DirecTouch, their Amended Options will terminate according to the terms of the UTS' 1997 Stock Plan as if these DirecTouch Amendment Optionees had terminated from UTS on a date even with their termination from DirecTouch. All nonvested options to purchase UTS common stock held by DirecTouch Amendment Optionees terminate as of the Distribution Date.
Section 4.06 THE DISTRIBUTION. On the Distribution Date, subject to the conditions and rights of termination set forth in this Agreement, UTS shall distribute, on or as soon as practicable following the Distribution Date, to each Holder one share of DirecTouch common stock for every share of UTS capital stock held by such Holder. DirecTouch agrees to provide all share certificates that UTS shall require in order to effect the Distribution.
ARTICLE V
INDEMNIFICATION
Section 5.01 INDEMNIFICATION BY UTS. Except as otherwise expressly set forth in a Related Agreement, UTS shall indemnify, defend and hold harmless DirecTouch and each of the DirecTouch Subsidiaries, and each of their respective directors, officers, employees, agents and Affiliates and each of the heirs, executors, successors and assigns of any of the foregoing (the "DirecTouch Indemnitees") from and against the Retained Liabilities and any and all losses, Liabilities, damages, including, without limitation, the costs and expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and compromises relating to the Retained Liabilities and attorneys' fees and any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions (collectively, "DirecTouch Indemnifiable Losses" and, individually, a "DirecTouch Indemnifiable Loss") of the DirecTouch Indemnitees arising out of or due to the failure or alleged failure of UTS or any of its Affiliates prior to or after the Distribution Date to pay, perform or otherwise discharge in due course any of the Retained Liabilities.
Section 5.02 INDEMNIFICATION BY DIRECTOUCH. Except as otherwise expressly set forth in a Related Agreement, DirecTouch shall indemnify, defend and hold harmless UTS and each of its directors, officers, employees, agents and Affiliates and each of the heirs, executors, successors and assigns of any of the foregoing (the "UTS Indemnitees") from and against the DirecTouch Liabilities and any and all losses, Liabilities, damages, including, without limitation, the costs and expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and compromises relating to the DirecTouch Liabilities and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions (collectively, "UTS Indemnifiable Losses" and, individually, a "UTS Indemnifiable Loss") of the UTS Indemnitees arising out of or due to the failure or alleged failure of DirecTouch or any of its Affiliates prior to or after the Distribution Date to pay, perform or otherwise discharge in due course any of the DirecTouch Liabilities. The "DirecTouch Indemnifiable Losses" and the "UTS Indemnifiable Losses" are collectively referred to as the "Indemnifiable Losses."
Section 5.03 INSURANCE PROCEEDS. The amount which any party (an "Indemnifying Party") is or may be required to pay to any other Person (an "Indemnitee") pursuant to Section 5.01 or Section 5.02 shall be reduced (including, without limitation, retroactively) by any Insurance Proceeds or other amounts actually recovered by or on behalf of such Indemnitee in reduction of the related Indemnifiable Loss. If an Indemnitee shall have received the payment required by this Agreement from an Indemnifying Party in respect of an Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds, or other amounts in respect of such Indemnifiable Loss as specified above, then such Indemnitee shall pay to such Indemnifying Party a sum equal to the greater of (i) the amount of such Insurance Proceeds or other amounts actually received and (ii) the amount of the payment previously made by the Indemnifying Party in respect of the Indemnifiable Loss.
Section 5.04 PROCEDURE FOR INDEMNIFICATION.
(a) Except as may be set forth in a Related Agreement, if an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including, without limitation, any governmental entity) who is not a party to this Agreement or to any of the Related Agreements of any claim or of the commencement by any such Person of any Action (a "Third-Party Claim") with respect to which an Indemnifying Party may be obligated to provide indemnification pursuant to this Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof promptly after becoming aware of such Third-Party Claim; PROVIDED that the failure of any Indemnitee to give notice as required by this Section 5.04 shall not relieve the Indemnifying Party of its obligations under this Article IV, except to the extent that such Indemnifying Party is prejudiced by such failure to give notice. Such notice shall describe the Third-Party Claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the Indemnifiable Loss that has been or may be sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or compromise, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party must confirm in writing that it agrees that the Indemnitee is entitled to indemnification hereunder in respect of such Third-Party Claim. Within 30 days of the receipt of notice from an Indemnitee in accordance with Section 5.04(a) (or sooner, if the nature of such Third-Party Claim so requires), the Indemnifying Party
shall notify the Indemnitee of its election whether to assume responsibility for such Third-Party Claim (provided that if the Indemnifying Party does not so notify the Indemnitee of its election within 30 days after receipt of such notice from the Indemnitee, the Indemnifying Party shall be deemed to have elected not to assume responsibility for such Third-Party Claim), and such Indemnitee shall cooperate in the defense or settlement or compromise of such Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee of its election to assume responsibility for a Third-Party Claim, such Indemnifying Party shall not be liable to such Indemnitee under this Article IV for any legal or other expenses (except expenses approved in advance by the Indemnifying Party) subsequently incurred by such Indemnitee in connection with the defense thereof; PROVIDED THAT if the defendants in any such claim include both the Indemnifying Party and one or more Indemnitees and in such Indemnitees' reasonable judgment a conflict of interest between such Indemnitees and such Indemnifying Party exists in respect of such claim, such Indemnitees shall have the right to employ separate counsel and in that event the reasonable fees and expenses of such separate counsel (but not more than one separate counsel reasonably satisfactory to the Indemnifying Party) shall be paid by such Indemnifying Party. If an Indemnifying Party elects not to assume responsibility for a Third-Party Claim (which election may be made only in the event of a good faith dispute that a claim was inappropriately tendered under Section 5.01 or 5.02, as the case may be), the Indemnitee may defend or (subject to the following sentence) seek to compromise or settle such Third-Party Claim. Notwithstanding the foregoing, an Indemnitee may not settle or compromise any claim without prior written notice to the Indemnifying Party, which shall have the option within ten days following the receipt of such notice (i) to disapprove the settlement and assume all past and future responsibility for the claim, including reimbursing the Indemnitee for prior expenditures in connection with the claim, or (ii) disapprove the settlement and continue to refrain from participation in the defense of the claim, in which event the Indemnifying Party shall have no further right to contest the amount or reasonableness of the settlement if the Indemnitee elects to proceed therewith, or (iii) to approve the amount of the settlement, reserving the Indemnifying Party's right to contest the Indemnitee's right to indemnity, or (iv) to approve and agree to pay the settlement. In the event the Indemnifying Party makes no response to such written notice from the Indemnitee, the Indemnifying Party shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to compromise any Third-Party Claim, the Indemnitee shall make available to such Indemnifying Party any personnel and any books, records or other documents within its control or which it otherwise has the ability to make available that are necessary or appropriate for such defense.
(d) Notwithstanding anything else in this Section 5.04 to the contrary, an Indemnifying Party shall not settle or compromise any Third-Party Claim unless such settlement or compromise contemplates as an unconditional term thereof the giving by such claimant or plaintiff to the Indemnitee of a written release from all liability in respect of such Third-Party Claim (and provided further that such settlement may not provide for any non-monetary relief by Indemnitee without the written consent of Indemnitee). In the event the Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee declines to accept any such settlement or compromise, such Indemnitee may continue to contest such Third-Party Claim, free of any participation by such Indemnifying Party, at such Indemnitee's sole expense. In such event, the obligation of such Indemnifying Party to such Indemnitee with respect to such Third-Party Claim shall be equal to (i) the costs and expenses of such Indemnitee prior to the date such Indemnifying Party notifies such Indemnitee of the offer to settle or compromise (to the extent such costs and
expenses are otherwise indemnifiable hereunder) PLUS (ii) the lesser of (A) the amount of any offer of settlement or compromise which such Indemnitee declined to accept and (B) the actual out-of-pocket amount such Indemnitee is obligated to pay subsequent to such date as a result of such Indemnitee's continuing to pursue such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall have a period of 15 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 15-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 15-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party under applicable law or under this Agreement.
(f) In addition to any adjustments required pursuant to
Section 5.03, if the amount of any Indemnifiable Loss shall, at any time
subsequent to the payment required by this Agreement, be reduced by recovery,
settlement or otherwise, the amount of such reduction, less any expenses
incurred in connection therewith, shall promptly be repaid by the Indemnitee
to the Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim.
Section 5.05 REMEDIES CUMULATIVE. The remedies provided in this Article IV shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.
Section 5.06 SURVIVAL OF INDEMNITIES. The obligations of each of DirecTouch and UTS under this Article IV shall survive the sale or other transfer by it of any assets or businesses or the assignment by it of any Liabilities with respect to any Indemnifiable Loss of the other related to such assets, businesses or Liabilities.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.01 DIRECTOUCH BOARD. DirecTouch and UTS shall take all actions which may be required to constitute, effective as of the Distribution Date, the board of directors of DirecTouch with the following persons: Hong Lu, Chauncey Shey, Li Kin Shing, Jim Miller and Charlie Shi.
Section 6.02 EMPLOYEE MATTERS.
(a) On the Distribution Date, except to the extent retained or assumed by UTS under this Agreement or any other agreement relating to the Distribution, DirecTouch shall retain or assume, as the case may be, responsibility as employer for the DirecTouch Employees. On the Distribution Date, except to the extent retained or assumed by DirecTouch under this Agreement or any other agreement relating to the Distribution, UTS shall retain or assume, as the case may be, responsibility as employer for the Retained Employees.
(b) DirecTouch shall cause all of the DirecTouch Employees to resign, effective as of the Distribution Date, from all positions as officers or employees of UTS in which they serve. UTS shall cause all of the Retained Employees to resign, effective as of the Distribution Date, from all positions as officers or employees of DirecTouch or any of its Subsidiaries in which they serve.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.01 PROVISION OF CORPORATE RECORDS.
(a) Except as may otherwise be provided in a Related Agreement, UTS shall arrange as soon as practicable following the Distribution Date for the transportation (at DirecTouch's cost) to DirecTouch of the DirecTouch Books and Records in its possession, except to the extent such items are already in the possession of DirecTouch or a DirecTouch Subsidiary. The DirecTouch Books and Records shall be the property of DirecTouch, but shall be available to UTS for review and duplication until UTS shall notify DirecTouch in writing that such records are no longer of use to UTS.
(b) Except as otherwise provided in a Related Agreement, DirecTouch shall arrange as soon as practicable following the Distribution Date for the transportation (at UTS's cost) to UTS of the UTS Books and Records in its possession, except to the extent such items are already in the possession of UTS. The UTS Books and Records shall be the property of UTS, but
shall be available to DirecTouch for review and duplication until DirecTouch shall notify UTS in writing that such records are no longer of use to DirecTouch.
Section 7.02 ACCESS TO INFORMATION. Except as otherwise provided in a Related Agreement, from and after the Distribution Date, UTS shall afford to DirecTouch and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information relating to pre-Distribution operations (collectively, "Information") within UTS's possession insofar as such access is reasonably required by DirecTouch for the conduct of its business, subject to appropriate restrictions for classified or Privileged Information. Similarly, except as otherwise provided in a Related Agreement, DirecTouch shall afford to UTS and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to Information within DirecTouch's possession, insofar as such access is reasonably required by UTS for the conduct of its business, subject to appropriate restrictions for classified or Privileged Information. Information may be requested under this Article VI for the legitimate business purposes of either party, including, without limitation, audit, accounting, claims (including claims for indemnification hereunder), litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and for performing this Agreement and the transactions contemplated hereby.
Section 7.03 PRODUCTION OF WITNESSES. At all times from and after the Distribution Date, each of DirecTouch and UTS shall use reasonable efforts to make available to the other, upon written request, its and its Subsidiaries' officers, directors, employees and agents as witnesses to the extent that such persons may reasonably be required in connection with any Action.
Section 7.04 REIMBURSEMENT. Except to the extent otherwise contemplated in any Related Agreement, a party providing Information or witness services to the other party under this Article VI shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments of such amounts, relating to supplies, disbursements and other out-of-pocket expenses (at cost) and direct and indirect expenses of employees who are witnesses or otherwise furnish assistance (at cost), as may be reasonably incurred in providing such Information or witness services.
Section 7.05 RETENTION OF RECORDS. Except as otherwise required by law or agreed to in a Related Agreement or otherwise in writing, each of UTS and DirecTouch may destroy or otherwise dispose of any of the Information, which is material Information and is not contained in other Information retained by UTS or DirecTouch, as the case may be, at any time after the seventh anniversary of this Agreement, provided that, prior to such destruction or disposal, (a) it shall provide no less than 90 or more than 120 days prior written notice to the other, specifying in reasonable detail the Information proposed to be destroyed or disposed of and (b) if a recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the Information proposed to be destroyed or disposed of be delivered to such requesting party,
the party proposing the destruction or disposal shall promptly arrange for the delivery of such of the Information as was requested at the expense of the party requesting such Information.
Section 7.06 CONFIDENTIALITY. Each of UTS and its Subsidiaries on the
one hand, and DirecTouch and its Subsidiaries on the other hand, shall hold,
and shall cause its consultants and advisors to hold, in strict confidence,
all Information concerning the other in its possession or furnished by the
other or the other's representatives pursuant to this Agreement (except to
the extent that such Information has been (i) in the public domain through no
fault of such party or (ii) later lawfully acquired from other sources by
such party), and each party shall not release or disclose such Information to
any other person, except its auditors, attorneys, financial advisors, rating
agencies, bankers and other consultants and advisors, unless compelled to
disclose by judicial or administrative process or, as reasonably advised by
its counsel or by other requirements of law, or unless such Information is
reasonably required to be disclosed in connection with (x) any litigation
with any third-parties or litigation between UTS and the DirecTouch Group,
(y) any contractual agreement to which UTS or the DirecTouch Group are
currently parties, or (z) in exercise of either party's rights hereunder.
Section 7.07 PRIVILEGED MATTERS. UTS and DirecTouch recognize that legal and other professional services that have been and will be provided prior to the Distribution Date have been and will be rendered for the benefit of both the UTS Group and the DirecTouch Group and that both the UTS Group and the DirecTouch Group should be deemed to be the client for the purposes of asserting all Privileges. To allocate the interests of each party in the Privileged Information, the parties agree as follows:
(a) UTS shall be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information which relates solely to the Retained Business, whether or not the Privileged Information is in the possession of or under the control of UTS or DirecTouch. UTS shall also be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information that relates solely to the subject matter of any claims constituting Retained Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by UTS, whether or not the Privileged Information is in the possession of or under the control of UTS or DirecTouch.
(b) DirecTouch shall be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information which relates solely to the DirecTouch Business, whether or not the Privileged Information is in the possession of or under the control of UTS or DirecTouch. DirecTouch shall also be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information which relates solely to the subject matter of any claims constituting DirecTouch Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by DirecTouch, whether or not the Privileged Information is in the possession of DirecTouch or under the control of UTS or DirecTouch.
(c) UTS and DirecTouch agree that they shall have a shared Privilege, with equal right to assert or waive, subject to the restrictions in this Section 7.07, with respect to all Privileges not allocated pursuant to the terms of Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings, litigation, disputes or other matters which involve both UTS and DirecTouch in respect of which UTS and DirecTouch retain any responsibility or liability under this Agreement shall be subject to a shared Privilege.
(d) No party may waive any Privilege which could be asserted under any applicable law, and in which the other party has a shared Privilege, without the consent of the other party, except to the extent reasonably required in connection with any litigation with third-parties or as provided in subsection (e) below. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within 20 days after notice upon the other party requesting such consent.
(e) In the event of any litigation or dispute between a member of the UTS Group and a member of the DirecTouch Group, either party may waive a Privilege in which the other party has a shared Privilege, without obtaining the consent of the other party, provided that such waiver of a shared Privilege shall be effective only as to the use of Information with respect to the litigation or dispute between the UTS Group and the DirecTouch Group, and shall not operate as a waiver of the shared Privilege with respect to third-parties.
(f) If a dispute arises between the parties regarding whether a Privilege should be waived to protect or advance the interest of either party, each party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other party, and shall not unreasonably withhold consent to any request for waiver by the other party. Each party specifically agrees that it will not withhold consent to waiver for any purpose except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other request which arguably calls for the production or disclosure of Information subject to a shared Privilege or as to which the other party has the sole right hereunder to assert a Privilege, or if any party obtains knowledge that any of its current or former directors, officers, agents or employees have received any subpoena, discovery or other requests which arguably calls for the production or disclosure of such Privileged Information, such party shall promptly notify the other party of the existence of the request and shall provide the other party a reasonable opportunity to review the Information and to assert any rights it may have under this Section 7.07 or otherwise to prevent the production or disclosure of such Privileged Information.
(h) The transfer of the DirecTouch Books and Records and the UTS Books and Records and other Information between the UTS Group and the DirecTouch Group is made in reliance on the agreement of UTS and DirecTouch, as set forth in Sections 7.06 and 7.07, to maintain the confidentiality of Privileged Information and to assert and maintain all applicable Privileges. The access to information being granted pursuant to Sections 7.01 and 7.02, the agreement to provide witnesses and individuals pursuant to Section 7.03 and the transfer of
Privileged Information between the UTS Group and the DirecTouch Group pursuant to this Agreement shall not be deemed a waiver of any Privilege that has been or may be asserted under this Agreement or otherwise.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the Exhibits and the Related Agreements and other agreements and documents referred to herein, shall constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. Notwithstanding any other provisions in this Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Related Agreements, the Related Agreements shall control.
Section 8.02 EXPENSES. Except as otherwise set forth in this Agreement or any Related Agreement, all costs and expenses in connection with the preparation, execution, delivery and implementation of this Agreement, the Distribution and with the consummation of the transactions contemplated by this Agreement shall be charged to the party for whose benefit the expenses are incurred, with any expenses which cannot be allocated on such basis to be split equally between the parties.
Section 8.03 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the principles of conflicts of laws thereof.
Section 8.04 NOTICES. All notices and other communications hereunder shall be in writing and shall be delivered by hand, mailed by registered or certified mail (return receipt requested) to the parties at the addresses below (or at such other addresses for a party as shall be specified by like notice) or sent by facsimile to the numbers listed below with confirmation of transmission, and shall be deemed given on the date on which such notice is received:
To DirecTouch:
DirecTouch, Inc.
Room 3813-15
Hong Kong Plaza
188 Connaught Road West
(011) 852-2859-9333
(011) 852-2859-9393 (Fax)
Attention: Jim Miller
To UTS:
UTS, Inc.
1275 Harbor Bay Parkway, Suite 100
Alameda, California 94502
(510) 864-8800
(510) 864-8802 (Fax) Attention: Hong Lu
Section 8.05 AMENDMENTS. This Agreement may not be modified or amended except by an agreement in writing signed by the parties.
Section 8.06 SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. The parties
acknowledge and agree that any party into which UTS or DirecTouch merges or
which acquires all or substantially all of UTS's or DirecTouch's assets in a
sale transaction would constitute a permitted assign for purposes of this
Section 8.06.
Section 8.07 TERMINATION. This Agreement may be terminated and the Distribution abandoned at any time prior to the Distribution Date by and in the sole discretion of the UTS Board without the approval of DirecTouch or of UTS's stockholders. In the event of such termination, no party shall have any liability to any other party pursuant to this Agreement.
Section 8.08 SUBSIDIARIES. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party which is contemplated to be a Subsidiary of such party on and after the Distribution Date.
Section 8.09 NO THIRD-PARTY BENEFICIARIES. Except for the provisions of Article IV relating to Indemnitees, this Agreement is solely for the benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third-parties any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
Section 8.10 TITLES AND HEADINGS. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
Section 8.11 EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.
Section 8.12 LEGAL ENFORCEABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without prejudice to any rights or remedies otherwise available to any party hereto, each party hereto acknowledges that damages would be an inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable.
Section 8.13 ARBITRATION OF DISPUTES.
(a) Any controversy or claim arising out of this Agreement, or any breach of this Agreement, including any controversy relating to a determination of whether specific assets constitute DirecTouch Assets or Retained Assets or whether specific Liabilities constitute DirecTouch Liabilities or Retained Liabilities, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association then in effect, as modified by this Section 8.13 or by the further agreement of the parties.
(b) Such arbitration shall be conducted in Santa Clara County, California.
(c) Any judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitrators shall have the authority to award to the prevailing party its attorneys' fees and costs incurred in such arbitration. The arbitrators shall not, under any circumstances, have any authority to award punitive, exemplary or similar damages, and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions of this Agreement.
(d) Nothing contained in this Section 8.13 shall limit or
restrict in any way the right or power of a party at any time to seek
injunctive relief in any court and to litigate the issues relevant to such
request for injunctive relief before such court (i) to restrain the other
party from breaching this Agreement or (ii) for specific enforcement of this
Section 8.13. The parties agree that any legal remedy available to a party
with respect to a breach of this Section 8.13 will not be adequate and that,
in addition to all other legal remedies, each party is entitled to an order
specifically enforcing this Section 8.13.
(e) The parties hereby consent to the jurisdiction of the federal courts located in Santa Clara County, California for all purposes under this Agreement.
(f) Neither party nor the arbitrators may disclose the existence or results of any arbitration under this Agreement or any evidence presented during the course of the arbitration without the prior written consent of both parties, except as required to fulfill applicable disclosure and reporting obligations, or as otherwise required by law.
(g) Except as provided in Section 8.13(c), each party shall bear its own costs incurred in the arbitration. If either party refuses to submit to arbitration any dispute required to be submitted to arbitration pursuant to this Section 8.13, and instead commences any other proceeding, including, without limitation, litigation, then the party who seeks enforcement of the obligation to arbitrate shall be entitled to its attorneys' fees and costs incurred in any such proceeding.
(Signature page follows.)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written.
UTStarcom, Inc.
By: /s/ Hong Liang Lu
-------------------------------
Name: Hong Liang Lu
------------------------------
Title: President/CEO
-----------------------------
|
DIRECTOUCH COMMUNICATIONS
LIMITED
By: /s/ Li Kin Shing
-------------------------------
Name: Li Kin Shing
------------------------------
Title: Director
-----------------------------
|
EXHIBIT A
DIRECTOUCH BYLAWS
[Omitted]
EXHIBIT B
DIRECTOUCH CERTIFICATE
[Omitted]
EXHIBIT C
DIRECTOUCH FINANCIAL STATEMENTS
[Omitted]
EXHIBIT D
INTER-COMPANY OPTION AGREEMENT
[Omitted]
EXHIBIT E
STOCK TRANSFER RESTRICTION AGREEMENT
[Omitted]
EXHIBIT F
UTS FINANCIAL STATEMENTS
[Omitted]
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
UTSTARCOM, INC.,
AND
WACOS, INC.
Dated as of December 14, 1999
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Actions at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Procedure for Issuance of Buyer Shares . . . . . . . . . . . . . . . . . . 3
1.6 Closing of Transfer Records. . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 No Further Ownership Rights in Company Shares. . . . . . . . . . . . . . . 4
1.8 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . 4
1.9 Tax and Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . 4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Organization of the Company. . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Company Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Restrictions on Business Activities. . . . . . . . . . . . . . . . . . . . 7
2.7 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.8 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Interested Party Transactions. . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . . . . . 8
3.1 Organization of the Buyer. . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Buyer Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.5 Buyer Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .10
3.6 Compliance with Other Instruments. . . . . . . . . . . . . . . . . . . . .10
ARTICLE IV ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.1 Company Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . .11
4.2 Access to Information. . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
-i-
|
4.4 Public Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.5 Board of Directors of the Company. . . . . . . . . . . . . . . . . . . . .11
4.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.7 FIRPTA Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4.8 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4.9 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . .12
4.10 Additional Documents and Further Assurances. . . . . . . . . . . . . . . .12
4.11 Conversion of Company Series A Preferred Stock . . . . . . . . . . . . . .12
ARTICLE V CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . .13
5.1 Conditions to Obligations of Each Party to Effect the Merger13
5.2 Additional Conditions to Obligations of the Company and the
Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.3 Additional Conditions to Obligations of Buyer. . . . . . . . . . . . . . .13
ARTICLE VI SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . .14
6.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . .14
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . . . .14
7.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
7.2 Extension; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE VIII GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .15
8.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
8.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.4 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . .16
8.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.6 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.8 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . .17
|
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION ------- ----------- Exhibit A Company Disclosure Schedule Exhibit B Buyer Disclosure Schedule Exhibit C Third Amended and Restated Registration Rights Agreement |
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is made and entered into as of December 14, 1999 by and between UTStarcom, Inc., a Delaware corporation ("BUYER") and WACOS, Inc., a Delaware corporation ("COMPANY").
RECITALS
A. This Agreement contemplates a tax-free merger of the Company with and into Buyer in a reorganization pursuant to Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "MERGER").
B. The Boards of Directors of each of Buyer and Company believe it is in the best interests of each company and their respective stockholders that the Merger be consummated and, in furtherance thereof, have approved the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. On and subject to the terms and conditions of this Agreement, the Company will merge with and into the Buyer (the "MERGER") at the Effective Time (as defined in Section 1.4(a) below). The Buyer shall be the corporation surviving the Merger.
1.2 THE CLOSING. The closing of the transactions contemplated by this Agreement (the "CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, in Palo Alto, California, commencing at 10:00 a.m. local time on the second business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective parties will take at the Closing itself) or such other date and time as the parties may mutually determine (the "CLOSING DATE").
1.3 ACTIONS AT THE CLOSING. At the Closing: (i) the Company will deliver to the Buyer the various certificates, instruments, and documents as required by Section 5.3 below; (ii) the Buyer will deliver to the Company the various certificates, instruments, and documents as required by Section 5.2 below; (iii) the Buyer and the Company will file an agreement of merger with the Secretary of State of the State of California and the Secretary of State of the State of Delaware; and (iv) the Buyer will deliver to the stockholders of the Company (the "STOCKHOLDERS") in the manner provided in
Section 1.5 below, the certificates evidencing the Buyer Shares (as defined below) to be issued in the Merger.
1.4 EFFECT OF MERGER
(a) GENERAL. The Merger shall become effective at the time (the "EFFECTIVE TIME") the Buyer and the Company file the agreement of merger with the Secretary of State of the State of California and the Secretary of State of the State of Delaware. The Merger shall have the effect set forth in the Delaware General Corporation Law and the applicable laws of the State of California. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company shall vest in Buyer, and all debts, liabilities and duties of the Company shall become the debts, liabilities and duties of Buyer. The Buyer may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of the Company in order to carry out and effectuate the transactions contemplated by this Agreement.
(b) CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of the Buyer in effect at and as of the Effective Time will remain the Certificate of Incorporation of the Buyer without any modification or amendment resulting from the Merger.
(c) BYLAWS. The Bylaws of the Buyer in effect at and as of the Effective Time will remain the Bylaws of the Buyer without any modification or amendment resulting from the Merger.
(d) DIRECTORS AND OFFICERS. The directors and officers of the Buyer in office at and as of the Effective Time will remain the directors and officers of the Buyer (retaining their respective positions and terms of office).
(e) CONVERSION OF COMPANY SHARES. At and as of the Effective Time:
(i) Each outstanding share of Common Stock of the
Company ("COMPANY COMMON STOCKS") shall be cancelled and extinguished and be
converted automatically into the right to receive 0.4498070 shares of Series G
Preferred Stock, $0.0025 per value, of Buyer ("BUYER SHARES") (the ratio of
0.4498070 Buyer Shares to one (1) Company Common Stock is referred to herein as
the "COMMON STOCK CONVERSION RATIO").
(ii) Each outstanding share of Series B Preferred Stock of the Company ("COMPANY SERIES B SHARES") shall be cancelled and extinguished and be converted automatically into the right to receive 0.9335977 Buyer Shares (the ratio of 0.9335977 Buyer Shares to one (1) Company Series B Share is referred to herein as the "SERIES B CONVERSION RATIO")
The Common Stock Conversion Ratio and the Series B Conversion Ratio shall be subject to equitable adjustment in the event of any stock split, stock dividend, reverse stock split, or other change in the capital stock of the Buyer prior to the Effective Time. The number of Buyer Shares
which shall be delivered to each Stockholder at the Closing is as set forth on SCHEDULE 2.2(a) attached hereto. The aggregate number of Buyer Shares issuable to the holders of Company Common Stock and Company Series B Shares (collectively, the "COMPANY SHARES") pursuant to this Section 1.4(e) is hereinafter referred to as the "MERGER CONSIDERATION". No Company Share shall be deemed to be outstanding or to have any rights other than those set forth above in this Section 1.4(e) after the Effective Time.
(f) NO FRACTIONAL SHARES. No fractional of a share of Buyer Shares will be issued, but in lieu thereof, each holder of shares of Company Capital Stock who would otherwise be entitled to a fraction of a share of Buyer Shares (after aggregating all fractional shares of Buyer Common Stock to be received by such holder) shall be entitled to receive from Buyer an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) $16.2605.
(g) COMPANY STOCK OPTIONS. At the Effective Time, all options to purchase Company Common Stock then outstanding under the Company's 1997 Stock Plan (the "OPTION PLAN") or otherwise shall be assumed by Buyer in accordance with provisions described below:
(i) At the Effective Time, each outstanding option to purchase shares of Company Common Stock (each a "COMPANY OPTION") under the Option Plan or otherwise, whether vested or unvested, shall be, in connection with the Merger, assumed by Buyer. Each Company Option so assumed by Buyer under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the Option Plan and/or as provided in the respective option agreements governing such Company Option immediately prior to the Effective Time, except that such Company Option shall be exercisable for that number of whole shares of the Buyer's Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time multiplied by 0.4498070, rounded down (in the case of Company Options granted under the Option Plan) to the nearest whole number of shares of the Buyer's Common Stock.
(ii) It is the intention of the parties that the Company Options assumed by Buyer qualify following the Effective Time as incentive stock options as defined in Section 422 of the Code to the extent the Company Options qualified as incentive stock options immediately prior to the Effective Time.
(h) BUYER SHARES. Each Buyer Share issued and outstanding at and as of the Effective Time will remain issued and outstanding.
1.5 PROCEDURE FOR ISSUANCE OF BUYER SHARES.
(a) Promptly after the Effective Time, Buyer shall make available to the Stockholders of the Company the Buyer Shares issuable to such Stockholders pursuant to Section 1.4(e) in exchange for all of the outstanding capital stock of the Company.
(b) The Buyer will not pay any dividend or make any distribution on Buyer Shares (with a record date at or after the Effective Time) to any Stockholder until such Stockholder surrenders for exchange his certificates which formerly represented Company Shares. The Buyer instead will hold such dividend in trust for the benefit of such Stockholder pending surrender and exchange. In no event, however, will any Stockholder be entitled to any interest or earnings on the dividend or distribution pending receipt.
(c) The Buyer shall pay all charges and expenses of issuing the Buyer Shares.
1.6 CLOSING OF TRANSFER RECORDS. After the close of business on the Closing Date, transfers of Company Shares outstanding prior to the Effective Time shall not be made on the stock transfer books of the Company.
1.7 NO FURTHER OWNERSHIP RIGHTS IN COMPANY SHARES. All amounts paid upon the surrender for exchange of the Company Shares in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such Company Shares, and there shall be no further registration of transfers on the records of the Company of Company Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates are presented to the Buyer for any reason, they shall be canceled and the Buyer Shares shall be delivered to the person entitled thereto.
1.8 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates evidencing Company Shares shall have been lost, stolen or destroyed, Buyer shall make payment in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such amount, if any, as may be required pursuant to Section 1.5; PROVIDED, HOWEVER, that Buyer may, in its sole discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver an agreement (in form and substance satisfactory to it) to indemnify Buyer against any claim that may be made against Buyer with respect to the certificates alleged to have been lost, stolen or destroyed.
1.9 TAX AND ACCOUNTING TREATMENT. The Merger shall constitute a tax-free transaction pursuant to Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and will be treated as a "purchase" for financial accounting purposes.
1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Buyer with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company, the officers and directors of the Company and Buyer are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary and/or desirable action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer, subject to such exceptions as are specifically disclosed in the Disclosure Schedule attached hereto as EXHIBIT A, as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets (including intangible assets), financial condition, prospects or results of operations of the Company (hereinafter referred to in this Article II to as a "Material Adverse Effect"). The Company has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to Buyer or its counsel.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital of the Company consists of 24,525,000 shares. 18,000,000 of the shares are designated as Common Stock, $0.0001 par value, 10,120,665 shares of which are issued and outstanding (assuming conversion of each share of Series A Preferred Stock of Buyer as of November 30, 1999 into one share of Common Stock). 5,000,000 of the shares are designated as Series A Preferred Stock, $0.001 par value, no shares of which are issued and outstanding (assuming conversion of each share of Series A Preferred Stock of Buyer as of November 30, 1999 into one share of Common Stock). 1,525,000 of the shares are designated as Series B Preferred Stock, $0.0001 par value, 868,825 shares of which are issued and outstanding. All of the capital stock of the Company is held by the persons and in the amounts set forth on SCHEDULE 2.2(a). All outstanding shares of the Company Common Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of the Company or any agreement to which the Company is a party or by which it is bound. Any rights of first refusal and rights of repurchase in favor of the Company, if any, shall be waived in full by the Company as provided in Section 5.3 as a condition of Buyer's obligation to consummate the transactions contemplated by this Agreement.
(b) The Company has reserved 1,315,500 shares of Common Stock for issuance to employees and consultants pursuant to the Option Plan, of which 1,315,500 shares are subject to outstanding, unexercised options and no shares remain available for future grant. SCHEDULE 2.2(b) sets forth for each outstanding option ("COMPANY OPTIONS"), the name of the holder of such option, the number of shares of Common Stock subject to such option, the exercise price of such option and the vesting schedule for such option. Except for the Company Options described in Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of the Company or obligating the Company to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement.
2.3 SUBSIDIARIES. The Company does not have any subsidiaries or affiliated companies and does not otherwise own any shares of capital stock or any ownership interest in, or control, directly or indirectly, of any other corporation, partnership, association, joint venture or other business entity.
2.4 AUTHORITY. Subject only to the requisite approval of the Merger and this Agreement by the Company's Stockholders, the Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject only to the approval of the Merger by the Company's Stockholders. The Company's Board of Directors and the Stockholders have approved the Merger and this Agreement as required by applicable law. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. Except as set forth on SCHEDULE 2.4, subject only to the approval of the Merger and this Agreement by the Company's Stockholders, the execution and delivery of this Agreement by the Company does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit that would have a Material Adverse Effect under (any such event, a "Conflict") (i) any provision of the Certificate of Incorporation or Bylaws of the Company or (ii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or Commission ("Governmental Entity") or any third party (so as not to trigger any Conflict), is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for the filing of an agreement of merger with the California Secretary of State and the Delaware Secretary of State and such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on SCHEDULE 2.4.
2.5 COMPANY FINANCIAL STATEMENTS. The Company has provided Buyer with the Company's unaudited balance sheet as of September 30, 1999 and the related unaudited profit and
loss statement for the twelve-month period then ended (collectively, the "COMPANY FINANCIALS"). The Company Financials are true and correct in all material respects and are consistent throughout the periods indicated and consistent with each other. The Company Financials present fairly the financial condition and operating results of the Company as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which will not be material in amount or significance in the aggregate.
2.6 RESTRICTIONS ON BUSINESS ACTIVITIES. Other than the restrictions contained in the agreements listed in the Disclosure Schedule, there is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which the Company or any of the Stockholders are a party or otherwise binding upon the Company or any of the Stockholders which has or reasonably could be expected to have the effect of materially prohibiting or impairing any business practice of the Company, any acquisition of property (tangible or intangible) by the Company, the conduct of business by the Company or the operation of the business of the Company by Buyer following the Effective Time.
2.7 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF EQUIPMENT.
(a) The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens (as defined in Section 2.8(vii)), except as reflected in the Company Financials or in the Disclosure Schedule and except for liens for Taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby.
(b) Except as described in the Disclosure Schedule, the equipment (the "EQUIPMENT") owned or leased by the Company is, taken as a whole, (i) adequate for the conduct of the business of the Company as currently conducted and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear.
2.8 INTELLECTUAL PROPERTY. The Company has sufficient title and ownership of patents, copyrights, trademarks, trade secrets, and all other proprietary rights needed to conduct its business as proposed to be conducted.
There are no pending infringement claims regarding any third party's patents, copyrights, trademarks, trade secrets or proprietary rights and processes against the Company nor, to the best of the Company's knowledge, is there any threat thereof or basis therefor. To the best of the Company's knowledge, the Company is not infringing upon or otherwise acting adversely to, and will not, by conducting its business as presently conducted, infringe upon or otherwise act adversely to, the right or claimed right of any other person with respect to any of the foregoing. The Company is not aware of any violation by a third party of any of its patents, copyrights, trademarks, trade
secrets or other proprietary rights. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of its proprietary information.
The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of the employee's best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company.
2.9 INTERESTED PARTY TRANSACTIONS. Except as set forth on SCHEDULE 2.9, no officer, director or Stockholder of the Company (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has an interest), has, directly or indirectly, (i) an interest in any entity which furnished or sold, or furnishes or sells, services or products that the Company furnishes or sells, or proposes to furnish or sell, or (ii) an interest in any entity that purchases from or sells or furnishes to, the Company, any goods or services or (iii) a beneficial interest in any contract or agreement set forth in SCHEDULE 2.9; provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "interest in any entity" for purposes of this SECTION 2.9.
2.10 GOVERNMENTAL AUTHORIZATION. SCHEDULE 2.10 accurately lists each material consent, license, permit, grant or other authorization issued to the Company by a Governmental Entity (i) pursuant to which the Company currently operates or holds any interest in any of its properties or (ii) which is required for the operation of its business or the holding of any such interest (herein collectively called "COMPANY AUTHORIZATIONS"), which Company Authorizations are in full force and effect and constitute all Company Authorizations required to permit the Company to operate or conduct its business substantially as it is currently and has been conducted or hold any interest in its properties or assets.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Company and each of the Stockholders, subject to such exceptions as are specifically disclosed in the disclosure schedule attached hereto as EXHIBIT B, as follows:
3.1 ORGANIZATION OF THE BUYER. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Buyer has the corporate power to own its properties and to carry on its business as it is now being conducted. The Buyer is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets (including intangible assets), financial condition, prospects or results of operations of the Buyer (hereinafter referred to in this Article III as a "Material Adverse Effect"). The Buyer has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to the Company or its counsel.
3.2 BUYER CAPITAL STRUCTURE.
(a) The authorized capital of the Company consists of 121,000,000 shares. 71,400,000 of the shares are designated as Common Stock, $0.0025 par value, of which 4,410,394 shares are issued and outstanding. 49,600,000 of the shares are designated as Preferred Stock, $0.0025 par value, 2,000,000 of the shares are designated as Series A Preferred Stock, of which 1,425,000 shares are issued and outstanding, 8,000,000 of the shares are designated as Series B Preferred Stock, of which 7,246,376 shares are issued and outstanding, 7,000,000 of the shares are designated as Series C Preferred Stock, of which 6,794,528 shares are issued and outstanding, 4,100,000 of the shares are designated as Series D Preferred Stock, of which 4,016,064 shares are issued and outstanding, 19,000,000 of the shares are designated as Series E Preferred Stock, of which 10,061,185 shares of which are issued and outstanding, 4,000,000 of the shares are designated as Series F Preferred Stock, of which 3,076,053 are issued and outstanding (assuming the sale and issuance of 922,816 shares between December 1, 1999 and the Effective Time) and 5,500,000 of the shares are designated as Series G Preferred Stock, of which no shares are issued and outstanding. All outstanding shares of Buyer are duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of the Buyer or any agreement to which the Buyer is a party or by which it is bound. The Buyer Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable and will have the rights, preferences and privileges described in the Certificate of Incorporation of Buyer. The Buyer Shares will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed upon the holders thereof through no action of the Buyer; provided, however, that the Buyer Shares will be subject to restrictions on transfer under state and/or federal securities laws. The Buyer Shares are not subject to any preemptive rights, rights of first refusal, Stockholder agreement or voting agreement.
The Buyer has reserved 810,164 shares of Common Stock for issuance to employees and consultants pursuant to its 1992 Omnibus Equity Incentive Plan ("1992 PLAN"), of which 21,344 shares are subject to outstanding , unexercised options, and none of which remain available for grant. The Buyer also has reserved 3,355,032 shares of Common Stock for issuance to employees and consultants pursuant to its 1995 Stock Plan ("1995 PLAN"), of which 3,098,488 shares are subject to outstanding , unexercised options, and none of which remain available for grant. The Buyer also has reserved 3,657,509 shares of Common Stock for issuance to employees and consultants pursuant to
its 1997 Stock Plan ("1997 PLAN"), of which 2,531,610 shares are subject to outstanding, unexercised options (not including options to be granted by Buyer in connection with this Agreement and the transactions contemplated hereby), and 1,114,727 of which remain available for grant. The Buyer has reserved 266,000 shares of Common Stock for issuance upon the exercise of outstanding warrants.
(b) Except for the warrants and options outstanding under the 1992 Plan, the 1995 Plan, the 1997 Plan and the options to be issued by Buyer in connection with this Agreement and the transactions contemplated hereby, there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which the Buyer is a party or by which it is bound obligating the Buyer to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of the Buyer or obligating the Buyer to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement.
3.3 SUBSIDIARIES. The Buyer has provided the Company with a list of its subsidiaries and affiliated companies.
3.4 AUTHORITY. Buyer has all requisite corporate power and authority to enter in this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Buyer. The Buyer's Board of Directors has unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by the Buyer and constitutes the valid and binding obligation of the Buyer, enforceable in accordance with its terms except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.
3.5 BUYER FINANCIAL STATEMENTS. Buyer has provided the Company with the Buyer's unaudited balance sheet as of September 30, 1999 and the related unaudited statements of operations for the twelve-month period then ended (collectively, the "BUYER FINANCIALS"). The Buyer Financials are true and correct in all material respects and are consistent throughout the periods indicated and consistent with each other. The Buyer Financials present fairly the financial condition and operating results of the Buyer as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which will not be material in amount or significance in the aggregate.
3.6 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and performance of, and compliance with, this Agreement, and the issuance of the Buyer Shares will not result in any material violation of, or conflict with, or constitute a material default under, the Buyer's Certificate of Incorporation or Bylaws.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 COMPANY STOCKHOLDER APPROVAL. The Company has submitted this Agreement and the transactions contemplated hereby to its stockholders for approval and adoption as provided by the applicable laws of the State of California and the State of Delaware. The Company has obtained the approval of holders of at least 90% of the outstanding equity securities of the Company in favor of the Merger and this Agreement and to enable the Closing to occur as promptly as practicable. The materials submitted to the Company's Stockholders shall include information regarding the Company, the terms of the Merger and this Agreement and the unanimous recommendation of the Board of Directors of the Company in favor of the Merger and this Agreement.
4.2 ACCESS TO INFORMATION. The Company shall afford Buyer and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Effective Time to (a) all of the Company's properties, books, contracts, commitments and records, and (b) all other information concerning the business, properties and personnel of the Company as Buyer may reasonably request. The Company agrees to provide to Buyer and its accountants, counsel and other representatives copies of internal financial statements promptly upon request. No information or knowledge obtained in any investigation pursuant to this Section 4.2 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger.
4.3 EXPENSES. Whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses.
4.4 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the Effective Time, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto unless approved by Buyer and the Company prior to release, provided that such approval shall not be unreasonably withheld.
4.5 BOARD OF DIRECTORS OF THE COMPANY. Effective as of the Closing Date, the members of the Company's Board of Directors shall tender their resignations from the Board.
4.6 CONSENTS. The Company shall use its best efforts to obtain the consents, waivers and approvals under any of the Contracts as may be required in connection with the Merger (all of such consents and approvals are set forth in SCHEDULE 2.4) so as to preserve all rights of, and benefits to, the Company thereunder.
4.7 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver
to Buyer a properly executed statement in a form reasonably acceptable to Buyer
for purposes of satisfying Buyer's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
4.8 BEST EFFORTS. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use its best efforts to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals and to effect all necessary registrations and filings and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement; provided that Buyer shall not be required to agree to any divestiture by Buyer or the Company or any of Buyer's subsidiaries or affiliates of shares of capital stock or of any business, assets or property of Buyer or its subsidiaries or affiliates or the Company or its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock.
4.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Buyer, and Buyer shall give prompt notice to the Company, of (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Company and Buyer, respectively, contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time and (ii) any failure of the Company or Buyer, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 4.9 shall not limit or otherwise affect any remedies available to the party receiving such notice.
4.10 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at the request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby.
4.11 CONVERSION OF COMPANY SERIES A PREFERRED STOCK. Prior to the Effective Date, each then outstanding share of Series A Preferred Stock of the Company ("COMPANY SERIES A STOCK") shall be canceled and extinguished and converted into one (1) share of Company Common Stock (the "PRELIMINARY CONVERSION"). No Series A Preferred Stock of the Company shall be deemed outstanding after the Preliminary Conversion.
ARTICLE V
CONDITIONS TO THE MERGER
5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following condition: No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal.
5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of the following conditions, any of which may be waived, in writing, exclusively by the Company: The representations and warranties of Buyer in this Agreement shall be true and correct in all material respects on and as of the Effective Time as though such representations and warranties were made on and as of such time and each of Buyer shall have performed and complied with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it as of the Effective Time.
5.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by Buyer:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties of the Company in this Agreement shall be true and correct in all material respects on and as of the Effective Time as though such representations and warranties were made on and as of such time and the Company shall have performed and complied with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it as of the Effective Time.
(b) NO INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or provision challenging Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's conduct or operation of the business of the Company (or its own business) following the Merger shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending.
(c) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any material adverse change in the business, assets (including intangible assets), results of operations, liabilities (contingent or accrued) or financial condition of the Company.
(d) COMPANY STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been approved and adopted by the Company's Stockholders holding at least 90% of the equity securities of the Company.
(e) LITIGATION. There shall be no action, suit, claim or proceeding of any nature pending, or overtly threatened, against the Buyer or the Company, their respective properties or any of their officers or directors, arising out of, or in any way connected with, the Merger or the other transactions contemplated by the terms of this Agreement.
(f) SURRENDER OF COMPANY STOCK CERTIFICATES. Each of the Company Stockholders shall have surrendered for exchange his certificates which formerly represented Company Shares (unless the Stockholder makes an affidavit pursuant to Section 1.8).
(g) REGISTRATION RIGHT AGREEMENT. Each of the Company Stockholders receiving Buyer Shares shall have executed the Third Amended and Restated Rights Agreement in the form attached as EXHIBIT C hereto.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made by the Company and Buyer in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Merger and continue until 12 months following the Effective Time (the "Survival Period").
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 AMENDMENT. Except as is otherwise required by applicable law after the stockholders of the Company approve this Agreement, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto.
7.2 EXTENSION; WAIVER. At any time prior to the Effective Time, Buyer, on the one hand, and the Company, on the other, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements, covenants or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
(a) if to Buyer, to:
UTStarcom, Inc.
1275 Harbor Bay Parkway
Suite 100
Alameda, California 94502
Attention: Hong Lu
Facsimile No.: (510) 864-8802
with a copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Carmen Chang, Esq.
Facsimile No.: (650) 493-6811
(b) if to the Company or Company stockholders, to:
WACOS, Inc.
1275 Harbor Bay Parkway
Suite 100
Alameda, California 94502
Attention: Hong Lu
Facsimile No.: (510) 864-8802
with a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
3150 Porter Drive
Palo Alto, California 94304
Attention: Edward S. Merrill, Esq.
Facsimile No.: (650) 849-4800
8.2 INTERPRETATION. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
8.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart.
8.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules and exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Buyer may assign its respective rights and delegate its respective obligations hereunder to their respective affiliates and any successors.
8.5 SEVERABILITY. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.
8.6 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.
8.7 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
8.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.
IN WITNESS WHEREOF, Buyer and the Company have caused this Agreement to be signed by their duly authorized respective officers, all as of the date first written above.
UTSTARCOM, INC. WACOS, INC. /s/ Hong Lu /s/ Hong Lu --------------------------------- ------------------------------------ Hong Lu Hong Lu President President |
EXHIBIT A
[Omitted]
EXHIBIT B
Not applicable.
EXHIBIT C
[Omitted]
EXHIBIT 3.1
TWELFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
UTSTARCOM, INC.
A DELAWARE CORPORATION
UTStarcom, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is UTStarcom, Inc. UTStarcom, Inc. was originally incorporated under the name Unitech Industries Inc. and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on June 10, 1991.
2. This Twelfth Amended and Restated Certificate of Incorporation has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware and restates and amends the Certificate of Incorporation of this corporation to read in its entirety as follows:
FIRST: The name of the corporation (hereinafter referred to as the "Corporation") is UTStarcom, Inc.
SECOND: The address, including street, number, city and county of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801; and the name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company.
THIRD: The nature of the business and the purpose to be conducted and promoted by the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the Corporation has authority to issue is 242,000,000 shares, consisting of 142,800,000 shares of Common Stock, par value $.00125 per share (the "COMMON STOCK"), and 99,200,000 shares of Preferred Stock, par value $.00125 per share (the "PREFERRED STOCK"), amounting to an aggregate par value of $302,500.00. Upon the amendment of this Article Fourth, every one (1) share of Common Stock shall be converted to two (2) shares of Common Stock and every one (1) share of Preferred Stock shall be converted to two (2) shares of Preferred Stock.
The powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect to the Common Stock and the Preferred Stock shall be as follows:
Section 1. DESIGNATION OF PREFERRED STOCK. 4,000,000 shares of the authorized Preferred Stock shall be designated and known as "SERIES A CONVERTIBLE PREFERRED STOCK" and 16,000,000 shares of the authorized Preferred Stock shall be designated and known as "SERIES B CONVERTIBLE PREFERRED STOCK," 14,000,000 shares of the authorized Preferred Stock shall be designated and known as "SERIES C CONVERTIBLE PREFERRED STOCK," 8,200,000 shares of the authorized Preferred Stock shall be designated and known as "SERIES D CONVERTIBLE PREFERRED STOCK," 38,000,000 shares of the authorized Preferred Stock shall be designated and known as "SERIES E CONVERTIBLE PREFERRED STOCK, 8,000,000 shares of the authorized Preferred Stock shall be designated and known as "SERIES F CONVERTIBLE PREFERRED STOCK" and 11,000,000 shares of the authorized Preferred Stock shall be designated and known as "SERIES G CONVERTIBLE PREFERRED STOCK". All Preferred Stock shall be of equal rank, regardless of series, and shall be identical in all respects except as provided in this Article Fourth.
Section 2. LIQUIDATION RIGHTS.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of each share of the Preferred Stock then outstanding shall be entitled to be paid first out of the assets of the Corporation available for distribution to holders of the Corporation's capital stock of all classes (i) in the case of the Series A Convertible Preferred Stock, an amount equal to $1.00 per share, (ii) in the case of the Series B Convertible Preferred Stock, an amount equal to $2.07 per share, (iii) in the case of the Series C Convertible Preferred Stock, an amount equal to $3.44 per share, (iv) in the case of the Series D Convertible Preferred Stock, an amount equal to $6.225 per share, (v) in the case of the Series E Convertible Preferred Stock, an amount equal to the higher of the amount per share the holders of the Series E Preferred Stock would have received if the Series E Preferred Stock were converted to common stock, it being understood that the shares of Series E Preferred need not be converted in order to receive such amounts, or $1.90 per share, (vi) in the case of the Series F Convertible Preferred Stock, an amount equal to $8.1273 per share, and (vii) in the case of the Series G Convertible Preferred Stock, an amount equal to $8.1302 per share (which amount, in each case, shall be subject to equitable adjustment whenever there shall occur a stock dividend, stock split, combination of shares, reclassification or other similar event with respect to any series of the Preferred Stock) and all other dividends declared but unpaid thereon, to and including the date full payment shall be tendered to the holders of the Preferred Stock with respect to such liquidation, dissolution or winding up.
If the assets of the Corporation shall be insufficient to permit the payment in full to the holders of the Preferred Stock then outstanding of all amounts distributable to them as described in the preceding paragraph of this Subsection 2(a), then the entire assets of the Corporation available for such distribution shall be distributed ratably among the holders of all series of the Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive.
After such payments shall have been made in full to the holders of the Preferred Stock or funds necessary for such payments shall have been set aside by the Corporation in
trust for the account of holders of Preferred Stock so as to be available for such payments, remaining assets available for distribution shall be distributed among the holders of the Common Stock ratably in proportion to the number of shares of Common Stock held by them.
The amounts payable with respect to shares of Preferred Stock under this Section 2 are sometimes hereinafter referred to as "LIQUIDATION PAYMENTS".
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution provided for in this Section 2 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation.
(c) MERGER AS LIQUIDATION, ETC. The merger or consolidation of the Corporation into or with another corporation (other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent 60% or more of the voting securities of the Corporation immediately thereafter), or the sale of all or substantially all of the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation for purposes of this Section 2 unless the holders of at least two-thirds in voting power of the then outstanding shares of Preferred Stock, voting as a single class without regard to series, elect to the contrary by giving written notice thereof to the Corporation at least three days before the effective date of such event. If such notice is given, the provisions of Subsection 3(h) shall apply to the Preferred Stock. Any amounts received by the holders of Preferred Stock as a result of such merger or consolidation shall be deemed to be applied toward the Liquidation Payments payable to such shares of Preferred Stock unless such election is made.
(d) NOTICE. Written notice of any proposed liquidation, dissolution or winding up of the affairs of the Corporation (including any merger, consolidation or sale of assets which may be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation under Subsection 2(c)), stating a payment date, the amount of the Liquidation Payments and the place where said Liquidation Payments shall be payable, shall be given by first class mail, postage prepaid, or by facsimile to non-U.S. residents, not less than ten (10) days prior to the payment date stated therein, to the holders of record of Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation.
Section 3. CONVERSION. The holders of the Preferred Stock shall have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT; CONVERSION PRICE. Each share of
Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof,
at any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
(i) in the case of the Series A Convertible Preferred Stock, dividing $1.00
by the Series A Conversion Price, (ii) in the case of the Series B
Convertible Preferred Stock, dividing $2.07 by the Series B Conversion Price,
(iii) in the
case of the Series C Convertible Preferred Stock, dividing $3.44 by the Series C Conversion Price, (iv) in the case of the Series D Convertible Preferred Stock, dividing $6.225 by the Series D Conversion Price, (v) in the case of the Series E Convertible Preferred Stock, dividing $1.90 by the Series E Conversion Price, (vi) in the case of the Series F Convertible Preferred Stock, dividing $8.1273 by the Series F Conversion Price and (vii) in the case of the Series G Convertible Preferred Stock, dividing $8.1302 by the Series G Conversion Price, each such Conversion Price to be determined at the time of conversion as hereinafter provided. The conversion price at which shares of Common Stock shall be deliverable upon conversion without the payment of any additional consideration shall initially be $1.00 per share of Common Stock for the holders of Series A Convertible Preferred Stock (the "Series A Conversion Price"), $2.07 per share of Common Stock for the holders of Series B Convertible Preferred Stock (the "Series B Conversion Price"), $3.44 per share of the Common Stock for the holders of Series C Convertible Preferred Stock (the "Series C Conversion Price"), $6.225 per share of Common Stock for the holders of Series D Convertible Preferred Stock (the "Series D Conversion Price"), $1.90 per share of the Common Stock for the holders of Series E Convertible Preferred Stock (the "Series E Conversion Price"), $8.1273 per share of the Common Stock for the holders of Series F Convertible Preferred Stock (the "Series F Conversion Price.") and $8.1302 per share of the Common Stock for the holders of Series G Convertible Preferred Stock (the "Series G Conversion Price"). The Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price, the Series E Conversion Price, the Series F Conversion Price and the Series G Conversion Price shall each be referred to herein as a Conversion Price. Each Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which the applicable series of Preferred Stock is convertible, as hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of a series of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price for that series upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public with gross proceeds to the Corporation of not less than $8,000,000 (in the event of such offering, the person(s) entitled to receive the Common Stock issuable upon such conversion of a series of Preferred Stock shall not be deemed to have converted that series of Preferred Stock until the closing of such offering).
(c) MECHANICS OF MANDATORY CONVERSIONS. Upon the occurrence of an event specified in Subsection 3(b), the Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that all holders of shares of Preferred Stock shall be given written notice of the occurrence of an event specified in Subsection 3(b) including the date such event occurred (the "MANDATORY CONVERSION DATE"), and the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of the Preferred Stock being converted are either delivered to the Corporation or its transfer agent, or the holder notifies the Corporation or any transfer agent that such certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith and, if the Corporation so elects, provides an appropriate indemnity bond. On the Mandatory Conversion Date, all rights with respect to the Preferred Stock so converted, including the rights, if any, to receive notices and vote, shall terminate, except any of the rights of the holder thereof, upon surrender of the holder's certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such Preferred Stock has been converted, together with cash in an amount equal to all dividends declared but unpaid on, and any and all other amounts owing with respect to, the shares of Preferred Stock converted to and including the time of conversion. Upon the automatic conversion of the Preferred Stock, the holders of such Preferred Stock shall surrender the certificates representing such shares at the office of the Corporation or of its transfer agent. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by the holder's attorney duly authorized in writing. Upon surrender of such certificates there shall be issued and delivered to such holder, promptly at such office and in the holder's name or its nominee's name as shown on said surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the share of the Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred, together with cash in an amount equal to all dividends declared but unpaid on, and any and all other amounts owing with respect to, the shares of Preferred Stock converted to and including the time of conversion. No fractional share of Common Stock shall be issued upon the mandatory conversion of the Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price.
(d) MECHANICS OF OPTIONAL CONVERSIONS. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holder shall surrender the certificate or certificates therefor at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that the holder elects to convert the same and shall state therein the holder's name or the name or names of the holder's nominees in which the holder wishes the certificate or certificates for shares of Common Stock to be issued. On the date of conversion, all rights with respect to the Preferred Stock so converted, including the rights, if any, to receive notices and vote, shall terminate, except any of the rights of the holder thereof, upon surrender of the holder's certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such Preferred Stock has been converted, together with cash in an amount equal to all dividends declared but unpaid thereon, and any and all other amounts owing with respect to, the shares of Preferred Stock converted to and including the time of conversion. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by the holder' s attorney duly authorized in writing. No fractional share of Common Stock shall be issued upon the optional conversion of the Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. The Corporation shall, as soon as practicable after surrender of the certificate or certificates for conversion, issue and deliver at such office to such holder of Preferred Stock, or to the holder's nominee or nominees, a certificate or certificates for the number of shares of
Common Stck to which the holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share and all other dividends declared but unpaid thereon, and any and all other amounts owing with respect to, the shares of Preferred Stock converted to and including the time of conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.
(e) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 3(e), the following definitions shall apply:
(1) "OPTION" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean the first date on which a share of Series F Convertible Preferred Stock was issued.
(3) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, shares of capital stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued (or, pursuant to Subsection 3(e)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than:
(A) shares of Series F Preferred Stock and Series G Preferred Stock;
(B) shares of Common Stock issued or issuable upon conversion of shares of Preferred Stock;
(C) up to 13,532,338 shares of Common Stock issuable upon exercise of options issued by the Corporation as of the date hereof and additional shares of Common Stock issuable upon the exercise of options issued to employees, consultants and directors of the Corporation, with exercise prices at least equal (in the judgment of the Board of Directors) to the fair market value of the Common Stock on the date of grant and approved by the three directors of the Corporation elected by the holders of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock in accordance with Section 4(b) hereof;
(D) up to 532,000 shares of Common Stock issuable upon exercise of the following warrants: (i) a warrant to Lintech Ltd., dated February 5, 1998; and (ii) a
warrant to Talent Group International Limited, dated September 20, 1999 (such number of shares to be subject to adjustment as provided in such warrant); and
(E) shares of Common Stock issued pursuant to a spin off of a wholly owned subsidiary.
(5) "PREFERRED STOCK" shall mean all shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. Except as set forth in Subsection 3(e) (vi), no adjustment in the number of shares of Common Stock into which a series of Preferred Stock is convertible shall be made by adjustment in its respective Conversion Price in respect of the issuance of Additional Shares of Common Stock, unless the consideration per share for an Additional Share of Common Stock (determined pursuant to Subsection 3(e)(v)) issued or deemed to be issued by the Corporation is less than such Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Share.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
(1) OPTIONS AND CONVERTIBLE SECURITIES. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in a Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, each Conversion Price computed upon the original issue of the applicable series of Preferred Stock (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities,
(C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, each Conversion Price computed upon the original issue of the applicable series of Preferred Stock (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange; and
(II) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation (determined pursuant to Subsection 3(e)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing any Conversion Price to an amount which exceeds the lower of (i) the Conversion Price of the applicable series of Preferred Stock on the original adjustment date, or (ii) the Conversion Price of the applicable series of Preferred Stock that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date;
(E) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of any Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in a Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter such Conversion Price shall be adjusted pursuant to this Subsection 3(e)(iii) as of the actual date of their issuance.
(2) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND SUBDIVISIONS. In the event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued:
(A) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective.
If such record date shall have been fixed and no part of such dividend
shall have been paid on the date fixed therefor, the adjustment previously
made in a Conversion Price which became effective on such record date shall
be canceled as of the close of business on such record date, and thereafter
such Conversion Price shall be adjusted pursuant to this Subsection 3(e)
(iii) as of the time of actual payment of such dividend.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event that at any time or from
time to time after the Original Issue Date, the Corporation shall issue
Additional Shares of Common Stock (including, without limitation, Additional
Shares of Common Stock deemed to be issued pursuant to Subsection 3(e)
(iii)(1) but excluding Additional Shares of Common Stock deemed to be issued
pursuant to Subsection 3(e)(iii)(2), which event is dealt with in Subsection
3(e)(vi)(1)), without consideration or for a consideration per share less
than the Conversion Price to the Series A, Series B, Series C, Series D,
Series F or Series G applicable Preferred Stock in effect on the date of and
immediately prior to such issue, then and in such event, such Conversion
Price shall be reduced, concurrently with such issue, to a price (calculated
to the nearest cent) determined in accordance with the following formula:
(P(1))(Q(1))+(P(2))(Q(2))
NCP = ---------------------------
Q(1) + Q(2)
whereas
NCP = New Conversion Price.
P1 = Conversion Price of the applicable series of Preferred
|
Stock in effect immediately prior to new issue
Q1 = Number of shares of Common Stock outstanding, or deemed to be outstanding as set forth below, immediately prior to such issue.
P2 = Weighted average price per share received by the Corporation upon such issue.
Q2 = Number of shares of Common Stock issued, or deemed to have been issued, in the subject transaction.
PROVIDED THAT for the purpose of this Subsection 3(e)(iv), all shares of Common Stock issuable upon conversion of shares of Preferred Stock outstanding immediately prior to such issue shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Subsection 3(e)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding; and PROVIDED FURTHER, that a Conversion Price shall not be so reduced at any time if the amount of such reduction would be an amount less than $.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $.01 or more.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Subsection 3(e), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such consideration shall:
(A) insofar as it consists of cash, be computed at the aggregate amounts of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 3(e)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.
(vi) ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS, SUBDIVISIONS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(1) STOCK DIVIDENDS. STOCK DISTRIBUTIONS OR SUBDIVISIONS. In the event the Corporation shall be deemed to issue Additional Shares of Common Stock pursuant to Subsection 3(e)(iii)(2) in a stock dividend, stock distribution or subdivision, each Conversion Price in effect immediately before such deemed issuance shall, concurrently with the effectiveness of such deemed issuance, be proportionately decreased.
(2) COMBINATIONS OR CONSOLIDATIONS. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, each Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased.
(f) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event that at any time or from time to time after the Original Issue Date the Corporation shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, giving application during such period to all adjustments called for herein.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. In the event that at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the conversion of the Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for in Subsection 3(e)(vi) above, or a merger, consolidation, or sale of assets provided for in Subsection 3(h) below), then and in each such event the holder of each such share of Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Preferred Stock might have been converted immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein.
(h) ADJUSTMENT FOR MERGER, CONSOLIDATION OR SALE OF ASSETS. In the event that at any time or from time to time after the Original Issue Date, the Corporation shall merge or
consolidate with or into another entity or sell all or substantially all of its assets (other than a consolidation, merger or sale which is treated as a liquidation pursuant to Subsection 2(c)), each share of Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Preferred Stock would have been entitled upon such consolidation, merger or sale and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions set forth in this Section 3 with respect to the rights and interest thereafter of the holders of Preferred Stock, to the end that the provisions set forth in this Section 3 (including provisions with respect to changes in and other adjustments of a Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Preferred Stock.
(i) NO IMPAIRMENT. The Corporation shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Section 3, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each affected holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any affected holder of Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the applicable Conversion Price at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon
the conversion of each share of the applicable series of Preferred Stock.
(k) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Corporation shall mail to each holder of Preferred Stock at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.
(l) COMMON STOCK RESERVED. The Corporation shall reserve and keep available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of the Preferred Stock.
(m) CERTAIN TAXES. The Corporation shall pay any issue or transfer taxes payable in connection with the conversion of the Preferred Stock, provided, however, that the Corporation
shall not be required to pay any tax which may be payable in respect of any transfer to a name other than that of the holder of the Preferred Stock.
(n) CLOSING OF BOOKS. The Corporation shall at no time close its transfer books against the transfer of any Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Preferred Stock in any manner which interferes with the timely conversion or transfer of such Preferred Stock or Common Stock.
Section 4. VOTING RIGHTS.
(a) Except as otherwise required by law or hereinafter set forth, the holders of Preferred Stock shall be entitled to notice of any meeting of stockholders and shall vote together with the holders of Common Stock as a single class upon any matter submitted to the stockholders for a vote, on the following basis:
(i) Holders of Common Stock shall have one vote per share; and
(ii) Holders of Preferred Stock shall have that number of votes per share as is equal to the number of shares of Common Stock (including fractions of a share) into which each such share of Preferred Stock held by such holder could be converted on the date for determination of stockholders entitled to vote at the meeting or on the date of any written consent.
(b) The holders of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock, each series voting separately as a single class, shall at all times be entitled to elect (i) in the case of the Series A Convertible Preferred Stock, two directors, and (ii) in the case of the Series B Convertible Preferred Stock, one director, to the Corporation's Board of Directors. The holders of Common Stock and Preferred Stock, voting together as a single class, shall be entitled to elect the remaining directors of the corporation. At any meeting held for the purpose of electing directors, the presence in person or by proxy of the holders of a majority in voting power of the shares of each of the Series A Convertible Preferred Stock and Series B Convertible Preferred Stock then outstanding shall constitute a quorum for such series for the election of the directors to be elected solely by the holders of such series of Preferred Stock. A vacancy in any directorship elected by the holders of the Series A Convertible Preferred Stock or Series B Convertible Preferred Stock shall be filled only by vote or written consent of the holders of such series of Preferred Stock.
Section 5. DIVIDENDS. The holders of Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when and if
declared by a vote of a majority of the members of the Board of Directors,
quarterly dividends at the rate of (a) in the case of the Series A
Convertible Preferred Stock, $.05 per share per annum, (b) in the case of the
Series B Convertible Preferred Stock, $.1035 per share per annum, (c) in the
case of the Series C Convertible Preferred Stock, $.1720 per share per annum,
(d) in the case of Series D Convertible Preferred Stock, $.3112 per share per
annum, (e) in the case of Series E Convertible Preferred Stock, $.2722 per
annum, (f) in the case of Series F Convertible Preferred Stock, $0.4063 per
annum, and (g) in the case of Series G Convertible Preferred Stock, $0.4065
per annum, each appropriately adjusted to take account of any stock dividend,
stock split, combination of shares, reclassification or other similar event
with respect
to the applicable series of Preferred Stock. When and as dividends are declared on shares of Common Stock, the Corporation shall declare at the same time and pay to each holder of Preferred Stock a dividend equal to the dividend which would have been payable to such holder if the shares of Preferred Stock held by such holder had been converted into Common Stock on the record date for the determination of holders of Common Stock entitled to receive such dividend. Notwithstanding the above, if dividends are paid and/or issued pursuant to a spin off of a wholly owned subsidiary, the dividend preferences described above shall be waived.
Section 6. COVENANTS.
(a) So long as any shares of Preferred Stock shall be outstanding the Corporation shall not, without first having provided the written notice of such proposed action to each holder of outstanding shares of Preferred Stock required by Subsection 6(b) and having obtained the affirmative vote or written consent of the holders of not less than two-thirds in voting power of the outstanding shares of Preferred Stock, voting together as a single class without regard to series:
(i) effect any sale, lease, assignment, transfer or other conveyance (other than the grant of a mortgage or security interest in connection with indebtedness for borrowed money from banks and other non-affiliated financial institutions) of all or substantially all the assets of the Corporation or any of its subsidiaries, any liquidation, dissolution or winding up of, or any consolidation or merger (other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent 60% or more of the voting securities of the Corporation immediately thereafter) involving, the Corporation or any of its subsidiaries or any recapitalization of the Corporation;
(ii) amend the Corporation's Certificate of Incorporation or By-Laws;
(iii) pay or declare any dividend or distribution on any shares of Common Stock or apply any of its assets to the redemption, retirement, purchase or other acquisition, directly or indirectly, through subsidiaries or otherwise, of any shares of Common Stock except from employees of the Corporation upon termination of their status as such pursuant to an agreement containing vesting and/or repurchase provisions approved by the Board of Directors of the Corporation;
(iv) create a class or series of stock with rights senior to or pari passu with those of the Preferred Stock; or
(v) repurchase any of the Corporation's securities other than Common Stock.
(b) Notwithstanding any other provision of this Certificate of Incorporation or the Corporation's By-laws to the contrary, notice of any action specified in Subsection 6(a) shall be given by the Corporation to each holder of outstanding shares of Preferred Stock by first class mail, postage prepaid, or by telex or facsimile transmission to non-U.S. residents, addressed to such holder at the last address of such holder as shown by the records of the Corporation, at least ten (10) days
before the record date with respect to such proposed action, or, if there shall be no such date, at least ten (10) days before the date when such proposed action is scheduled to take place. Any holder of outstanding shares of Preferred Stock may waive any notice required by this Subsection by a written document indicating such waiver.
Section 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue.
Section 8. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which said application has been made, be binding on all the creditors or class of creditors, and/or on all of the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.
SEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended after December ___,1999 to authorize corporate action further eliminating or limiting the personal liability of directors, the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware.
EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, judgments, fines, amounts paid in settlement, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification of expenses may be entitled under any by-laws, agreements, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
Pursuant to a resolution of the Board of Directors of the Corporation, the foregoing amendment and restatement was submitted for consideration by the stockholders of the Corporation, and holders of the necessary number of shares as required by statute and the Certificate of Incorporation of the Corporation adopted said amendment and restatement by written consent, in accordance with, and written notice to stockholders has been given as provided in Section 228 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned President and Chief Executive Officer, as attested by the Assistant Secretary, does hereby make this Twelfth Amended and Restated Certificate of Incorporation, which restates and amends the provisions of the Certificate of Incorporation of the Corporation, having been duly adopted in accordance with Sections 242 and 245 of the Delaware General Corporation Law, and hereby declares and certifies that this is his act and deed and the facts herein stated are true, and accordingly, has hereunto set his hand this 15th day of December, 1999.
UTSTARCOM, INC.
a Delaware corporation
By: /s/ Hong Liang Lu
-------------------------------------
Hong Liang Lu
President and Chief Executive Officer
ATTEST:
By: /s/ Carmen Chang
---------------------------------
Carmen Chang
Assistant Secretary
|
**TWELFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION**
EXHIBIT 3.2
THIRTEENTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
UTSTARCOM, INC.
UTStarcom, Inc. (the "CORPORATION"), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is UTStarcom, Inc. UTStarcom, Inc. was originally incorporated under the name Unitech Industries Inc. and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on June 10, 1991.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Thirteenth Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Corporation's Certificate of Incorporation.
3. The terms and provisions of this Thirteenth Amended and Restated Certificate of Incorporation have been duly approved by written consent of the required number of shares of outstanding stock of the Corporation pursuant to Subsection 228(a) of the General Corporation Law of the State and written notice pursuant to Subsection 228(d) of the General Corporation Law of the State has been given to those stockholders whose written consent has not been obtained.
4. The text of the Thirteenth Amended and Restated Certificate of Incorporation reads in its entirety as follows:
FIRST. The name of the Corporation is UTStarcom, Inc.
SECOND. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange St., Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH. This Corporation is authorized to issue two classes of shares to be designated, respectively, Common Stock ("COMMON") and Preferred Stock ("PREFERRED"). The total number of shares of Common this Corporation shall have authority to issue is _______________ with a par value of $0.00125 per share. The total number of shares of Preferred this Corporation shall have authority to issue is 5,000,000 with a par value of $0.00125 per share.
The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred in series and, by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but not be limited to, determination of the following:
(a) the number of shares constituting that series and the distinctive designation of that series;
(b) the dividend rate on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(c) whether that series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;
(e) whether or not the shares of that series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(f) whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund; and
(g) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series.
FIFTH.
A. The management of the business and the conduct of the affairs of the Corporation shall be vested in the Board of Directors. Prior to the closing of the first sale of Common Stock of the Corporation pursuant to a registration statement declared effective by the Securities and Exchange Corporation under the Securities Act of 1933, as amended, the number of directors which shall constitute the whole Board of Directors shall be fixed in the manner designated in the Bylaws of the Corporation.
B. At any time following the closing of the first sale of Common Stock of the Corporation pursuant to a registration statement declared effective by the Securities and Exchange Corporation under the Securities Act of 1933, as amended, the number of directors which constitute the whole Board of Directors of the Corporation shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors. The Board of Directors shall be divided into three classes designated as Class I, Class II, and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.
C. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.
D. Elections of directors need not be by written ballot except and to the extent provided in the Bylaws of the corporation.
E. Vacancies created by newly created directorships, created in accordance with the Bylaws of this Corporation, may be filled by the vote of a majority, although less than a quorum, of the directors then in office, or by a sole remaining director
SIXTH.
A. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
B. The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article SIXTH, nor the adoption of any provision of this Corporation's Certificate of Incorporation inconsistent with this Article SIXTH, shall eliminate or reduce the effect of this Article SIXTH, in respect of any matter occurring,
or any action or proceeding accruing or arising or that, but for this Article SIXTH, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
SEVENTH. The Corporation is to have perpetual existence.
EIGHTH.
A. Meetings of stockholders may be held within or without the
|
State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
B. At any time following the closing of the first sale of Common Stock of the Corporation pursuant to a registration statement declared effective by the Securities and Exchange Corporation under the Securities Act of 1933, as amended, stockholders of the Corporation may not take any action by written consent in lieu of a meeting and any action contemplated by stockholders after such time must be taken at a duly called annual or special meeting of stockholders.
C. Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation.
NINTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, this Certificate has been signed this __ day of ______, 2000.
UTSTARCOM, INC.
A Delaware corporation
ATTEST:
Assistant Secretary
Exhibit 3.3
BY-LAWS
OF
UNITECH TELECOM, INC.
(A Delaware corporation)
Section 1. REGISTERED OFFICE. The registered office shall be established and maintained at The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Dover, Delaware. The Prentice-Hall Corporation System Inc. shall be the registered agent of this corporation in charge thereof.
Section 1. ANNUAL MEETINGS. Annual meetings of stockholders for the election of directors and for such other business as may be stated in the notice of the meeting shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting.
At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors and they may transact such other corporate business as shall be stated in the notice of the meeting.
Section 2. OTHER MEETINGS. Meetings of stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting, upon call of the Board of Directors or the Chairman of the Board.
Section 3. VOTING. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless such proxy provides a longer period. Upon the demand of any stockholder, the vote for directors and the vote upon any question before the meeting, shall be by ballot. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be opened to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 4. QUORUM. Except as otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof.
Section 5. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes may be called by the President or Secretary, or by resolution of the directors, or by vote of the stockholders holding (25%) or more of the outstanding stock of the Corporation.
Section 6. NOTICE OF MEETINGS. Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, not less than ten nor more than sixty days before the date of the meeting. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat.
Section 7. ACTION WITHOUT MEETING. Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
Section 1. NUMBER AND TERM. The number of directors constituting the Board of Directors shall be not more than twenty-five nor less than one, as fixed from time to time in these By-Laws or by action of the Board of Directors. The initial number of directors shall be one. The directors shall be elected at the annual meeting of the stockholders and each director shall be elected to serve until his or her successor shall be elected and shall qualify. Directors need not be stockholders.
Section 2. REMOVAL. Any director or directors may be removed either for or without cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a special meeting of the stockholders called for the purpose, and the vacancies thus created may be filled, at the meeting held for the purpose of removal, by the affirmative vote of a majority in interest of the stockholders entitled to vote.
Section 3. INCREASE OF NUMBER. The number of directors may be increased by the affirmative vote of a majority of the directors, though less than a quorum, or, by the affirmative vote of a majority in interest of the stockholders, at the annual meeting or at a special meeting called for that purpose, and by like vote the additional directors may be chosen at such meeting to hold office until the next annual election and until their successors shall have been elected and qualified.
Section 4. POWERS. The Board of Directors shall exercise all of the powers of the corporation except such as are by law or by the Certificate of Incorporation of the corporation or by these By-Laws conferred upon or reserved to the stockholders.
Section 5. COMMITTEES. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee or committees. The member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board of Directors, or in these By-Laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority to amend the Certificate of Incorporation, to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or to amend the By-Laws of the corporation; and, unless the resolution, these By-Laws, or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.
Section 6. MEETINGS. The newly elected directors may hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the annual meeting of the stockholders; or the time and place of such meeting may be fixed by consent in writing of all the directors.
Regular meetings of the directors may be held without notice at such places and times as shall be determined from time to time by resolution of the directors.
Special meetings of the Board may be called by the President or the Secretary on the written request of any two directors on at least two days' notice to each director and shall be held at such place or places as may be determined by the directors, or as shall be stated in the call of the meeting.
Section 7. QUORUM. A majority of the total number of directors shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned.
Section 8. COMPENSATION. Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the Board of Directors a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof, may be taken without a meeting, if a written consent thereto is signed by all members of the Board of Directors, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee.
Section 10. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of Directors of the corporation, or any committee designated by such Board may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting shall constitute presence in person at such meeting.
Section 1. OFFICERS. The officers of the corporation shall be a President, a Treasurer and a Secretary, all of whom shall be elected by the Board of Directors and who shall hold office until their successors are elected and qualified. In addition, the Board of Directors may elect a Chairman, one or more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as they may deem proper. None of the officers of the corporation need be directors. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. More than two offices may be held by the same person. Any officer may be removed, with or without cause, by the Board of Directors. Any vacancy may be filled by the Board of Directors.
Section 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
Section 3. CHAIRMAN. The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors.
Section 4. PRESIDENT. The President shall be the chief executive officer of the corporation and shall have the general powers and duties of supervision and management usually vested in the office of president of a corporation. He shall preside at all meetings of the stockholders if present thereat, and, in the absence or non-election of the Chairman of the Board of Directors, at all meetings of the Board of Directors, and shall have general supervision, direction and control of the business of the corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts on behalf of the corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
Section 5. VICE-PRESIDENT. Each Vice-President shall have such powers and shall perform such duties as shall be assigned to him by the directors.
Section 6. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all monies and other valuables in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President, taking proper vouchers for such disbursements. He shall render to the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the Board of Directors shall prescribe.
Section 7. SECRETARY. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President. He shall have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the President, and attest the same.
Section 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the directors.
Section 1. RESIGNATIONS. Any director, member of a committee or corporate officer may, provided the same would not result in a breach of any contract to which said person is a party, resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective.
Section 2. VACANCIES. If the office of any director, member of a committee or corporate officer becomes vacant, by reason of death, disability or otherwise, the remaining directors in office, though less than a quorum, by a majority vote may appoint any qualified person to fill such vacancy, who shall hold office for the unexpired term and until his successor shall be duly chosen.
Section 3. CERTIFICATES OF STOCK. Certificates of stock, signed by the Chairman of the Board of Directors, or the President or any Vice President, and the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number of shares owned by him in the corporation. Any or all the signatures may be facsimiles.
Section 4. LOST CERTIFICATES. A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock represented by such certificate, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate.
Section 5. TRANSFER OF SHARES. The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be cancelled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.
Section 6. STOCKHOLDERS RECORD DATE. In order that the corporation may determinethe stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 7. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conductive to the interests of the corporation.
Section 8. SEAL. The corporate seal shall be circular in form and shall contain the name of the corporation, the year of its creation and the words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.
Section 9. FISCAL YEAR. The fiscal year of the corporation shall be determined by resolution of the Board of Directors. In the absence of such determination, the fiscal year shall be the calendar year.
Section 10. CHECKS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors.
Section 11. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these By-Laws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his address as it appears on the records of the corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute.
Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the corporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
Section 1 INDEMNIFICATION. The Corporation shall indemnify any director or officer of the Corporation against expenses (including legal fees), Judgments, fines and amounts paid in settlement, actually and reasonably incurred by him, to the fullest extent now or hereafter permitted by law in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, brought or threatened to be brought against him by reason of his performance as a director or officer of the Corporation, its parent or any of its subsidiaries, or in any other capacity on behalf of the Corporation, its parent or any of its subsidiaries.
The Board of Directors by resolution adopted in each specific instance may similarly indemnify any person other than a director or officer of the Corporation for liabilities incurred by him in connection with services rendered by him for or at the request of the Corporation, its parent or any of its subsidiaries.
The provisions of this section shall be applicable to all actions, suits or proceedings commenced after its adoption, whether such arise out of acts or omissions which occurred prior or subsequent to such adoption and shall continue as to a person who has ceased to be a director or officer or to render services for or at the request of the
Corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. The rights of indemnification provided for herein shall not be deemed the exclusive rights to which any Director, officer, employee or agent of the Corporation may be entitled.
Section 2. ADVANCES. The Corporation may pay the expenses incurred by any person entitled to be indemnified by the Corporation in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of any undertaking, by or on behalf of such person, to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by law.
Section 3. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer, employee or agent, of the Corporation or who is or was serving in any capacity in any other corporation or organization at the request of the Corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him again such liability under law.
These By-Laws may be altered or repealed and By-Laws may be made at any annual meeting of the stockholders or at any special meeting thereof by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat, or by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors. Such action may only be taken if notice of the proposed alteration or repeal, or of the by-law or by-laws to be made, be continued in the notice of that special meeting.
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
UNITECH TELECOM, INC.
Article III, Section 1 of the Bylaws of this corporation was amended, effective July 31, 1995, by the Board of Directors to provide in its entirety as follows:
"ARTICLE III
Section 1. NUMBER AND TERM. The number of directors constituting the Board of Directors shall not be more than twenty-five nor less than one, as fixed from time to time in these By-Laws or by action of the Board of Directors. The number of directors shall be seven. The directors shall be elected at the annual meeting of the stockholders and each director shall be elected to serve until his or her successor shall be elected and shall qualify. Directors need not be stockholders."
Dated: October 16, 1995
/s/ Terry G. Campbell
Terry G. Campbell, Assistant Secretary
|
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
UTSTARCOM, INC.
Article III, Section 1 of the Bylaws of this corporation was amended, effective October 3, 1997, by the Board of Directors to provide in its entirety as follows:
"ARTICLE III
Section 1. NUMBER AND TERM. The number of directors constituting the Board of Directors shall not be more than twenty-five nor less than one, as fixed from time to time in these By-Laws or by action of the Board of Directors. The number of directors shall be eight. The directors shall be elected at the annual meeting of the stockholders and each director shall be elected to serve until his or her successor shall be elected and shall qualify. Directors need not be stockholders."
Dated: October 3, 1997
/s/ Carmen Chang
Carmen Chang, Assistant Secretary
|
EXHIBIT 3.4
FIRST
AMENDED AND RESTATED
BYLAWS
OF
UTSTARCOM, INC.
(a Delaware corporation)
TABLE OF CONTENTS
PAGE
ARTICLE I - CORPORATE OFFICES. . . . . . . . . . . . . . . . . . . . . .1
1.1 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . .1
1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II - MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . .1
2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . .1
2.2 ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . .1
2.3 SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . .2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . .2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS. . . . . . . . . . . . . . . . . . . . .2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. . . . . . . . .4
2.7 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.8 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . .5
2.9 VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.10 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . .5
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . .6
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING. . . . . . . . . .6
2.13 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE . . . . . . . . . . . .7
ARTICLE III - DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . .7
3.1 POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.2 NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . . . . .8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. . . . . . . . . . .8
3.4 RESIGNATION AND VACANCIES . . . . . . . . . . . . . . . . . .8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. . . . . . . . . . .9
3.6 REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . . . . .9
3.7 SPECIAL MEETINGS; NOTICE. . . . . . . . . . . . . . . . . . .9
3.8 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.9 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . 10
3.10 ADJOURNMENT . . . . . . . . . . . . . . . . . . . . . . . . 10
3.11 NOTICE OF ADJOURNMENT . . . . . . . . . . . . . . . . . . . 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . 10
3.13 FEES AND COMPENSATION OF DIRECTORS. . . . . . . . . . . . . 10
3.14 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . 11
ARTICLE IV - COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . . . 11
4.2 MEETINGS AND ACTION OF COMMITTEES . . . . . . . . . . . . . 12
-i-
|
4.3 COMMITTEE MINUTES . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 ELECTION OF OFFICERS. . . . . . . . . . . . . . . . . . . . 12
5.3 SUBORDINATE OFFICERS. . . . . . . . . . . . . . . . . . . . 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS . . . . . . . . . . . . 13
5.5 VACANCIES IN OFFICES. . . . . . . . . . . . . . . . . . . . 13
5.6 CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . 13
5.7 PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.8 VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . . . 14
5.9 SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.10 CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . 14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND
OTHER AGENTS . . . . . . . . . . . . . . . . . . . . . . 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . 15
6.2 INDEMNIFICATION OF OTHERS . . . . . . . . . . . . . . . . . 15
6.3 ADVANCEMENT OF EXPENSES . . . . . . . . . . . . . . . . . . 15
6.4 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 OTHER INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 16
6.6 REPEAL OR MODIFICATION. . . . . . . . . . . . . . . . . . . 16
ARTICLE VII - RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS . . . . . . . . . . . 16
7.2 INSPECTION BY DIRECTORS . . . . . . . . . . . . . . . . . . 17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS. . . . . . . . . . . . . . 17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. . . . . . . 17
7.5 CERTIFICATION AND INSPECTION OF BYLAWS. . . . . . . . . . . 17
ARTICLE VIII - GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . 17
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING . . . 17
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS . . . . . . . . . 18
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED. . . . . 18
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES. . . . . . 18
8.5 SPECIAL DESIGNATION ON CERTIFICATES . . . . . . . . . . . . 19
8.6 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 19
8.7 CONSTRUCTION; DEFINITIONS . . . . . . . . . . . . . . . . . 19
-ii-
|
ARTICLE IX - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . 20
9.1 AMENDMENTS BY STOCKHOLDERS AND DIRECTORS. . . . . . . . . . 20
|
FIRST
AMENDED AND RESTATED
BYLAWS
OF
UTSTARCOM, INC.
(a Delaware Corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected, and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, by the president, or by one or more stockholders holding shares in the aggregate entitled to cast not less than fifty percent (50%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10)
nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date and hour of the meeting and (i) in the case of
a special meeting, the purpose or purposes for which the meeting is called
(no business other than that specified in the notice may be transacted) or
(ii) in the case of the annual meeting, those matters which the board of
directors, at the time of giving the notice, intends to present for action by
the stockholders (but any proper matter may be presented at the meeting for
such action). The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees who, at the time of the
notice, the board intends to present for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than twenty (20) days prior to the meeting; provided, however, that in the event less than thirty (30) days notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made. Such stockholder's notice shall set forth (a) as to each person,
if any, whom the stockholder proposes to nominate for election or re-election
as a director: (i) the name, age, business address and residence address of
such person, (ii) the principal occupation or employment of such person,
(iii) the class and number of shares of the corporation which are
beneficially owned by such person, (iv) any other information relating to
such person that is required by law to be disclosed in solicitations of
proxies for election of directors, and (v) such person's written consent to
being named as a nominee and to serving as a director if elected; and (b) as
to the stockholder giving the notice: (i) the name and address, as they
appear on the corporation's books, of such stockholder, and (ii) the class
and number of shares of the corporation which are beneficially owned by such
stockholder, and (iii) a description of all arrangements or understandings
between such stockholder and each nominee and any other person or persons
(naming such person or persons) relating to the nomination. At the request
of the Board of Directors any person nominated by the Board for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the
procedures set forth in this Section. The chairman of the meeting shall, if
the facts warrant, determine and declare at the meeting that a nomination was
not made in accordance with the procedures prescribed by these Bylaws, and if
the chairman should so determine, the chairman shall so declare at the
meeting and the defective nomination shall be disregarded.
At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (a) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. Business to be brought before an annual meeting by a stockholder shall not be considered properly brought if the stockholder has not given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than forty five (45) days prior to the date on which the corporation first mailed proxy materials for the prior year's annual meeting; provided, however, that if the corporation's annual meeting of stockholders occurs on a date more than thirty (30) days earlier or later than the corporation's prior year's annual meeting, then the Board of Directors shall determine a date a reasonable period prior to the corporation's annual meeting of stockholders by which date the stockholders notice must be delivered and publicize such date in a filing pursuant to the Securities Exchange Act of 1934, as amended, or via press release. Such publication shall occur at least ten (10) days prior to the date set by the Board of Directors. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name
and address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required by law to be provided by the stockholder in his capacity as a proponent of a stockholder proposal. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and, if the chairman should so determine, the chairman shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either personally or by first-class mail or by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting in accordance with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of the question.
If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
At a stockholders' meeting at which directors are to be elected, a stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the stockholder has given notice prior to commencement of the voting of the stockholders' intention to cumulate votes. If any stockholder has given such a notice, then every stockholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that stockholder's shares are normally entitled or (ii) by distributing the stockholder's votes on the same principle among any or all of the candidates, as the stockholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect.
Notwithstanding the foregoing, effective upon the closing of a firm commitment underwritten public offering of Common Stock of the corporation, no stockholder will be permitted to cumulate votes at any election of directors.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding the foregoing, effective upon the closing of a firm commitment underwritten public offering of Common Stock of the corporation, no action that is required or permitted to be taken by the stockholders at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting.
The record date for any other purpose shall be as provided in Section 8.1 of these bylaws.
2.13 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the
secretary of the corporation, but no such proxy shall be voted or acted upon
after three (3) years from its date unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic
transmission, telefacsimile or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on
its face that it is irrevocable shall be governed by the provisions of
Section 212(e) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation and these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall be eight until changed by amendment of
this Section 3.2 duly approved by a majority of the directors then in office.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified.
Notwithstanding the foregoing, effective upon the closing of a firm commitment underwritten public offering of Common Stock of the Corporation, the board of directors shall be divided into three classes, the members of each class to serve for a term of three years; provided that the directors shall be elected as follows: at the first annual meeting of the stockholders held following the closing of a firm commitment underwritten public offering of Common Stock of the Corporation, the directors in the first class shall be elected for a term of three years, at the second annual meeting following such date, the directors in the second class shall be elected for a term of three years, and at the third annual meeting following such date, the directors in the third class shall be elected for a term of three years. The board of directors by resolution shall nominate the directors to be elected for each class. At subsequent annual meetings of shareholders, a number of directors shall be elected equal to the number of directors with terms expiring at that annual meeting. Directors elected at each such subsequent annual meeting shall be elected for a term expiring with the annual meeting of shareholders three years thereafter.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.
All vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; provided, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation, or by facsimile or electronic mail. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 3.10 of these bylaws. Every act or decision done or made by a
majority of the directors present at a duly held meeting at which a quorum is
present shall be regarded as the act of the board of directors, subject to
the provisions of the certificate of incorporation and other applicable law.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or any of its subsidiaries, including any officer or employee who is a director of the corporation or any of its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have and may exercise all the powers and authority of the board, but no such committee shall have the power of authority to:
(a) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation);
(b) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware;
(c) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets;
(d) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution; or
(e) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7
(special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of
notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment),
and Section 3.12 (action without meeting), with such changes in the context
of those bylaws as are necessary to substitute the committee and its members
for the board of directors and its members; provided, however, that the time
of regular meetings of committees may be determined either by resolution of
the board of directors or by resolution of the committee, that special
meetings of committees may also be called by resolution of the board of
directors, and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
4.3 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to the chairman of the board by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. The president shall preside
at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. The president shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. The secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of such person's transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists
or may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually
and reasonably incurred in connection with any threatened, pending or
completed action, suit, or proceeding in which such person was or is a party
or is threatened to be made a party by reason of the fact that such person is
or was a director or officer of the corporation. For purposes of this
Section 6.1, a "director" or "officer" of the corporation shall mean any
person (i) who is or was a director or officer of the corporation, (ii) who
is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was
a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, to indemnify any person (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding, in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was an employee or agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) shall mean any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
6.3 ADVANCEMENT OF EXPENSES
Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1, or for which indemnification is permitted pursuant to Section 6.2, following the authorization thereof by the Board of Directors, shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of any undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
6.4 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the General Corporation Law of Delaware.
6.5 OTHER INDEMNIFICATION
The indemnification and advancement of expenses provided by, or granted pursuant to, other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office.
6.6 REPEAL OR MODIFICATION
Any repeal or modification of the foregoing provisions of this Article
VI shall not adversely affect any right or protection hereunder of any person
in respect of any act or omission occurring prior to the time of such repeal
or modification.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to
inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine (and to make copies of) the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president, the chief financial officer, the secretary or any assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of the stock of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered to date, certified by the secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the stockholders of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in
respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the General Corporation Law of Delaware.
If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
Upon surrender to the secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENTS BY STOCKHOLDERS AND DIRECTORS
The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote or by the board of directors of the corporation. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the book of bylaws with the original bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or the filing of the operative written consent(s) shall be stated in said book.
EXHIBIT 4.2
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Third Amended and Restated Registration Rights Agreement (this "Agreement") is hereby entered into as of the 14th day of December, 1999 by and among UTStarcom, Inc., a Delaware corporation (the "Corporation"), at least eighty percent (80%) of the holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock and Series F Convertible Preferred Stock (collectively the "Preferred Holders", sometimes referred to individually as "Investor" and collectively as "Investors").
R E C I T A L S
A. The Corporation and the holders of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock, the Series D Convertible Preferred Stock and the Series F Convertible Preferred Stock are parties to that certain Second Amended and Restated Registration Rights Agreement dated November 17, 1999, (the "Registration Agreement").
B. The Corporation and the holders of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock, the Series D Convertible Preferred Stock and the Series F Convertible Preferred Stock desire to amend and restate the Registration Agreement.
NOW THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the parties hereto agree that the Registration Agreement shall be amended and restated to read in its entirety as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings:
(a) The term "ACT" means the Securities Act of 1933, as amended;
(b) The term "COMMON STOCK" means the Corporation's Common Stock, par value $.0025 per share;
(c) The term "HOLDER" means any Investor and any other person or entity holding Registrable Securities to whom the registration rights granted in this Agreement have been transferred pursuant to Section 15 hereof;
(d) The term "PREFERRED STOCK" means shares of the Corporation's Series A Convertible Preferred Stock, par value $.0025 per share, shares of the Corporation's Series B Convertible Preferred Stock, par value $.0025 per share, shares of the Corporation's Series C Convertible Preferred Stock, par value $.0025 per share, shares of the Corporation's Series D Convertible Preferred Stock, par value $.0025 per share, shares of the Corporation's Series F Convertible Preferred Stock, par value $.0025 per share, shares of the Corporation's Series G
Convertible Preferred Stock, par value $.0025 per share, each series of which is convertible into shares of the Corporation's Common Stock;
(e) The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Act and the declaration or ordering of effectiveness of such registration statement;
(f) The term "REGISTRABLE SECURITIES" means (1) the Common
Stock issuable upon conversion of the Preferred Stock; (2) Common Stock
purchased by an Investor pursuant to (i) Section 8.2 of the Stock Purchase
Agreement dated as of March 29, 1995 between the Corporation and Technology
Funding Venture Partners IV, An Aggressive Growth Fund, L.P., Technology Funding
Venture Partners V, An Aggressive Growth Fund, L.P., Telco Systems, Inc., Dr.
Pehong Chen, Variamat Resources Sdn. Bhd., Ding Cho Hee, William Wittmeyer and
Malaysian Technology Development Corp. (the "Series A Purchase Agreement") (or
Common Stock for or into which New Securities (as defined in the Series A
Purchase Agreement) purchased by the Investor pursuant to such Section 8.2 of
such Series A Purchase Agreement may be exercised or converted), (ii) Section 8
of the Stock Purchase Agreement dated as of October 19, 1995 between the
Corporation and SOFTBANK Corporation (the "Series B Purchase Agreement") (or
Common Stock for or into which New Securities (as defined in the Series A
Purchase Agreement) purchased by the Investor pursuant to Section 8 of such
Series B Purchase Agreement may be exercised or converted), (iii) Section 8 of
the Stock Purchase Agreement dated as of December 2, 1996 between the
Corporation and SOFTBANK Holdings Inc. (the "Series C SOFTBANK Holdings Inc.
Purchase Agreement") (or Common Stock for or into which New Securities (as
defined in the Series A Purchase Agreement) purchased by the Investor pursuant
to Section 8 of such Series C SOFTBANK Holdings Inc. Purchase Agreement may be
exercised or converted), (iv) Section 8 of the Stock Purchase Agreement dated as
of December 2, 1996 between the Corporation and SOFTBANK Ventures, Inc. (the
"Series C SOFTBANK Ventures, Inc. Purchase Agreement") (or Common Stock for or
into which New Securities (as defined in the Series A Purchase Agreement)
purchased by the Investor pursuant to Section 8 of such Series C SOFTBANK
Ventures, Inc. Purchase Agreement may be exercised or converted), (v) Section 8
of the Stock Purchase Agreement dated January 15, 1997 between the Corporation
and Naray Mobile Telecom, Inc., Malaysian Technology Development Corporation,
Ding Cho Hee and Variamat Resources Sdn. Bhd. (the "Series C Naray Purchase
Agreement") (or Common Stock for or into which New Securities (as defined in the
Series A Purchase Agreement) purchased by the Investor pursuant to Section 8 of
such Series C Naray Purchase Agreement may be exercised or converted), (vi)
Section 8 of the Stock Purchase Agreement dated October 3, 1997 between the
Corporation and SOFTBANK Holdings, Inc. and SOFTBANK Contents Fund (the "Series
D Purchase Agreement") (or Common Stock for or into which New Securities (as
defined in the Series A Purchase Agreement) purchased by the Investor pursuant
to Section 8 of such Series D Purchase Agreement may be exercised or converted)
and (vii) Section 8 of the Stock Purchase Agreement dated November 17, 1999
between the Corporation and the Purchasers (the "Series F Purchase Agreement)
(or Common Stock for or into which New Securities (as defined in the Series A
Purchase Agreement) purchased by the Investor pursuant to Section 8 of such
Series F Purchase Agreement may be exercised or converted); (3) shares of Common
Stock issuable upon exercise of a Warrant dated February 5, 1998 issued to
Lintech Limited; (4) shares of Common Stock issuable upon exercise of a Warrant
dated September 20, 1999 issued to Talent Group International, Limited.; (5)
shares of Series G Preferred Stock issued to
holders of WACOS, Inc. capital stock, pursuant to the Agreement and Plan of Merger dated __________, 1999 (the "Merger Agreement"); and (6) any Common Stock of the Corporation issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, such Preferred Stock or Common Stock.
In addition, for purposes of all calculations, and notices under, and all provisions of this Agreement, where the context permits, (i) the term "Registrable Securities" shall include securities issuable upon conversion of the Preferred Stock, (ii) a holder of the Preferred Stock shall be deemed the Holder of such securities and (iii) such securities shall be deemed outstanding Registrable Securities hereunder. The foregoing notwithstanding, nothing in this Agreement shall require the Corporation actually to register any shares of the Preferred Stock.
(g) The term "SB AFFILIATE" means any other person or entity controlling, controlled by, or under common control with the SB Entities (as defined below), including without limitation, (i) any partnership that is affiliated with an SB Entity that is also a partnership, or (ii) any majority-owned subsidiary of any SB Entity which is a corporation.
(h) The term "SB ENTITY" means any of SOFTBANK America Inc., a Delaware corporation, SOFTBANK Ventures, Inc., a Japanese corporation, and their respective successors and assigns.
(i) The term "STOCK PURCHASE AGREEMENTS" means the Series A Purchase Agreement, the Series B Purchase Agreement, the Series C SOFTBANK Holdings Inc. Purchase Agreement, the Series C SOFTBANK Ventures, Inc. Purchase Agreement, the Series C Naray Purchase Agreement, the Series D Purchase Agreement and the Series F Purchase Agreement.
2. REQUEST FOR REGISTRATION. At any time after the earlier of (i) September 1, 1997 or (ii) the initial public offering of the Common Stock, if the Corporation shall receive a written request (specifying that it is being made pursuant to this Section 2) from the Holder or Holders of more than thirty-three and one-third percent (33 1/3%) of the then outstanding Registrable Securities that the Corporation file a registration statement under the Act, or a similar document pursuant to any other statute then in effect corresponding to the Act, covering the registration of at least the lesser of (i) at least twenty percent (20%) of the then outstanding Registrable Securities and, (ii) Registrable Securities the expected offering price to the public of which equals or exceeds $5,000,000, then the Corporation shall promptly notify all other Holders of such request and shall use its best efforts to cause all Registrable Securities that all Holders have requested be registered to be registered under the Act.
Notwithstanding the foregoing, (a) the Corporation shall not be obligated to effect a registration pursuant to this Section 2 during the period starting with the date sixty (60) days prior to the Corporation's estimated date of filing of, and ending on a date three (3) months following the effective date of, a registration statement pertaining to an underwritten public offering of securities for the account of the Corporation, provided that the Corporation is actively employing in good faith its best efforts to cause such registration statement to become effective and that the Corporation's estimate of the date of filing such registration statement is made in good faith; (b) the Corporation shall not be obligated to effect a registration pursuant to this Section 2 within six (6) months after the
effective date of a prior registration under such Section; (c) if the
Corporation shall furnish to the Holders a certificate signed by the President
of the Corporation stating that in the good faith judgment of the Board of
Directors it would be materially detrimental to the Corporation or its
stockholders for a registration statement to be filed in the near future, then
the Corporation's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed three (3) months; and
(d) the Corporation may postpone a registration pursuant to this Section 2 for
such period of time as may be required to permit the use of regular audited
year-end figures with supplemental short period figures for a period not
exceeding three (3) months unless the Holders agree to bear the costs of any
special audit.
The Corporation shall not be obligated to effect more than one (1) registration pursuant to this Section 2. Any request for registration under this Section 2 must be for a firm commitment underwritten public offering to be managed by an underwriter or underwriters of recognized national standing reasonably acceptable to the Corporation.
3. CORPORATION REGISTRATION. Subject to Section 8 of this Agreement,
if at any time the Corporation proposes to register any of its Common Stock
under the Act in connection with the public offering of such securities for its
own account or for the accounts of other stockholders, solely for cash on a form
that would also permit the registration of the Registrable Securities, the
Corporation shall, each such time, promptly give each Holder written notice of
such determination. Upon the written request of any Holder given within thirty
(30) days after mailing of any such notice by the Corporation, the Corporation
shall use its best efforts to cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested be registered;
provided that the Corporation shall have the right to postpone or withdraw any
such registration effected pursuant to this Section 3.
4. OBLIGATIONS OF THE CORPORATION. Whenever required under Section 2, 3, or 11 to use its best efforts to effect the registration of any Registrable Securities, the Corporation shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission ("SEC") a registration statement with, respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective; provided, however, that in connection with any proposed registration intended to permit an offering of any securities from time to time (i.e., a so-called "shelf registration"), the Corporation shall in no event be obligated to cause any such registration to remain effective for more than one hundred eighty (180) days.
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with-the provisions of the Act until the earlier of (i) the disposition of all securities covered by such registration statement or (ii) 120 days after the effective date thereof.
(c) Furnish to each selling Holder such number of copies of each preliminary and final prospectus in conformity with the requirements of the Act, and such other documents as such Holder may reasonably request, in order to facilitate the disposition of Registrable Securities owned by it.
(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of the securities covered by the registration statement, provided that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, and further provided that (anything in this Agreement to the contrary notwithstanding with respect to the bearing of expenses) if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling stockholders, then such expenses shall be payable by selling stockholders pro rata, to the extent required by such jurisdiction.
(e) Provide a transfer agent for the Common Stock no later than the effective date of the first registration of any Registrable Securities.
(f) Otherwise use its best efforts to comply with all applicable rules and regulations of the SEC.
(g) Use its best efforts to cause all the Registrable Securities either (i) to be listed on a national securities exchange (if the Registrable Securities are not already so listed) and on each additional national securities exchange on which similar securities issued by the Corporation are then listed, if the listing of the Registrable Securities is then permitted under the rules of such exchange, or (ii) to secure designation of all the Registrable Securities as a Nasdaq "national market system security" within the meaning of Rule 11Aa2-1 of the SEC or, failing that, to secure listing on Nasdaq for the Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two (2) market makers to register as such with respect to Registrable Securities with the National Association of Securities Dealers, Inc.
(h) Enter into such customary agreements (including an underwriting agreement in customary form) and take such other actions as sellers of Registrable Securities shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities.
(i) Make available for inspection and copying by any seller of Registrable Securities, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, all pertinent financial and other records and pertinent corporate documents and properties of the Corporation, and cause all of the Corporation's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement.
(j) Use every reasonable effort to prevent the issuance of any stop order suspending the effectiveness of such registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the lifting thereof at the earliest reasonable time.
(k) Make such representations and warranties to the selling Holders and the underwriters as are customarily made by issuers to underwriters and selling stockholders, as the case may be, in primary underwritten public offerings.
(l) Furnish to each selling Holder a signed counterpart of
(i) an opinion of counsel for the Corporation, dated the effective date of the registration statement, and
(ii) "comfort" letters signed by the Corporation's independent public accountants who have examined and reported on the Corporation's financial statements included in the registration statement, to the extent permitted by the standards of the American Institute of Certified Public Accountants, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and (in the case of the accountants' "comfort" letters) with respect to events subsequent to the date of the financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' "comfort" letters delivered to the underwriters in underwritten public offerings of securities, to the extent that the Corporation is required to deliver or cause the delivery of such opinion or "comfort" letters to the underwriters in an underwritten public offering of securities.
(m) Furnish to each selling Holder a copy of all documents filed and all correspondence from or to the SEC in connection with the registration statement and the offering to which it relates.
(n) Use its best efforts to insure the obtaining of all necessary approval from the National Association of Securities Dealers, Inc. in connection with such offering.
(o) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
5. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Corporation to take any action pursuant to this Agreement that the Holders shall furnish to the Corporation such information regarding them, the Registrable Securities held by them, and the intended method of disposition of such securities as the Corporation shall reasonably request and as shall be required in connection with the action to be taken by the Corporation.
6. EXPENSES OF DEMAND REGISTRATION. All expenses incurred in connection with registrations pursuant to Section 2 (excluding underwriters' discounts and commissions), including, without limitation, all registration and qualification fees, printers', and accounting fees, fees and disbursements of counsel for the Corporation, and the reasonable fees and disbursements of one counsel for the selling Holders, shall be borne by the Corporation; provided, however, that if a registration under Section 2 is withdrawn at the request of the selling Holders requesting such
registration (other than as a result of information concerning the business or financial condition of the Corporation which is made known to the selling Holders after the date on which such registration was requested) and if such selling Holders elect not to have such registration counted as registration requested under Section 2, the requesting selling Holders shall pay the registration expenses of such registration pro rata in accordance with the number of the Registrable Securities included in such registration.
7. CORPORATION REGISTRATION EXPENSES. All expenses (excluding underwriters' discounts and commissions) incurred in connection with a registration pursuant to Section 3 (other than a registration on Form S-3 filed pursuant to Section 11 hereof), including, without limitation, any-additional registration and qualification fees and any additional fees and disbursements of counsel to the Corporation that result from the inclusion of securities held by the Holders in such registration and the reasonable fees and disbursements of one counsel for the selling Holders, shall be borne by the Corporation.
8. UNDERWRITING REQUIREMENTS.
(a) In connection with any offering involving an underwriting of shares being issued by the Corporation, the Corporation shall not be required to include any of the Holders' Registrable Securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Corporation and the underwriters selected by it (which terms shall be customary), and, in connection with any such offering under Section 3, only in such quantity as will not exceed a limitation on the amount of securities to be underwritten, such limitation to be reasonably determined by the underwriters, or their representatives based on marketing factors (the "Underwriters' Limitation"). If the total amount of securities that all Holders request to be included in an underwritten offering exceeds the Underwriters' Limitation on the amount of securities, the Corporation shall only be required to include in the offering so many of the securities of the selling Holders as the underwriters reasonably believe will not exceed that limitation (the securities so included to be apportioned pro rata among the selling Holders according to the total amount of securities owned by said selling Holders, or in such other proportions as shall mutually be agreed to by such selling Holders), provided that (in the case of an offering subject to Section 3) no such reduction shall be made with respect to any securities offered by the Corporation for its own account, and provided further that no securities of any stockholder who is not a Holder shall be included unless all securities which the Holders and their permitted assignees have requested to be included are included.
(b) With respect to any underwriting of shares to be registered under Section 2 or Section 11, the Holders of a majority of the then outstanding Registrable Securities to be included in such offering shall have the right to designate the managing underwriter or underwriters. In all other circumstances under such Sections and in connection with registrations under Section 3, the Board of Directors of the Corporation shall designate the managing underwriter or underwriters.
9. DELAY OF REGISTRATION. No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.
10. INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Corporation will indemnify and hold harmless each Holder requesting or joining in a registration, any underwriter (as defined in the Act) for it, and each person, if any, who controls such Holder or underwriter within the meaning of the Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based on any untrue or alleged untrue statement of any material fact contained in such registration statement, including, without limitation, any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading or arise out of any violation by the Corporation of any rule or regulation promulgated under the Act applicable to the Corporation and relating to action or inaction required of the Corporation in connection with any such registration; and will reimburse each such Holder, such underwriter, or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, provided, however, that the indemnity agreement contained in this Section 10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Corporation (which consent shall not be unreasonably withheld or delayed) nor shall the Corporation be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such registration statement, preliminary prospetus, final prospectus, or amendments or supplements thereto, in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by or on behalf of any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each Holder requesting or joining in a registration will indemnify and hold harmless the Corporation, each of its directors, each of its officers who has signed the registration statement, each underwriter for the Corporation (within the meaning of the Act), and each person, if any, who controls the Corporation or any such underwriter within the meaning of the Act, against any losses, claims, damages or liabilities to which the Corporation or any such director, officer, controlling person or underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary prospectus or final prospectus, or amendments or supplements thereto, in reliance upon and in conformity with written information furnished by or on behalf of such Holder expressly for use in connection with such registration; and will reimburse the Corporation or any such director, officer, controlling person or underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld) and provided further that no Holder shall have any liability under this Section 10(b) in excess of the net proceeds actually received by such Holder in the relevant public offering.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 10, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such action, if
actually prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
10, but the omission so to notify the indemnifying party will not relieve him of
any liability that he may have to any indemnified party otherwise than under
this Section 10.
11. REGISTRATIONS ON FORM S-3.
(a) If (i) the Corporation shall receive a written request (specifying that it is being made pursuant to this Section 11) from the Holder or Holders of more than fifteen percent (15%) of the then-outstanding Registrable Securities that the Corporation file a registration statement on Form S-3 (or any successor form to Form S-3 regardless of its designation) for a public offering of shares of the Registrable Securities the reasonably anticipated aggregate price to the public of which would equal or exceed Two Million Dollars ($2,000,000), and (ii) the Corporation is a registrant entitled to use Form S-3 to register such shares, then the Corporation shall use its best efforts to cause such shares to be registered on Form S-3 (or any successor form to Form S-3).
(b) All expenses (excluding underwriters' discounts and
commissions) incurred in connection with a registration requested pursuant to
Section 11(a), including, without limitation, all registration, qualification,
printing, and accounting fees, and fees and disbursements of one counsel for the
selling Holder or Holders and counsel to the Corporation, shall be borne by the
Corporation.
(c) Holders' rights to registration under this Section 11 are in addition to, and not in lieu of, their rights to registration under Sections 2 and 3 of this Agreement.
(d) The Corporation shall not be obligated to effect more than two registrations pursuant to this Section 11 during any period of twelve (12) consecutive calendar months.
12. LIMITATION ON CORPORATION OFFERINGS. The Corporation shall not
register securities for sale for its own account (or, except as permitted by
Section 14, any securities other than Registrable Securities held by a Holder)
in any registration requested pursuant to Section 2 or 11 unless permitted to do
so by the written consent of the Holders of more than eighty percent (80%) of
the Registrable Securities as to which registration has been requested. The
Corporation may not cause
any other registration of securities for its own account (other than a registration effected solely to implement an employee benefit plan) which would become effective less than ninety (90) days after the effective date of any registration requested pursuant to Section 2 or 11 to be initiated after such requested registration.
13. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Corporation to the public without registration, the Corporation agrees to use its best efforts to:
(a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times subsequent to ninety (90) days after the effective date of the first registration statement covering an underwritten public offering filed by the Corporation;
(b) file with the SEC in a timely manner all reports and other documents required of the Corporation under the Act and the Securities Exchange Act of 1934, as amended (the "1934 Act"); and
(c) furnish to any Holder forthwith upon request a written statement by the Corporation that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of said first registration statement filed by the Corporation), and of the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Corporation, and such other reports and documents so filed by the Corporation as may be reasonably requested in availing any such Holder to take advantage of any rule or regulation of the SEC permitting the selling of any such securities without registration.
14. LIMITATIONS IN CONNECTION WITH FUTURE GRANTS OF REGISTRATION RIGHTS. Without the prior written consent of Holders that hold at least eighty percent (80%) in voting power of Registrable Securities, the Corporation shall not grant rights to cause the Corporation to register any of its securities to any person or entity which are more favorable than the rights granted to the Holders hereunder or which would interfere in any respect with the exercise by the Holders of their rights hereunder.
15. TRANSFER OF REGISTRATION RIGHTS. The registration rights of any Investor (and of any permitted transferee of any Investor or its permitted transferees) under this Agreement with respect to any shares of Registrable Securities may be Transferred to any transferee who acquires (otherwise than in a registered public offering) such shares of Registrable Securities, provided, however, that the Corporation is given written notice by the Holder at the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which the rights under this Agreement are being assigned and the transferee agrees to be bound by and executes a counterpart of this Agreement.
16. MERGERS, ETC. The Corporation shall not, directly or indirectly enter into any merger, consolidation or reorganization in which the Corporation shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or
reorganization, agree in writing to assume the obligations of the Corporation
under this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to be references to the securities which the Holders
would be entitled to receive in exchange for Registrable Securities under any
such merger, consolidation or reorganization; provided, however, that the
provisions of this Agreement shall not apply in the event of any merger,
consolidation or reorganization in which the Corporation is not the surviving
corporation if the Holders of Registrable Securities are entitled to receive in
exchange therefor (i) cash, (ii) securities of the acquiring corporation which
may be immediately sold to the public without registration under the Act, or
(iii) securities of the acquiring corporation which the acquiring corporation
has agreed to register within ninety (90) days of the completion of the
transaction for resale to the public pursuant to the Act.
17. TRANSFERABILITY OF SHARES. Notwithstanding any representation, warranty or covenant to the contrary in this Agreement, the Stock Purchase Agreements, the Merger Agreement or any other agreement between the Corporation and the Preferred Holders entered into prior to the date hereof, each SB Entity shall have the right to transfer Registrable Securities held by it to any SB Affiliate; provided, however, that such SB Affiliate agrees in writing to be subject to the terms hereof and any relevant Stock Purchase Agreement or Merger Agreement to the same extent as if he or she were an original Preferred Holder hereunder.
18. STAND-OFF AGREEMENT.
(a) Each Holder hereby agrees that it shall not, to the extent requested by the Corporation or a managing underwriter of an offering of securities of the Corporation, sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities or other securities of the Corporation then owned by such Holder without the prior written consent of the Corporation or such underwriter, for up to 180 days following the effective date of a registration statement of the Company filed under the Act; provided, however, that (i) such agreement shall only apply to the first registration statement covering Common Stock to be sold on the Corporation's behalf to the public in an underwritten offering; and (ii) all officers, directors and holders of at least 5% of the outstanding shares (calculated on as-converted-to Common Stock basis) of the Corporation enter into similar agreements. The Holders agree, to ensure compliance with the restrictions referred to herein, that the Corporation may issue appropriate "stop transfer" certificates or instructions and that the Corporation may make appropriate notations to the same effect in its records.
(b) Notwithstanding the above, the SB Entities may transfer Registrable Securities in accordance with Section 17 above.
19. MISCELLANEOUS.
(a) Notwithstanding anything herein to the contrary, if pursuant to Section 1 of the Stock Purchase Agreement dated November 17, 1999, (the Purchase Agreement"), additional parties may purchase shares of Series F Preferred Stock as "New Purchasers" thereunder, then each such New Purchaser shall become a party to this Agreement as a "Purchaser" and "Investor" hereunder, without the need any consent, approval or signature of any Investor when such New Purchaser has both; (i) purchased shares of Series F Preferred Stock under the Purchase Agreement
and paid the Company all consideration payable for such shares and (ii) executed one or more counterpart signature pages to this Agreement as an "Investor", with the Company's consent.
(b) This Agreement and the documents referred to herein state the entire agreement of the parties concerning the subject matter hereof, and supersedes all prior agreements, written or oral, including without limitation the Registration Agreement, between or among them concerning such subject matter.
(c) This Agreement may be amended, and compliance with any provision of this Agreement may be omitted or waived, only with the written consent of the Corporation and the Holders of at least eighty percent (80%) in voting power of the then-outstanding Registrable Securities to be bound thereby.
(d) This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of California without regard to its principles of conflicts of laws.
(e) All notices hereunder shall be given in accordance with
Section 16 of the Series A Stock Purchase Agreement, Section 11(f) of the Series
B Purchase Agreement, Section 11(f) of the Series C SOFTBANK Holdings Inc.
Purchase Agreement, Section 11(f) of the Series C SOFTBANK Ventures, Inc.
Purchase Agreement, Section 11(f) of the Series C Naray Purchase Agreement,
Section 11(f) of the Series D Purchase Agreement, Section 11(f) of the Series F
Purchase Agreement and Section 8.1 of the Merger Agreement.
(f) Subject to Section 15 above, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Any transferee or assignee shall thereafter be treated as a Holder, subject to the limitations herein. Until the Corporation receives actual notice of any transfer or assignment, it shall be entitled to rely on the then existing list of Holders and the failure to notify the Corporation of any transfer or assignment shall not affect the validity of a notice properly given by the Corporation to the Holders pursuant to lists maintained by the Corporation.
(g) If one or more provisions of this Agreement are held to be unenforceable under applicable law, portions of such provisions, or such provisions in their entirety, to the extent necessary, shall be severed from this Agreement, and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
(h) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Third Amended and Restated Registration Rights Agreement as of the date first written above.
UTSTARCOM, INC.
By: /s/ Hong Liang Lu
------------------------------------
Hong Liang Lu
President and Chief Executive Officer
|
PREFERRED HOLDERS
SOFTBANK AMERICA INC.
By: /s/ Francis B. Jacobs II
------------------------------------
Vice President
|
SOFTBANK VENTURES INC.
By: /s/ Yoshitaka Kitao
------------------------------------
Yoshitaka Kitao
Chief Executive Officer
|
NARAY MOBILE TELECOM, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
***SIGNATURE PAGE FOR UTSTARCOM, INC.'S
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT***
INTEL PACIFIC, INC.
By: /s/ Noel Lazo
-------------------------------------
Print Name: Noel Lazo
-----------------------------
Title: Assistant Treasurer, Intel Corporation
----------------------------------
|
MATSUSHITA COMMUNICATION
INDUSTRIAL CO., LTD.
By: _____________________________________
Print Name: _____________________________
Title: __________________________________
MITSUBISHI ELECTRIC CORPORATION
By: /s/ Michio Nakanishi
--------------------------------------
Print Name: Michio Nakanishi
-----------------------------
Title: Senior VP & Director
----------------------------------
|
***SIGNATURE PAGE FOR UTSTARCOM, INC.'S
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT***
Investor:
By: /s/ Hong Lu
------------------------------------
Print Name: Hong Lu
----------------------------
Title:
---------------------------------
By: /s/ Chauncey Shey
------------------------------------
Print Name: Chauncey Shey
----------------------------
Title:
---------------------------------
By: /s/ Shey Partners
------------------------------------
Print Name: Shey Partners
----------------------------
Title:
---------------------------------
By: /s/ Bill Huang
------------------------------------
Print Name: Bill Huang
----------------------------
Title:
---------------------------------
By: /s/ Willie Lu
------------------------------------
Print Name: Willie Lu
----------------------------
Title:
---------------------------------
By: /s/ Ying Wu
------------------------------------
Print Name: Ying Wu
----------------------------
Title:
---------------------------------
By: /s/ Taoyun Wang
------------------------------------
Print Name: Taoyun Wang
----------------------------
Title:
---------------------------------
By: /s/ James Miller and Shiwei Guo
------------------------------------
Print Name: Miller Trust
----------------------------
Title: Trustee
---------------------------------
By: /s/ Charles Xue
------------------------------------
Print Name: Charles Xue
----------------------------
Title:
---------------------------------
By: /s/ Paul Berkowitz
------------------------------------
Print Name: Paul Berkowitz
----------------------------
Title:
---------------------------------
By: /s/ Hong Lu
------------------------------------
Print Name: Hong Lu
----------------------------
Title:
---------------------------------
By: /s/ Weilia Wang
------------------------------------
Print Name: Weilia Wang
----------------------------
Title:
---------------------------------
By: /s/ Howard Cheng
------------------------------------
Print Name: Howard Cheng
----------------------------
Title:
---------------------------------
By: /s/ Spero Koulouras
------------------------------------
Print Name: Spero Koulouras
----------------------------
Title:
---------------------------------
By: /s/ Yong Gao
------------------------------------
Print Name: Yong Gao
----------------------------
Title:
---------------------------------
By: /s/ Guowen Lu
------------------------------------
Print Name: Guowen Lu
----------------------------
Title:
---------------------------------
By: /s/ Heng V. Te
------------------------------------
Print Name: Heng V. Te
----------------------------
Title:
---------------------------------
By: /s/ Terry Campbell
------------------------------------
Print Name: Terry Campbell
----------------------------
Title:
---------------------------------
By: /s/ Jonathan Cohen
------------------------------------
Print Name: Jonathan Cohen
----------------------------
Title:
---------------------------------
By: /s/ James Lee
------------------------------------
Print Name: James Lee
----------------------------
Title:
---------------------------------
By: /s/ Chauncey Shey
------------------------------------
Print Name: Shey Trust
----------------------------
Title: Trustee
---------------------------------
|
***SIGNATURE PAGE FOR UTSTARCOM, INC.'S
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT***
EXHIBIT 10.1
UTSTARCOM, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the _____ day of _____________, 1998 by and between UTStarcom, Inc., a Delaware corporation (the "COMPANY") and _______________ ("INDEMNITEE").
RECITALS
A.The Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.
B.The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.
C.Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection.
D.The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and, in part, in order to induce Indemnitee to continue to provide services to the Company, wishes to provide for the indemnification and advancing of expenses to Indemnitees to the maximum extent permitted by law.
E.In view of the considerations set forth above, the Company desires that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) GENERAL RIGHT TO INDEMNIFICATION. The Company shall indemnify to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or are threatened to be made a party to or witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a "CLAIM"), by reason of (or arising in part out of) any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity (hereinafter an "INDEMNIFIABLE EVENT"), and the Indemnitee shall be indemnified and held harmless by the Company to the fullest extent permitted by law, against any and all costs, charges, expenses, liabilities, losses, (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitees as a result of the actual or deemed receipt of any payments under this Agreement (collectively, hereinafter "EXPENSES"), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such indemnification shall continue as to the Indemnitee when the Indemnitee ceases to be a director, officer, employee, agent or fiduciary of the Company or any subsidiary of the Company (or to serve another entity at the request of the Company) and shall inure to the benefit of the Indemnitee's heirs, personal representatives and estate. Such payment of Expenses shall be made by the Company as soon as practicable but in any event no later than twenty days after written demand by Indemnitees therefor is presented to the Company.
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). The Indemnitee's obligation to reimburse the Company for
any Expense Advance shall be unsecured and no interest shall be charged thereon.
If there has not been a Change in Control (as defined in Section 10(c) hereof),
the Reviewing Party shall be selected by the Board of Directors, and if there
has been such a Change in Control (other than a Change in Control which has been
approved by a majority of the persons surviving as members of the Company's
Board of Directors who comprised the Company's Board of Directors immediately
prior to such Change in Control), the Reviewing Party shall be the Independent
Legal Counsel referred to in Section 1(c) hereof. If there has been no
determination by the Reviewing
Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) CHANGE IN CONTROL. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the persons surviving as members of the Company's Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitees to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law, and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other provision of this Agreement other than Section 9 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit, proceeding, inquiry or investigation referred to in Section (1)(a) hereof or in the defense of any Claim, issue or matter covered by the Agreement, or in defense of any Claim, issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee or on Indemnitee's behalf in connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable but in any event no later than twenty days after written demand by Indemnitee therefor to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give
the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of NOLO CONTENDERE, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. The Company shall have the right to conduct such defense as it sees fit in its sole discretion, including the right to settle any claim against Indemnitee without the consent of the Indemnitee.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification and advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that if the Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company may be required to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee.
7. LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of
its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company.
8. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law;
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be;
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Exchange Act, or any similar successor statute if the Company is subject to the informational requirements of the Exchange Act.
9. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a con-
stituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be deemed to have occurred IF, ON OR AFTER THE DATE OF THIS AGREEMENT, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 1(c) hereof, who
shall not have otherwise performed services for the Company or Indemnitees within the last three years (other than with respect to matters concerning the rights of Indemnitees under this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee are seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors.
10. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
11. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary of the Company or of any other enterprise at the Company's request.
12. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court having jurisdiction over such action determines that each of Indemnitee's material defenses to such action was made in bad faith or was frivolous.
13. NOTICE. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5)
days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if delivered by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Indemnitee's address as set forth beneath Indemnitee's signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other address as such party may designate by ten days' advance written notice to the other party hereto.
14. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim.
15. SEVERABILITY. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
17. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
18. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
19. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.
20. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
UTSTARCOM, INC.,
a Delaware corporation
Hong Lu
President and Chief Executive Officer
AGREED TO AND ACCEPTED BY:
(Signature of Indemnitee)
(Type Name)
Exhibit 10.2 Unitech Industries
1992 OMNIBUS EQUITY INCENTIVE PLAN
1. PURPOSE
The Plan is intended to provide to selected directors, employees, independent contractors and/or consultants of Unitech Industries, a California corporation (the "Participants" and the "Corporation," respectively), an opportunity to acquire shares of common stock of the Corporation. The Corporation intends to use the Plan to attract and retain Participants with outstanding qualifications and motivate Participants to attain exceptional levels of performance. The Plan is effective April 12, 1992.
The Plan is designed to enable the Corporation to (i) grant to Participants options to purchase shares of common stock of the Corporation, (ii) issue to Participants restricted shares of common stock of the Corporation, and/or (iii) issue to Participants stock appreciation rights with respect to shares of common stock of the Corporation upon such terms and conditions as provided in this Plan document (collectively referred to as Plan "Awards").
2. DEFINITIONS.
(a) "AWARD" shall mean any award under the Plan, including any Option, share of Restricted Stock or Stock Appreciation Right.
(b) "AWARD AGREEMENT" shall mean, with respect to each Award, the signed written agreement between the Corporation and the Participant setting forth the terms and conditions of the Award.
(c) "BOARD" shall mean the board of directors of the Corporation.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" shall mean the committee appointed by the Board in accordance with Section 4(b) to administer the Plan.
(f) "COMMON STOCK" shall mean the voting common stock of the Corporation.
(g) "CORPORATION" shall mean Unitech Industries, a California corporation.
(h) "EMPLOYEE" shall mean any individual who is employed, within the meaning of Section 3401 of the Code and the regulations thereunder, by the Corporation. For purposes of the Plan only, a director and any independent contractor of the Corporation shall be deemed to be an Employee and service as a director or independent contractor with the Corporation shall be deemed to be employment, but no Incentive Stock Option shall be granted to a Participant who is not an employee of the Corporation within the meaning of Section 3401 of the Code and the regulations thereunder. The Committee shall be responsible for determining when a director's or independent contractor's period of service is no longer continuous and when an employee's period of employment is deemed to be continued during an approved leave of absence.
(i) "ESCROW AGENT" shall mean the person selected by the Corporation to hold the stock certificate issued under this Plan in the name of a Participant as Restricted Stock, pursuant to such Participant's exercise of an Option, or pursuant to such Participant's exercise of a Stock Appreciation Right which is settled in Shares rather than cash. The Escrow Agent shall hold such certificate in accordance with the terms of the Joint Escrow Instructions and the Assignment Separate from Certificate entered into between the Escrow Agent, the Corporation and the Participant. The Joint Escrow Instructions and the Assignment Separate From Certificate are to facilitate the transfer of Shares if the Corporation exercises its Right of First Refusal under Section 13, and if nonvested Shares of Restricted Stock are forfeited under Section 14.
(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
(k) "EXERCISE PRICE" shall mean the price per Share at which an Option may be exercised, as determined by the Committee and as specified in the Participant's Award Agreement.
(l) "FAIR MARKET VALUE" shall mean the value of each Share determined as of any specified date as follows:
(i) If the Shares are traded of any United States securities exchange, the value per Share shall be the closing price on such exchange on the business day immediately preceding such specified date;
(ii) If the Shares are not traded of any United States securities exchange but are traded on any formal over-the-counter quotation system in general use in the United States,
the value per Share shall be the mean between the closing high bid and low asked quotations on such system on the business day immediately preceding such specified date; or
(iii) If neither Paragraph (i) nor (ii) applies, the value per Share shall be determined by the Board in accordance with Section 4(e) in good faith and based on uniform principles consistently applied. Such determination shall be conclusive and binding on all persons.
(m) "INCENTIVE STOCK OPTION" shall mean an Option of the type which is described in Section 422(b) of the Code.
(n) "JOINT ESCROW INSTRUCTIONS AND ASSIGNMENT SEPARATE FROM CERTIFICATE" shall mean, respectively, the form of joint escrow instructions entered into between Participant, the Corporation and the Escrow Agent, and the form of assignment executed by the Participant to facilitate the transfer of Shares if the Corporation exercises its Right of First Refusal under Section 13 and if nonvested Shares of Restricted Stock are forfeited under Section 14.
(o) "NONSTATUTORY STOCK OPTION" shall mean an Option which is not of the type described in Section 422(b) or 423(b) of the Code.
(p) "OPTION" shall mean an option which is granted pursuant to the Plan to purchase Shares of Common Stock, whether granted as an Incentive Stock Option or as a Nonstatutory Stock Option.
(q) "PARTICIPANT" shall mean any individual to whom an Award has been granted or issued under the Plan.
(r) "PLAN" shall mean this Unitech Industries 1992 Omnibus Equity Incentive Plan, as amended. The Plan is effective April 12, 1992.
(s) "PLAN YEAR" shall mean the 12 consecutive month period coinciding with the Corporation's fiscal year, which is the calendar year.
(t) "PURCHASE PRICE" shall mean, at any specified time, the (i) Exercise Price of an Option times the number of optioned Shares being exercised, or (ii) the amount, if any, a Participant is to pay for a Share of Restricted Stock times the number of Shares being purchased.
(u) "RESTRICTED STOCK" shall mean a Share of Common Stock which is issued to a Participant and which is either vested (as defined in Section 8(a)) when issued or nonvested until specified conditions are met. The applicable vesting conditions shall be set forth in a Participant's
Award Agreement. Shares of Restricted Stock are subject to forfeiture under
Section 14 prior to vesting.
(v) "SHARE" shall mean one authorized share of Common Stock.
(w) "STOCK APPRECIATION RIGHT" shall mean a right issued to a Participant to receive all or any portion of the future appreciation in the Fair Market Value of one Share of Common Stock. A Stock Appreciation Right may be settled in cash or in Shares of Common Stock in accordance with the terms and conditions set forth Section 9.
3. EFFECTIVE DATE.
The Plan was adopted by the Corporation effective April 12, 1992,
subject to the approval of the Corporation's shareholders in accordance with
Section 21.
4. ADMINISTRATION.
(a) ADMINISTRATION BY THE BOARD OR THE COMMITTEE.
The Board may administer the Plan or appoint a Committee to administer the Plan. If no Committee has been appointed or is currently constituted, the Board shall have the powers and authority otherwise delegated to the Committee in this Plan document and all acts to be performed by the Committee under this Plan shall be performed by the Board. In any event, the Board shall have the authority to determine the Fair Market Value of the Common Stock in accordance with Subsection (e).
(b) COMPOSITION OF THE COMMITTEE.
(i) If appointed by the Board, the Committee shall consist of not less than two members, who may also be members of the Board. Each Committee member shall serve until the member resigns, dies or is removed by the Board, whichever is the first event to occur. The Board may, from time to time, increase the size of the Committee, fill vacancies however caused, remove members with or without cause, and disband the Committee and thereafter directly administer the Plan. The Board shall designate one members as Chairman of the Committee. The Committee shall hold meetings at such times and places as it may determine. For a Committee meeting, if the Committee has two or three members, all must be present to constitute a quorum,
and if the Committee has four or more members, a majority of the Committee plus one member shall constitute a quorum. Acts by a majority of the members present at a meeting at which a quorum is present and acts approved in writing by all the members of the Committee shall constitute valid acts of the Committee.
(ii) Members of the Board or the Committee who are either eligible for Awards or have been granted an Award may vote on any matters affecting the administration of the Plan or the grant of any Award pursuant to the Plan. However, no such member shall act upon the granting of an Award to himself or herself (unless such grant is part of a plan under which Awards are to be granted to a classification of Employees), although such member shall be counted in determining the existence of a quorum at a meeting of the Committee and shall be excluded in determining the number of directors voting or taking written action with respect to an Award granted to such member.
(iii) If the Corporation registers any class of equity security pursuant to Section 13 of the Exchange Act, from the effective date of such registration until six months after the termination of such registration, the Plan shall be administered by a Committee which shall consist of not less than three members, who may also be members of the Board. During such period, the Committee shall be comprised of individuals who:
(A) Shall be ineligible to participate in the Plan and in any plan sponsored by the Corporation which provides for the grant of stock of the Corporation, and
(B) Shall have been ineligible to participate in the Plan and any such other plan for a one-year period prior to the time such individual becomes a member of the Committee. The Board may from time to time designate individuals as ineligible to participate in the Plan for such one-year period in order to become eligible to be a member of the Committee.
(c) POWERS OF THE COMMITTEE.
Subject to the provisions of the Plan, the Committee shall have the authority and discretion and on behalf of the Corporation to:
(i) Prescribe, amend and rescind rules and regulations relating to the Plan;
(ii) Select Participants to receive Awards;
(iii) Determine the form and terms of Awards;
(iv) Determine the number of Shares or other consideration subject to Awards;
(v) Determine whether Awards will be granted singly, in combination, in tandem, in replacement of, or as alternatives to, other Awards under the Plan or any other incentive or compensation plan of the Corporation;
(vi) Construe and interpret the Plan, any Award Agreement and any other agreement or document executed pursuant to the Plan;
(vii) Correct any defect or omission, or reconcile any inconsistency in the Plan, any Award or any Award Agreement;
(viii) Determine whether an Award has been earned and/or vested;
(ix) Accelerate or defer, with the consent of the Participant, the exercise date of any Option or Stock Appreciation Right, or the vesting of any Award;
(x) Authorize any person to execute on behalf of the Corporation any instrument required to effectuate the grant of an Award as made by the Committee;
(xi) With the consent of the Participant, reprice, cancel and reissue, or otherwise adjust the terms of an Award previously issued to the Participant; and
(xii) Make all other determinations deemed necessary or advisable for the administration of the Plan.
(d) COMMITTEE'S INTERPRETATION OF THE PLAN.
The Committee's interpretation and construction of any provision of the Plan, of any Award granted under the Plan, or of any Award Agreement shall be final and binding on all parties claiming an interest in an Award granted or issued under the Plan. No member of the Committee nor any director shall be liable for any action or determination made in good faith with respect to the Plan.
(e) BOARD'S DETERMINATION OF FAIR MARKET VALUE.
The Board shall have the authority to determine, upon review of relevant information, the Fair Market Value of the Common Stock, subject to the provisions of the Plan and irrespective of whether the Board has appointed a Committee to administer the Plan.
5. PARTICIPATION.
(a) ELIGIBILITY FOR PARTICIPATION.
Plan Participants shall be limited to such Employees and such directors, independent contractors and/or consultants of the Corporation as the Committee may select.
(b) ELIGIBILITY FOR AWARDS.
Incentive Stock Options may be granted only to Participants who are common law employees (including officers and inside directors) of the Corporation. All other Awards may be granted to any person eligible for Participation, as defined in Subsection (a). A Participant may be granted more than one Award under the Plan.
(c) TEN PERCENT STOCKHOLDERS GRANTED INCENTIVE STOCK OPTIONS.
Any Employee who owns stock of the Corporation possessing more than 10% of the total combined voting power of all classes of outstanding stock of the Corporation shall be eligible to receive an Incentive Stock Option only if:
(i) The Exercise Price of the Shares subject to such Incentive Stock Option, when granted, equals or exceeds 110% of the Fair Market Value of such Shares; and
(ii) Such Incentive Stock Option by its terms is not exercisable after five years from the date of grant.
(d) STOCK OWNERSHIP AND OUTSTANDING STOCK.
For purposes of Subsection (c) above:
(i) In determining stock ownership, an Employee shall be considered as owning the stock owned, directly or indirectly, by or for his or her brothers and sisters, spouse, ancestors, and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries, respectively.
(ii) The term "outstanding stock" shall include all shares of stock actually issued and outstanding immediately after the grant of the Option to the Participant but shall not include any share of stock subject to an unexercised stock option held by any person.
6. SHARES OF STOCK OF THE CORPORATION.
(a) SHARES SUBJECT TO THIS PLAN.
Stock with respect to which Awards are granted or issued under this Plan (i.e., issued as Restricted Stock, issued upon the exercise of an Option, issued upon the exercise of a Stock Appreciation Right which is settled in Shares rather than cash, or constituting the basis for a Stock Appreciation Right) shall be authorized but unissued or reacquired Shares of the Corporation's Common Stock. The aggregate number of Shares which may be issued under this Plan shall not exceed 300,000, subject to adjustment under Section 11.
(b) ADJUSTMENT OF SHARES.
In the event of an adjustment described in Section 11 excluding
Section 11(b)(ii), then (i) the number of Shares reserved for issuance under the
Plan, (ii) the Exercise Prices of and number of Shares subject to outstanding
Options, (iii) the number of Shares subject to other outstanding Awards, and
(iv) any other factor pertaining to outstanding Awards shall be duly and
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Corporation and compliance with applicable securities laws;
provided, however, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee. The Committee shall in its sole
discretion determine if and when any adjustment of Shares as described in this
Subsection (b) is required.
(c) AWARDS NOT TO EXCEED SHARES AVAILABLE.
The number of Shares subject to Awards which are outstanding at any time shall not exceed the number of Shares authorized for issuance under the Plan, reduced by the number of Awards previously granted or issued under this Plan. The number of Shares subject to an Award which expires or is canceled, forfeited or terminated for any reason, shall again be
available for issuance under the Plan. Any Shares the Corporation reacquires pursuant to Sections 13 and 14 shall also again be available for issuance under this Plan.
7. TERMS AND CONDITIONS OF OPTIONS.
(a) AWARD AGREEMENTS.
Each Option shall be evidenced by a written Award Agreement which shall set forth the terms and conditions pertaining to such Option, provided that all such terms shall be subject to and consistent with this Plan.
(b) NUMBER OF SHARES COVERED BY AN OPTION.
Each Award Agreement shall state the number of Shares for which the Option is exercisable and shall provide for the adjustment of such Shares in accordance with Section 6(b) and Section 11.
(c) EXERCISE OF OPTIONS.
A Participant may exercise an Option only on or after the date on which the Option vests, as provided in Subsection (d) below, and only on or before the date on which the Option expires, as provided in Subsection (e) below.
(d) VESTING OF OPTIONS.
A Participant may exercise an Option to purchase Shares only on or after the date the Option has vested with respect to such Shares. Each Award Agreement shall include a vesting schedule applicable to the Shares to which such Option pertains. The vesting schedule shall not impose upon the Corporation any obligation to retain the Participant in its employ for any period. A Participant's Award Agreement shall so specify if all or any nonvested Options held by the Participant on the date of death or total and permanent disability shall become vested.
(e) TERM AND LAPSE OF OPTIONS.
A Participant may exercise an Option to purchase Shares only on or before the date on which the term of the Option expires, lapses or otherwise ends. Each Award Agreement shall set forth the term of the Option and the events described in the immediately
following sentence which will cause the Option to lapse or otherwise end, in whole or in part, as of on earlier date. An Option shall lapse on the first to occur of the following events:
(i) The tenth anniversary of the date the Option was granted (substituting "fifth anniversary" for "tenth anniversary" for an Incentive Stock Option granted to a "ten percent stockholder" as described in Section 5(c));
(ii) The date determined under Section 7(i) for a Participant who ceases to be an Employee by reason of the Participant's death or total and permanent disability within the meaning of Section 22(e)(3) of the Code;
(iii) The date determined under Section 7(j) for a Participant who ceases to be an Employee for any reason other than by reason of death or total and permanent disability, unless the Committee in its discretion extends such date before the applicable expiration date (but no longer than three months after the date the Participant ceases to be an Employee with respect to any Incentive Stock Option the Participant holds);
(iv) On the effective date of a transaction described in
Section 11(b)(ii); or
(v) The expiration date specified in the Participant's Award Agreement.
(f) EXERCISE PRICE.
Each Award Agreement shall state the Exercise Price for the Shares to which the Option pertains, subject to the following:
(i) The Exercise Price of an Incentive Stock Option shall not be less than 100% of the Fair Market Value of the Shares determined on the date the Option is granted (substituting "110%" for "100%" for an Incentive Stock Option granted to a "ten percent stockholder" as described in Section 5(c)); and
(ii) The Exercise Price of a Nonstatutory Stock Option may be less than 100% of the Fair Market Value of the Shares determined on the date the Option is granted.
(g) MEDIUM AND TIME OF PAYMENT OF PURCHASE PRICE.
A Participant exercising an Option shall pay the Purchase Price of the Shares to which such exercise pertains in full in cash (in U.S. dollars) as a condition of such exercise, unless the Committee in its discretion allows the Participant to pay the Purchase Price in a manner allowed under Section 17, so long as the sum of cash so paid and such other consideration
equals the Purchase Price. The sequential exercise of an Option through "pyramiding" is specifically allowable under the Plan, subject to the consent of the Committee at its discretion.
(h) NONTRANSFERABILITY OF OPTIONS.
An Option granted to a Participant shall, during the lifetime of the Participant, be exercisable only by the Participant or the Participant's conservator or legal representative. Options shall not assignable or transferable, and any attempt to assign or transfer the Options will be void and unenforceable. An Option granted to a Participant is exempt from the claims of the Participant's creditors, and may not be made subject to execution, attachment or any other process which would result in the transfer of the Option to such creditors. In the event of the Participant's death, the Option is transferable by the Participant only by will or the laws of descent and distribution.
(i) DEATH OR DISABILITY OF A PARTICIPANT.
If a Participant dies while an Employee, or ceases to be an Employee as a consequence of becoming totally and permanently disabled (within the meaning of Section 22(e)(3) of the Code), any Option granted to the Participant may be exercised, to the extent it was vested on the date of termination of employment, at any time within 12 months after the termination of employment (but not beyond the otherwise applicable term of the Option), by the Participant or the Participant's conservator or legal representative.
(j) TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR DISABILITY.
If a Participant ceases to be an Employee for any reason other than death or total and permanent disability (as defined in Section 7(k)):
(i) any Nonstatutory Stock Option granted to the Participant may be exercised, to the extent it was vested on the date of termination of employment, at any time within 12 months after the termination of employment (but not beyond the otherwise applicable term of the Option); and
(ii) any Incentive Stock Option granted to the Participant may be exercised, to the extent it was vested on the date of termination of employment, at any time within 3 months after the termination of employment (but not beyond the otherwise applicable term of the Option).
(k) RIGHTS AS A STOCKHOLDER.
A Participant, or an allowable transferee of a Participant, shall have no rights as a shareholder of the Corporation with respect to any Shares for which an Option is exercisable until the date a stock certificate for such Shares is issued. No adjustment shall be made for dividends (ordinary or extraordinary or whether in currency, securities, or other property), distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 11.
(l) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS.
Within the limitations of the Plan, the Committee may in its discretion modify, extend or renew outstanding any Option or accept the cancellation of outstanding Options for the granting of a new Option in substitution therefor. Notwithstanding the preceding sentence, no modification of an Option shall, without the consent of the Participant, alter or impair any rights or obligations under any Option previously granted.
(m) OTHER PROVISIONS.
An Award Agreement may contain such other provisions as the Committee deems advisable which are not inconsistent with the terms of the Plan, including but not limited to:
(i) Restrictions on the exercise of the Option;
(ii) Submission by the Participant of such forms and documents as the Committee may require; and/or
(iii) Procedures to facilitate the broker-assisted exercise of the Option.
(n) LIMITATIONS ON INCENTIVE STOCK OPTIONS.
The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Corporation) shall not exceed $100,000. If the Fair Market Value of the Shares on the date of grant with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year exceeds $100,000, the Options for the first $100,000 worth of Shares to become exercisable in such calendar year shall be incentive Stock Options and the Options for the amount in excess of $100,000 that become exercisable in that calendar year shall be Nonstatutory Stock Options. In the event the Code or the regulations promulgated thereunder are
amended after the Effective Date of the Plan to provide for a different limit on
the Fair Market Value of Shares permitted to be subject to Incentive Stock
Options, such different limit shall be automatically incorporated into this
Section 7(o) and shall apply to any Options granted on or after the effective
date of such amendment.
8. TERMS AND CONDITIONS OF RESTRICTED STOCK.
(a) RESTRICTED STOCK AGREEMENTS.
Each Award of Restricted Stock shall be evidenced by a written Award Agreement which shall set forth the terms and conditions pertaining to such Award, provided that all such terms shall be subject to the terms and conditions of this Plan. Each Restricted Stock Award Agreement shall state the number of Shares of Restricted Stock to which it pertains and whether the Shares are immediately vested. For purposes of determining when a Share of Restricted Stock becomes "vested," the term "vest" shall mean that the Restricted Stock is no longer subject to a substantial risk of forfeiture within the meaning prescribed by Section 83 of the Code and the regulations thereunder.
(b) VESTING.
Unless immediately vested at issuance, a Share of Restricted Stock shall be forfeitable (in accordance with Section 14) prior to the date on which the Restricted Share vests. Each Award Agreement shall include a vesting schedule applicable to the Shares Restricted Stock to which it pertains. This condition shall not impose upon the Corporation any obligation to retain the Participant in its employ for any period. A Participant's Award Agreement shall so specify if all or any nonvested Shares of Restricted Stock held by the Participant on the date of death or total and permanent disability shall become vested.
(c) RESTRICTED SHARES ISSUED WITHOUT PAYMENT OF FULL CONSIDERATION.
An Award of Restricted Stock may be issued without payment by the Participant of any consideration, or may be issued in consideration of partial or full payment of the Fair Market Value of the Shares as of the date of issuance. Payment of such consideration may be made on any of the terms of payment allowed under Section 17, so long as the sum of cash so paid and such other consideration equals the Purchase Price, and payment shall be a condition to the
issuance of such Shares. Subject to vesting and to the payment of any required consideration, the Shares shall be deemed fully paid and nonassessable.
(d) NONTRANSFERABILITY OF NONVESTED AWARDS OF RESTRICTED STOCK.
During the lifetime of the Participant, a nonvested Award of Restricted Stock is neither assignable nor transferable, and any attempt to assign or transfer the Award will be void and unenforceable. An nonvested Award of Restricted Stock granted to a Participant is exempt from the claims of the Participant's creditors, and may not be made subject to execution, attachment or any other process which would result in the transfer of the nonvested Award to such creditors.
(e) TERMINATION OF EMPLOYMENT FOR ANY REASON.
(i) If a Participant ceases to be an Employee for any reason,
including death and total and permanent disability (as defined in Section 7(k)),
any nonvested Share of Restricted Stock shall be forfeited in accordance with
Section 14 on the date the Participant's employment with the Corporation
terminates.
(ii) For purposes of this Section 8(e), the employment relationship shall be treated as continuing intact while the Participant is an active employee of the Corporation or is on military leave, sick leave or other bona fide leave of absence, as determined by the Committee in its discretion.
(f) RIGHTS AS A STOCKHOLDER.
A Participant, or an allowable transferee of a Participant, shall have all rights as a stockholder of the Corporation, including voting and dividend rights, with respect to all Awards of Restricted Stock, whether vested or forfeitable, commencing on the date of issuance of a stock certificate for such Awards. No adjustment shall be made for dividends (ordinary or extraordinary, whether in currency, securities, or other property), distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 11.
(g) MODIFICATION OF AWARDS OF RESTRICTED STOCK.
Within the limitations of the Plan, the Committee may modify the terms of an Award of Restricted Stock or accept the cancellation of outstanding Awards of Restricted Stock
(to the extent not vested) for the issuance of a new Award of Restricted Stock in substitution therefor. Notwithstanding the preceding sentence, no modification of an Award of Restricted Stock shall, without the consent of the Participant, alter or impair any rights or obligations under any such Award previously issued.
(h) OTHER PROVISIONS.
An Award Agreement may contain such other provisions as the Committee in its discretion deems advisable which are not inconsistent with the terms of the Plan.
9. STOCK APPRECIATION RIGHTS.
(a) STOCK APPRECIATION RIGHTS AGREEMENTS.
Each Award of a Stock Appreciation Right shall be evidenced by written Award Agreement which shall set forth the terms and conditions pertaining to such Award, including the date the Stock Appreciation Right expires and is no longer exercisable, provided that all such terms shall be subject to the terms and conditions of this Plan. Each Stock Appreciation Right Award Agreement shall state the number of Shares of Stock to which it pertains and the Fair Market Value of the Shares which is the basis for determining future appreciation.
(b) STOCK APPRECIATION RIGHTS ISSUED WITHOUT PAYMENT OF CONSIDERATION.
A Stock Appreciation Right shall be issued without payment by the Participant of any consideration.
(c) EXERCISE OF STOCK APPRECIATION RIGHTS.
A participant may exercise a Stock Appreciation Right only on or after the date on which the Stock Appreciation Right vests, as provided in Subsection (d), below, and only on or before the date on which the Stock Appreciation Right lapses, as provided in Subsection (e), below.
(d) VESTING.
A Stock Appreciation Right shall be forfeitable prior to the date on which the Right vests. Each Award Agreement shall include a vesting schedule applicable to the Stock Appreciation Right to which it pertains. This condition shall not impose upon the Corporation any obligation to retain the Participant in its employ for any period. A Participant's Award Agreement
shall so specify if all or any nonvested Stock Appreciation Rights held by the Participant on the date of death or total and permanent disability shall become vested.
(e) TERM AND LAPSE OF STOCK APPRECIATION RIGHTS.
A Participant may exercise a Stock Appreciation Right and receive a settlement from the Corporation only on or before the date on which the term of the Right expires, lapses or otherwise ends. Each Award Agreement shall set forth the term of the Right and the events described in the immediately following sentence which will cause the Right to lapse or otherwise end, in whole or in part, as of on earlier date. A Stock Appreciation Right shall lapse on the first to occur of the following events:
(i) The tenth anniversary of the date the Right was granted;
(ii) The date determined under Subsection (h) for a Participant who ceases to be an Employee;
(iii) On the effective date of a transaction described in
Section 11(b)(ii); or
(iv) The expiration date specified in the Participant's Award Agreement.
(f) EXERCISE AND SETTLEMENT OF A STOCK APPRECIATION RIGHT.
A Stock Appreciation Right may be exercised by delivering notice to the Corporation only with respect to the number of underlying Shares which are vested (and otherwise exercisable). The Stock Appreciation Right may be settled in the form of cash (either in a lump sum payment or in installments), whole Shares, or a combination thereof, as the Award Agreement prescribes.
(g) NONTRANSFERABILITY OF STOCK APPRECIATION RIGHTS.
During the lifetime of the Participant, a Stock Appreciation Right is neither assignable nor transferable, and any attempt to assign or transfer the Stock Appreciation Right will be void and unenforceable. A Stock Appreciation Right granted to a Participant is exempt from the claims of the Participant's creditors, and may not be made subject to execution, attachment or any other process which would result in the transfer of the Stock Appreciation Right to such creditors. In the event of the Participant's death, the Stock Appreciation Right is transferable by the Participant only by will or the laws of descent and distribution.
(h) TERMINATION OF EMPLOYMENT.
If a Participant ceases to be an Employee for any reason, any unexercised Stock Appreciation Right (whether vested or not) may be exercised, to the extent it was vested on the date of termination of employment, at any time within 12 months after the termination of employment (but not beyond the otherwise applicable term of the Option).
(i) RIGHTS AS A STOCKHOLDER.
A Participant, or an allowable transferee of a Participant, shall have no rights as a shareholder of the Corporation with respect to any Shares to which a Stock Appreciation Right pertains, except for Stock appreciation Rights settled in Shares and then not until the date a stock certificate for such Shares is issued. No adjustment shall be made for dividends (ordinary or extraordinary or whether in currency, securities, or other property), distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 11.
(j) MODIFICATION, EXTENSION, AND RENEWAL OF STOCK APPRECIATION RIGHTS.
Within the limitations of the Plan, the Committee may in its discretion modify, extend or renew outstanding any Stock Appreciation Right or accept the cancellation of an outstanding Rights for the granting of a new Right in substitution therefor. Notwithstanding the preceding sentence, no modification of a Right shall, without the consent of the Participant, alter or impair any rights or obligations under any Right previously granted.
(k) OTHER PROVISIONS.
An Award Agreement may contain such other provisions as the Committee deems advisable which are not inconsistent with the terms of the Plan, including without limitation:
(i) Restrictions on the exercise of the Stock Appreciation Right;
(ii) Submission by the Participant of such forms and documents as the Committee may require; or
(iii) Procedures to facilitate the broker-assisted exercise of the Right if it is settled in Shares rather than cash.
10. TERM OF PLAN.
Awards may be granted pursuant to the Plan through the period ending
on April 12, 1995 (the third anniversary of the Effective Date shown in Section
3). All Awards which are outstanding on such date shall remain in effect until
they are exercised or expire by their terms. The Plan shall expire for all
purposes on April 12, 2002 (the tenth anniversary of the Effective Date shown in
Section 3).
11. RECAPITALIZATIONS, TAKEOVERS, AND LIQUIDATIONS.
(a) REORGANIZATIONS.
Notwithstanding any other provision of the Plan to the contrary, but subject to any required action by the stockholders of the Corporation, the Committee shall make any adjustments to the class and/or number of Shares covered by the Plan, the number of Shares for which each outstanding Award corresponds, the Exercise Price of an Option, and/or any other aspect of this Plan to prevent the dilution or enlargement of the rights of Participants under this Plan in connection with any increase or decrease in the number of issued Shares resulting from the payment of a Common Stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued Shares effected without receipt of adequate consideration by the Corporation.
(b) MERGERS AND CONSOLIDATIONS.
Subject to any required action by the stockholders of the Corporation: ties of the Corporation to which a holder of the number of Shares subject to the Award would be entitled; and
(ii) In the event the Corporation is a party to a merger or consolidation in which it is not the surviving corporation, unless the surviving corporation expressly assumes outstanding Awards, each outstanding, unexercised Award shall expire and/or be forfeited as of the effective date of the transaction, but the Committee shall exercise all reasonable efforts to give each Participant as much advance notice as practicable before the effective date of such transaction to enable such Participant to exercise vested and otherwise exercisable Options and Stock Appreciation Rights.
(c) CHANGE OF CONTROL.
If the Corporation experiences a "change of control", the Committee may, in its sole discretion, reduce or remove any restrictions on the exercise of any outstanding but non-vested Awards to the degree it determines appropriate. For purposes of this Subsection (c), a "change of control" will occur if the current shareholders of the Corporation lose control of the Corporation for any reason other than an event described by 11(b)(ii).
(d) DETERMINATION BY THE COMMITTEE.
All adjustments described in this Section 11 shall be made by the Committee, whose determination shall be conclusive and binding on all persons.
(e) LIMITATION ON RIGHTS OF PARTICIPANT.
Except as expressly provided in this Section 11 and subject to the rights of a Participant as a shareholder of record with respect to any Shares issued to the Participant pursuant to this Plan, no Participant shall have any rights by reason of any payment of any stock dividend, stock split, reverse stock split, or any other change in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Corporation of Shares, Options, Stock Appreciation Rights or securities convertible into Shares shall not affect, and no adjustment by reason thereof shall be made with respect to, Awards under the Plan.
(f) NO LIMITATION ON RIGHTS OF CORPORATION.
The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.
12. SECURITIES LAW REQUIREMENTS.
(a) LEGALITY OF ISSUANCE.
No Share shall be issued as Restricted Stock, or upon the exercise of any Option or Stock Appreciation Right settled in Shares, unless and until the Committee has determined that:
(i) The Corporation and the Participant have taken all actions required to register the Shares under the Securities Act of 1933, as amended (the "Act"), or to perfect an exemption from registration requirements of the Act, or to determine that the registration requirements of the Act do not apply to such exercise;
(ii) Any applicable listing requirement of any stock exchange on which the Share is listed has been satisfied; and
(iii) Any other applicable provision of state, federal or foreign law has been satisfied.
(b) RESTRICTIONS ON TRANSFER; REPRESENTATIONS OF PARTICIPANT; LEGENDS; AWARD AGREEMENTS.
Regardless of whether the offering and sale of Shares under the Plan have been registered under the Act or have been registered or qualified under the securities laws of any state, the Corporation may impose restrictions upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Corporation and its counsel, such restrictions are necessary or desirable to achieve compliance with the provisions of the Act, the securities laws of any state, or any other law. If the offering and/or sale of Shares under the Plan is not registered under the Act and the Corporation determines that the registration requirements of the Act apply but an exemption is available which requires an investment representation or other representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Act, and to make such other representations as are deemed necessary or appropriate by the Corporation and its counsel. Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Act applies shall bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT"). THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE UNLESS A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER EITHER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR THE REGISTRATION PROVISIONS OF THE ACT DO NOT APPLY TO SUCH PROPOSED TRANSFER.
The Corporation shall also place legends on stock certificates
representing that the Shares evidenced by the stock certificate are subject to
the terms of this Plan, including the Corporations right of first refusal under
Section 13 and the forfeiture provisions (if applicable) under Section 14. Any
determination by the Corporation and its counsel in connection with any of the
matters set forth in this Section 12 shall be conclusive and binding on all
persons.
All Award Agreements shall contain a provision stating that any restrictions under any applicable Securities Laws will apply.
(c) REGISTRATION OR QUALIFICATION OF SECURITIES.
The Corporation may, but shall not be obligated to, register or qualify the offering or sale of Shares under the Act or any other applicable law.
(d) EXCHANGE OF CERTIFICATES.
If, in the opinion of the Corporation and its counsel, any legend placed on a stock certificate representing Shares issued pursuant to the Plan is no longer required, the Participant or the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.
13. RIGHT OF FIRST REFUSAL.
(a) RIGHT OF FIRST REFUSAL.
If a Participant proposes to sell, pledge or otherwise transfer any Shares acquired pursuant to the exercise of an Option, the settlement of a Stock Appreciation Right, or received as Restricted Stock, or any interest in such Shares, to any person or entity, the Corporation (and the persons described in Section 13(e)) shall have a right of first refusal (the "Right of First Refusal") with respect to such Awards. Any Participant desiring to transfer Shares acquired under the Plan shall first give a written notice (the "Transfer Notice") to the Corporation
describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, and the name and address of the proposed transferee. The Transfer Notice shall be signed both by the Participant and by the proposed transferee and must constitute a binding commitment of both parties to the transfer of the Shares. The Corporation shall have the right to purchase the Shares which are the subject of the Transfer Notice on the terms described in the Transfer Notice, subject to any change in such terms permitted under Section 13(b). The Corporation shall exercise its Right of First Refusal by delivering a notice of exercise of the Right of First Refusal to the Participant within 30 days after the date the Transfer Notice is received by the Corporation. The Corporation's rights under this Section 13(a) shall be freely assignable, in whole or in part, to the persons described in Section 13(e).
(b) TRANSFER OF SHARES.
If the Corporation does not exercise the Right of First Refusal
within 30 days after the date on which it receives the Transfer Notice and no
person described in Section 13(e) exercises the assigned Right of First Refusal
within an additional 30 days after such date, the Participant may, not later
than six months following receipt of the Transfer Notice by the Corporation,
consummate a transfer of the Shares subject to the Transfer Notice on the terms
and conditions described in the Transfer Notice. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Participant, shall again be subject to
the Right of First Refusal and shall again require compliance with the foregoing
notice and election procedure described in Section 13(a). If the Right of First
Refusal is exercised, the Participant shall immediately endorse and deliver to
the Corporation every stock certificate representing the Shares being purchased,
and the Corporation shall then promptly pay (or cause the person described in
Section 13(e) exercising the Right of First Refusal to pay) the purchase price
in accordance with the terms set forth in the Transfer Notice.
(c) REPURCHASE PAYMENT.
The amount payable to a Participant pursuant to the exercised Right of First Refusal shall be paid to the Participant in full in cash (in U.S. dollars) or upon such other terms which are set forth in the Transfer Notice.
(d) BINDING EFFECT.
The Corporation's Right of First Refusal shall inure to the benefit of its successors and assigns and shall be binding upon any transferee of the Shares, other than a transferee acquiring Shares in a transaction with respect to which the Right of First Refusal was not exercised (a "Free Transferee") or a transferee of a Free Transferee.
(e) ADDITIONAL PERSONS WITH RIGHT OF FIRST REFUSAL.
If the Corporation does not exercise the Right of First Refusal, in whole or in part, within 30 days after the date on which it receives the Transfer Notice, the Right of First Refusal may be exercised by the following persons in the order set forth:
(i) Any qualified retirement plan sponsored by the Corporation which has the right, under the terms of such plan, to purchase the Corporation's Common Stock;
(ii) Any active Employee who is within the class of Employees eligible to be granted Awards under the Plan; or
(iii) Any other holder of Shares of the Corporation's Common Stock. The Corporation shall notify such persons, on or before the last day of the Corporation's 30 day election period described in Subsection (b) above, of the assignment of such Right of First Refusal to them. The Right of First Refusal, as so assigned, may be exercised in whole or in part within an additional 30 days after the date on which the Corporation received the Transfer Notice in the manner described in Subsections (b) and (c) above.
(f) ESCROW OF STOCK CERTIFICATES.
To facilitate the consummation of the Right of First Refusal, the Participant and the Corporation shall execute a Joint Escrow Instructions agreement and the Participant shall deliver and deposit Assignment Separate From Certificates in accordance with Section 26.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL.
Notwithstanding any other provision of this Section 13, if the Common Stock is listed on any United States securities exchange or traded on any formal over-the-counter market in general use in the United States at the time the Participant desires to transfer his or her Shares, the Corporation shall no longer
have the Right of First Refusal, and the Participant shall have no obligation to comply with this Section 13.
14. FORFEITURE OF RESTRICTED STOCK.
(a) FORFEITURE OF NONVESTED AWARDS OF RESTRICTED STOCK.
Awards of Restricted Stock issued under the Plan to a Participant
which are not vested shall, as provided in Section 8(e), be forfeited and revert
to the Corporation ("Forfeiture Restriction") on the terms specified in this
Section 14 as of the date on which the Participant ceases to be an Employee for
any reason ("Employment Termination"). The Corporation shall legend the
Forfeiture Restriction on the stock certificates evidencing such Shares and
shall take such other steps as it deems necessary to ensure compliance with this
Restriction. The Corporation's rights under this Subsection (a) shall be freely
assignable, in whole or in part, to the persons described in Section 14(f).
(b) REPURCHASE PRICE.
Nonvested Awards of Restricted Stock shall be forfeited and revert to the Corporation, with payment by the Corporation equal to the purchase price paid by the Participant to the Corporation for any such Award of Restricted Stock.
(c) ESCROW OF STOCK CERTIFICATES.
To facilitate the consummation of the Right of First Refusal, the Participant and the Corporation shall execute a Joint Escrow Instructions agreement and the Participant shall deliver and deposit Assignment Separate From Certificates in accordance with Section 26.
(d) FORFEITURE PROCEDURE.
The Corporation shall promptly notify the Escrow Agent in writing of a Participant's termination of employment prior to vesting of Awards of Restricted Stock. A copy of such notice shall be sent simultaneously to the Participant. The Escrow Agent shall act in accordance with such notice and the Joint Escrow Instructions to return certificates representing nonvested Awards of Restricted Stock to the Corporation.
(e) BINDING EFFECT.
The Forfeiture Restriction shall inure to the benefit of and be binding upon the Corporation and its successors and assigns, and shall be binding upon the Participant and any representative, executor, administrator, heir, legatee, or assignee of the Participant.
(f) ADDITIONAL PERSONS WITH FORFEITURE RIGHT OF REPURCHASE.
The Corporation may assign its repurchase rights, in whole or in part, to the following persons:
(i) Any qualified retirement plan sponsored by the Corporation which has the right, under the terms of such plan, to purchase the Corporation's Common Stock;
(ii) Any active Employee who is within the class of Employees eligible to be granted Awards under the Plan; or
(iii) Any other holder of Shares of the Corporation's Common Stock.
15. EXERCISE OF UNVESTED OPTIONS.
(a) EXERCISED OPTIONS AND RESTRICTED SHARES OF COMMON STOCK.
The Committee, at its discretion, may grant any Participant the right to exercise any unvested Option prior to the vesting of such Option, provided that the Shares issued upon such exercise shall remain subject to vesting, as Restricted Stock, at the same rate as under the Option so exercised, and:
(i) Shares which have become vested shall be subject to the
Corporation's Right of First Refusal, on the terms and conditions set forth in
Section 13, if a Participant proposes to sell, pledge or otherwise transfer any
such Shares, or any interest in such Shares, to any person or entity; and
(ii) Shares which have not become vested on or before the applicable date described in Section 7 for determining the forfeiture or lapsing of the Option pursuant to which such Shares were issued under this Section 15, shall be subject to forfeiture under Section 14 at the Exercise Price paid by the Participant to the Corporation to acquire such Shares.
(b) ESCROW OF STOCK CERTIFICATES.
To facilitate the consummation of the Right of First Refusal, the Participant and the Corporation shall execute a Joint Escrow Instructions agreement and the Participant shall deliver and deposit Assignment Separate From Certificates in accordance with Section 26.
16. AMENDMENT OF THE PLAN.
The Board or the Committee may, from time to time, terminate, suspend or discontinue the Plan, in whole or in part, or revise or amend it in any respect whatsoever including, but not limited to, the adoption of any amendments deemed necessary or advisable to qualify the Awards under rules and regulations promulgated by the Securities and Exchange Commission with respect to Employees who are subject to the provisions of Section 16 of the Exchange Act, or to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award granted under the Plan, with or without approval of the shareholders of the Corporation, but if any such action is taken without the approval of the Corporation's shareholders, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan, other than any increase pursuant to Section 11;
(b) Change the designation of the class of persons eligible to receive Awards;
(c) Permit any individual while a member of the Committee to be eligible to receive and hold an Award granted or issued under the Plan;
(d) Withdraw administration of the Plan from the Committee;
(e) Increase the maximum duration of an Option or a Stock Appreciation Right;
(f) Change the manner of determining the Exercise Price of an Option;
(g) Extend the term of the Plan; or
(h) Amend this Section 16 to defeat its purpose.
No amendment, termination or modification of the Plan shall, without the consent of the Participant, affect any Award previously granted.
17. PAYMENT FOR SHARE PURCHASES.
(a) PAYMENT.
Payment for Shares purchased pursuant to the Plan may be made in cash (in U.S. dollars) or, where expressly approved for the Participant by the Committee and where permitted by law:
(i) By check;
(ii) By cancellation of indebtedness of the Corporation to the Participant;
(iii) By surrender of Shares that either: (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Corporation by use of a promissory note, such note has been fully paid with respect to such Shares); or (B) were obtained by Participant in the public market;
(iv) By tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code, provided that Participants who are not employees of the Corporation shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares;
(v) By waiver of compensation due or accrued to Participant for services rendered;
(vi) With respect only to purchases upon exercise of an Option, and provided that a public market for the Corporation's stock exists:
(A) Through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD dealer") whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Corporation; or
(B) Through a "margin" commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Corporation; or
(vii) By any combination of the foregoing.
(b) LOAN GUARANTEES.
The Committee may in its discretion help a Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Corporation of a third-party loan to the Participant, subject to any covenant(s) or other agreements which may limit the Corporation's ability to provide such a guarantee.
18. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common Stock pursuant to the exercise of an Option, settlement of a Stock Appreciation Right, or the issuance of Restricted Stock shall be used for general corporate purposes.
19. PRIVILEGES OF STOCK OWNERSHIP.
A Participant shall have no of the rights of a shareholder of the Corporation with respect to any Shares issued under the Plan until the date a stock certificate for such Shares is issued to the Participant. After Shares are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that:
(a) If such Awards are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Corporation shall be subject to the same restrictions as the Restricted Stock; and
(b) The Participant shall have no right to retain such dividends or distributions with respect to Shares that are repurchased at the Participant's original Purchase Price pursuant to Section 14.
20. TRANSFERABILITY.
Awards granted under the Plan, and any interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Award Agreement provisions relating thereto. During the lifetime of the Participant an Option or Stock Appreciation Right may be exercisable only by the Participant, and any elections with respect to any Award may be made only by the Participant.
21. APPROVAL OF SHAREHOLDERS.
The Plan shall be subject to approval by the affirmative vote of the holders of a majority of all classes of the outstanding shares present and entitled to vote at the first annual meeting of shareholders of the Corporation adopting the Plan following the adoption of the Plan, and in no event later than _____, 19__(the first anniversary of the Effective Date shown in Section 3). Prior to such approval, Awards may be granted but may not be exercised or settled. Any amendment described in Section 16 shall also be subject to approval by the Corporation's shareholders.
22. WITHHOLDING OF TAXES.
(a) GENERAL.
Whenever Shares are to be issued under the Plan, the Corporation may require the Participant to remit to the Corporation an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan, payments in satisfaction of Awards are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.
(b) STOCK WITHHOLDING.
When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the
Participant is obligated to pay the Corporation the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Corporation withhold from the Shares to be issued the specific number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by a Participant to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions:
(i) The election must be made on or prior to the applicable Tax Date;
(ii) Once made, then except as provided below, the election shall be irrevocable as to the particular Shares as to which the election is made;
(iii) All elections shall be subject to the consent or disapproval of the Committee;
(iv) In the event that the Tax Date is deferred until six (6) months after the delivery of Shares under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the exercise occurs, but such Participant shall be unconditionally obligated to tender back to the Corporation the proper number of Shares on the Tax Date; and
(v) If the Participant is an "insider" and if the Corporation is subject to Section 16(b) of the Exchange Act:
(A) the election may not be made within six (6) months of the date of grant of the Award, except as otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act; and
(B) either:
(I) the election to use stock withholding must be irrevocably made at least six (6) months prior to the Tax Date (although such election may be revoked at any time at least six (6) months prior to the Tax Date); or
(II) the exercise of the Option or election to use stock withholding must be made in the ten day period beginning on the third day following the release of the Corporation's quarterly or annual summary statement of sales or earnings.
23. STATEMENT TO PARTICIPANTS.
Within a reasonable time after the last day of each Plan Year, the Committee shall furnish to each Participant a statement setting forth the Participant's total number of Shares subject to Awards, the date such Awards were granted, the Fair Market Value of such Awards as of the grant or issuance date, and such other information as the Committee shall deem advisable to furnish.
24. RIGHTS AS AN EMPLOYEE.
The Plan shall not be construed to give any individual the right to remain in the employ of the Corporation or to affect the right of the Corporation to terminate such individual's employment at any time, with or without cause. The grant of an Award shall not entitle the Participant to, or disqualify the Participant from, participation in the grant of any other Award under the Plan or participation in any other plan maintained by the Corporation.
25. INSPECTION OF RECORDS.
Copies of the Plan, records reflecting each Participant's Awards and any other documents and records which a Participant is entitled by law to inspect shall be open to inspection by the Participant and his or her duly authorized representative at the office of the Corporation at any reasonable business hour upon reasonable advance notice from the Participant.
26. ESCROW OF STOCK CERTIFICATES.
To facilitate the consummation of the Corporation's rights and obligations under Sections 13 and 14, the Participant and the Corporation shall execute a Joint Escrow Instructions agreement and the Participant shall deliver and deposit with the Escrow Agent two Assignments Separate from Certificates, together with all certificates evidencing the Shares of Common Stock issued to the Participant pursuant to this Plan, duly endorsed in blank. The Escrow Agent shall hold such documents and deliver the same to the Corporation pursuant to the Joint Escrow Instructions and in accordance with the terms of Sections 13 and/or 14, as applicable.
27. DISCLAIMER OF TAX TREATMENT
While the Corporation has established this Plan to take advantage of current special tax rules for the benefit of the Participants, the Corporation does not guarantee and will not be responsible for the tax consequences of the Awards for any Participant. Each Participant should consult with a professional tax advisor to determine the consequences of the Plan on his or her individual tax situation.
INCENTIVE STOCK OPTION AGREEMENT
WITH
This Incentive Stock Option Agreement is made and entered into this __________ day of ______________, ("Date of Grant") pursuant to the Unitech Industries Omnibus Equity Incentive Plan ("Plan"). The Committee administering the Plan has selected you to receive the following grant of incentive stock options, as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended, to purchase shares of the common stock of Unitech Telecom, Inc. ("Unitech Telecom") ("Stock Options"), on the terms and conditions set forth below:
1. Stock Options Granted:
Date of Grant ..............................__________ No. of Stock Options Granted ...............__________ Exercise Price Per Share ...................$_________ Expiration Date ............................__________ |
2. The Stock Options are granted pursuant to the Plan to purchase the authorized but unissued common stock of Unitech Industries. All Stock Options shall expire, and all rights to exercise them shall terminate, ten years from the Date of Grant, except that the Stock Options may expire earlier as provided in the Plan.
3. The Stock Options shall be exercisable in all respects in accordance with the terms of the Plan which are incorporated herein by this reference. The Optionee acknowledges having received and read a copy of the Plan. All shares of Unitech Industries's common stock issued pursuant to the exercise of a Stock Option shall be subject to Unitech Industries's Right of First Refusal as set forth in the Plan.
4. The Stock Options are exercisable in accordance with the following
vesting schedule:
____________ exercisable as of __________________________.
5. The Optionee agrees to comply with all laws, rules, and regulations applicable to the grant and exercise of the Stock Options and the sale or the disposition of the common stock of Unitech Industries received pursuant to the exercise of such Stock Options. This Incentive Stock Option Agreement is subject to the restrictions of any applicable Securities Laws.
IN WITNESS WHEREOF, each of the parties hereto has executed this Stock Option Agreement, in the case of Unitech Industries by its duly authorized officer, as of the date and year written above.
Unitech Telecom
_________________________ By: ________________________________________
Name of Optionee Hong Lu, President
|
EXHIBIT 10.3
UTSTARCOM, INC.
1995 STOCK PLAN
AS AMENDED ON NOVEMBER 27, 1996
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board of Directors in accordance with Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means UTStarcom, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any Director of the Company whether compensated for such services or not. If the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include Directors who are not compensated for their services or are paid only a Director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the employment or consulting relationship with the Company, any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
(i) "DIRECTOR" means a member of the Board of Directors of the Company.
(j) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient to constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination and reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on the Nasdaq National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTIONED STOCK" means the Common Stock subject to an Option or a Stock Purchase Right.
(r) "OPTIONEE" means an Employee or Consultant who receives an Option or Stock Purchase Right.
(s) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(t) "PLAN" means this 1995 Stock Plan.
(u) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.
(v) "SECTION 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended.
(w) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 12 below.
(x) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock pursuant to Section 11 below.
(y) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 4,552,616 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to Directors, Officers and Employees who are neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With respect to grants of Options and Stock Purchase Rights to Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with the rules under Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to comply with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made.
(iii) ADMINISTRATION WITH RESPECT TO OTHER EMPLOYEES AND CONSULTANTS . With respect to grants of Options and Stock Purchase Rights to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of state corporate and securities laws, of the Code, and of any applicable stock exchange (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted hereunder;
(vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options or Stock Purchase Rights.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right may, if otherwise eligible, be granted additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuation of his or her employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options and Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company, Options and Stock Purchase Rights to purchase more than 1,200,000 Shares.
(ii) In connection with his or her initial employment, an Employee may be granted Options and Stock Purchase Rights to purchase up to an additional 1,200,000 Shares which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12.
(iv) If an Option or Stock Purchase Right is cancelled in
the same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled Option or
Stock Purchase Right shall be counted against the limit set forth in subsection
(i) above. For this purpose, if the exercise price of an Option or Stock
Purchase Right is reduced, such reduction will be treated as a cancellation of
the Option or Stock Purchase Right and the grant of a new Option or Stock
Purchase Right.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant.
(B) granted to any other person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of
the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan, but in no case at a rate of less than 20% per year over five (5) years from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) hereof. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote, receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the
Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her disability, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. If such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant) by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option on the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after the Optionee's death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(e) RULE 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator makes the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine, but in no case at a rate of less than 20% per year over five years from the date of purchase.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the
Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right shall terminate immediately prior to the consummation of such proposed action.
(c) MERGER. In the event of a merger of the Company with or into another corporation, each outstanding Option or Stock Purchase Right may be assumed or an equivalent option or right may be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, an Option or Stock Purchase Right is not assumed or substituted, the Option or Stock Purchase Right shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger, the Option or Stock Purchase Right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger by holders of Common Stock for each Share held on the effective date of the transaction (and if the holders are offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger.
13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options or Stock Purchase Rights already granted, and such Options and Stock Purchase Rights shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.
16. RESERVATION OF SHARES. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
17. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by written agreements in such form as the Administrator shall approve from time to time.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed.
19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.
UTSTARCOM, INC.
1995 STOCK PLAN
NOTICE OF GRANT
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant.
Name
Address
You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan, the Option Agreement and this Notice of Grant, as follows:
Date of Grant
------------
Vesting Commencement Date VCD
Exercise Price per Share $
---------
Total Number of Shares Granted Shares
Total Exercise Price $Price
Type of Option: Incentive Stock Option
----
Nonstatutory Stock Option
----
Term/Expiration Date:
-------------
|
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with the following schedule:
1/3 of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/3 of the Shares subject to the Option shall vest on each of the second and third anniversaries of the Vesting Commencement Date thereafter.
TERMINATION PERIOD:
This Option may be exercised for 90 days after termination of your employment or consulting relationship, or such longer period as may be applicable upon death or disability of Optionee as provided in the Plan. In the event of your change in status from Employee to Consultant or Consultant to Employee, this Option shall remain in effect. In no event shall this Option be exercised later than the Term/Expiration Date as provided above.
UTSTARCOM, INC.
1995 STOCK PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. UTStarcom, Inc., a Delaware corporation (the "Company"), hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1995 Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. In the event of Optionee's death, disability or other termination of the employment or consulting relationship, this Option shall be exercisable in accordance with the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written notice (in the form attached as Exhibit A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income
tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B, and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or
(d) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board.
6. TERMINATION OF RELATIONSHIP. In the event an Optionee's Continuous Status as an Employee or Consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, in the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
8. DEATH OF OPTIONEE. In the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
10. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as Incentive Stock Options and Options granted to more than ten percent (10%) shareholders shall apply to this Option.
11. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of some of the federal and state tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability or state income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise.
(b) EXERCISE OF ISO FOLLOWING DISABILITY. If the Optionee's Continuous Status as an Employee or Consultant terminates as a result of disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an ISO within three months of such termination for the ISO to be qualified as an ISO.
(c) EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular federal income tax liability and state income tax liability upon the exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.
(d) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and state income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and state income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares.
(e) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee.
12. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee.
This agreement is governed by California law except for that body of law pertaining to conflict of laws.
UTSTARCOM, INC.
a Delaware corporation
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below.
Dated:
--------------- ------------------------------
Optionee
Residence Address:
--------------------
--------------------
|
EXHIBIT A
1995 STOCK PLAN
EXERCISE NOTICE
UTSTARCOM, INC.
333 Hegenberger Road, Suite 328
Oakland, CA 94621
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of UTSTARCOM, INC. (the "Company") under and pursuant to the 1995 Stock Plan, as amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ________, 19__ (the "Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
3. RIGHTS AS SHAREHOLDER. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.
4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and
hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended.
5. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
7. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns.
8. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee.
9. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and construed in accordance with the laws of the State of California excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
10. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party.
11. FURTHER INSTRUMENTS. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
12. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the full Exercise Price for the Shares.
13. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser
Submitted by: Accepted by:
OPTIONEE: UTSTARCOM, INC.
By:
-------------------------------
Its:
------------------------------
-----------------------------
(Signature)
ADDRESS: ADDRESS:
333 Hegenberger Road, Suite 328
--------------------------- Oakland, CA 94621
---------------------------
|
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : UTSTARCOM, INC.
SECURITY : COMMON STOCK
AMOUNT :
|
DATE :
In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
(b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than two years after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than three years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period.
(e) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available
for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Optionee has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached.
Signature of Optionee:
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
UTSTARCOM, INC.
1995 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the 1995 Stock Plan (the "Plan") shall have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company, subject to the Company's repurchase option and your ongoing Continuous Status as an Employee or Consultant (as described in the Plan and the attached Restricted Stock Purchase Agreement), as follows:
Total Number of Shares Subject ---------------------- to This Stock Purchase Right
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By your signature and the signature of the Company's representative below, you and the Company agree that this Stock Purchase Right is granted under and governed by the terms and conditions of the Plan and the Restricted Stock Purchase Agreement attached hereto as Exhibit A-1, each of which is hereby incorporated herein by reference. You further agree to execute the Restricted Stock Purchase Agreement as a condition to purchasing any shares under this Stock Purchase Right.
GRANTEE: UTSTARCOM, INC.
By:
------------------------------ ------------------------------
Signature
Title:
------------------------------ ------------------------------
Print Name
|
EXHIBIT A-1
UTSTARCOM, INC.
1995 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Stock Purchase Agreement.
THIS AGREEMENT is made as of _____________, 199__, at ____________________, between UTStarcom, Inc., a Delaware corporation (the "Company"), and _______________________(the "Purchaser").
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an employee or consultant of the Company, and the Purchaser's continued participation is considered by the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity interest in the Company as an incentive for the Purchaser to participate in the affairs of the Company, the Administrator has granted to the Purchaser stock purchase rights subject to the terms and conditions of the Plan and the Notice of Grant, which are incorporated herein by reference, and pursuant to this Restricted Stock Purchase Agreement (the "Agreement").
THEREFORE, the parties agree as follows:
1. SALE OF STOCK. The Company hereby agrees to sell to the Purchaser and the Purchaser hereby agrees to purchase shares of the Company's Common Stock (the "Shares"), at the per share purchase price and as otherwise described in the Notice of Grant.
2. PAYMENT OF PURCHASE PRICE. The purchase price for the Shares may be paid by delivery to the Company at the time of execution of this Agreement of cash or a check.
3. REPURCHASE OPTION.
(a) In the event the Purchaser's Continuous Status as an Employee or
Consultant terminates for any or no reason (including death or disability)
before all of the Shares are released from the Company's repurchase option (see
Section 4), but not in the event of Purchaser's change in status from Employee
to Consultant or Consultant to Employee, the Company shall, upon the date of
such termination (as reasonably fixed and determined by the Company) have an
irrevocable, exclusive option for a period of sixty (60) days from such date to
repurchase up to that number of shares which constitute the Unreleased Shares
(as defined in
Section 4) at the original purchase price per share (the "Repurchase Price"). Said option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder (as defined in Section 6)) AND, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's purchase rights under this Agreement and purchase all or a part of such Shares. If the Fair Market Value of the Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. RELEASE OF SHARES FROM REPURCHASE OPTION.
(b) Any of the Shares which have not yet been released from the Company's repurchase option are referred to herein as "Unreleased Shares."
(c) The Shares which have been released from the Company's repurchase
option shall be delivered to the Purchaser at the Purchaser's request (see
Section 6).
5. RESTRICTION ON TRANSFER. Except for the escrow described in Section 6 or transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until the release of such Shares from the Company's repurchase option in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution.
6. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Purchaser's Unreleased Shares upon repurchase by the Company pursuant to the Company's repurchase option under Section 3 above, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") the share certificates representing the Unreleased Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as Exhibit A-3 hereto, until such time as the Company's repurchase option expires. As a further condition to the Company's obligations under this Agreement, the spouse of Purchaser, if any, shall execute and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow and while acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises its repurchase option hereunder, the Escrow Holder, upon receipt of written notice of such option exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer.
(d) When the repurchase option has been exercised or expires unexercised or a portion of the Shares has been released from such repurchase option, upon Purchaser's request the Escrow Holder shall promptly cause a new certificate to be issued for such released Shares and shall deliver such certificate to the Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to such Shares while they are held in escrow, including without limitation, the right to vote the Shares and receive any cash dividends declared thereon. If, from time to time during the term of the Company's repurchase option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Company's repurchase option.
7. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares that are permitted to be sold or otherwise transferred pursuant to this Agreement and that are held by Purchaser or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
(i) the Offered Price in the case of Shares that are not Unreleased Shares, or
(ii) in the case of Shares that are Unreleased Shares, the lower of the Offered
Price or the Repurchase Price as defined in Section 3(a) hereof. If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of the
Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Purchaser's
lifetime or on the Purchaser's death by will or intestacy to the Purchaser's
immediate family or a trust for the benefit of the Purchaser's immediate family
shall be exempt from the provisions of this Section, provided that the Purchaser
notifies the Company in writing within thirty (30) days of said transfer.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Agreement, including but not limited to this Section and
Section 3, and there shall be no further transfer of such Shares except in
accordance with the terms of this Section.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act.
8. LEGENDS.
(a) Purchaser understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by applicable state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Purchaser understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
9. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement.
10. TAX CONSEQUENCES. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that the
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that may arise as a result of this investment or the transactions
contemplated by this Agreement. The Purchaser understands that Section 83 of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the purchase price for the Shares and the Fair
Market Value of the Shares as of the date any restrictions on the Shares lapse.
In this context, "restriction" includes the right of the Company to buy back the
Shares pursuant to its repurchase option. The Purchaser understands that the
Purchaser may elect to be taxed at the time the Shares are purchased rather than
when and as the Company's repurchase option expires by filing an election under
Section 83(b) of the Code with the I.R.S. within thirty (30) days from the date
of purchase. The form for making this election is attached as Exhibit A-5
hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER
SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON THE PURCHASER'S BEHALF.
11. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the laws of the State of California. This Agreement, subject to the terms and conditions of the Plan and the Notice of Grant, represents the entire agreement between the parties with respect to the purchase of Common Stock by the Purchaser. Subject to Section 14(b) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party not sending the notice.
(c) The rights and benefits of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company.
(d) Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances.
(e) The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF
BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant.
PURCHASER: UTSTARCOM, INC.
By:
------------------------------ ------------------------------
Signature
Title:
------------------------------ ------------------------------
Print Name
|
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, ___________________________, hereby sell, assign and transfer unto ___________________________________________________(_________)__ shares of the Common Stock of UTStarcom, Inc. standing in my name of the books of said corporation represented by Certificate No. ________ herewith and do hereby irrevocably constitute and appoint _________________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between _______________________ and the undersigned dated _____________________, 19____.
Dated: ______________, 19__
INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its "repurchase option," as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser.
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_________ 19__
Corporate Secretary
UTStarcom, Inc.
333 Hegenberger Road, Ste. 328
Oakland, CA 94621
Dear ______________:
As Escrow Agent for both UTStarcom, Inc., a Delaware corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer
of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you.
4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's repurchase option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's repurchase option. Within ninety (90) days after cessation of Purchaser's continuous employment by or services to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's repurchase option.
5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
COMPANY: UTStarcom, Inc.
333 Hegenberger Road, Ste. 328
Oakland, CA 94621
PURCHASER:
------------------------
------------------------
------------------------
|
ESCROW AGENT: Corporate Secretary UTStarcom, Inc. 333 Hegenberger Road, Ste. 328 Oakland, CA 94621
16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of California.
Very truly yours,
UTSTARCOM, INC.
PURCHASER:
ESCROW AGENT:
EXHIBIT A-4
CONSENT OF SPOUSE
I, ______________________, spouse of _____________________, have read and approve the foregoing Agreement. In consideration of granting of the right to my spouse to purchase shares of UTStarcom, Inc., as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement.
Dated: , 19
------------ ---
----------------------------------------
|
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal Tax Code, to include in taxpayer's gross income for the current taxable year, the amount of any compensation taxable to taxpayer in connection with his receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME : TAXPAYER: SPOUSE: ADDRESS: : IDENTIFICATION NO. : TAXPAYER: SPOUSE: |
TAXABLE YEAR:
2. The property with respect to which the election is made is described as follows: _________ shares (the "Shares") of the Common Stock of UTStarcom, Inc. (the "Company").
3. The date on which the property was transferred is: __________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, on certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$______________.
6. The amount (if any) paid for such property is:
$______________.
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: , 19
--------------- --- ----------------------------------------
, Taxpayer
--------------------
The undersigned spouse of taxpayer joins in this election.
Dated: , 19
--------------- --- ----------------------------------------
Spouse of Taxpayer
|
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : COMPANY : UTSTARCOM, INC. SECURITY : COMMON STOCK AMOUNT : |
DATE :
In connection with the purchase of the above-listed Securities, the undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Purchaser is acquiring these Securities for investment for Purchaser's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
(b) Purchaser acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. In this connection, Purchaser understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Purchaser's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one (1) year or any other fixed period in the future. Purchaser further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Securities. Purchaser understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Stock Purchase Right to the Purchaser, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three (3) month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of grant of the Stock Purchase Right, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than two (2) years after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than three years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Purchaser hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, Purchaser shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period.
(e) Purchaser further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Purchaser understands that no assurances can be given that any such other registration exemption will be available in such event.
(f) Purchaser understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Purchaser has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached.
Signature of Purchaser:
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
EXHIBIT 10.4
UTSTARCOM, INC.
1997 STOCK PLAN
(AS AMENDED ON DECEMBER 8, 1999)
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the Board in accordance with Section 4 hereof.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means UTStarcom, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "DIRECTOR" means a member of the Board of Directors of the Company.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be
an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.
(s) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding Options are exchanged for Options with a lower exercise price.
(t) "OPTIONED STOCK" means the Common Stock subject to an Option or a Stock Purchase Right.
(u) "OPTIONEE" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.
(v) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(w) "PLAN" means this 1997 Stock Plan.
(x) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "SECTION 16(b) " means Section 16(b) of the Securities Exchange Act of 1934, as amended.
(z) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(aa) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 12 below.
(bb) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock pursuant to Section 11 below.
(cc) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 5,262,287 Shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to 4% of the outstanding Shares on such date, 3,000,000 shares or a lesser amount determined by the Board. The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered by different Committees with respect to different groups of Service Providers.
(ii) SECTION 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;
(xi) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; and
(xii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 700,000 Shares.
(ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 700,000 Shares which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the canceled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.
(d) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement; provided, however, that the term of an Incentive Stock Option shall be no more than ten (10) years from the date of grant thereof; provided, further, that in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless otherwise determined by the Administrator, Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have
been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.
13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan.
(b) STOCKHOLDER APPROVAL. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
17. RESERVATION OF SHARES. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
UTSTARCOM, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
The undersigned Optionee has been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:
Grant Number
-------------------------
Date of Grant
-------------------------
Vesting Commencement Date
-------------------------
Exercise Price per Share $
------------------------
Total Number of Shares Granted
-------------------------
Total Exercise Price $
------------------------
Type of Option: Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date:
-------------------------
|
VESTING SCHEDULE:
This Option shall be exercisable, in whole or in part, according to the following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to Optionee's continuing to be a Service Provider on such dates.
TERMINATION PERIOD:
This Option shall be exercisable for [THREE] months after Optionee ceases to be a Service Provider. Upon Optionee's death or disability, this Option may be exercised for such longer period as provided in the Plan. In no event may Optionee exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by delivery of an exercise notice in the form attached as Exhibit A (the AExercise Notice@) which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise complies with Applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option.
6. TAX CONSEQUENCES. Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION.
(i) NONSTATUTORY STOCK OPTION. The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.
(ii) INCENTIVE STOCK OPTION. If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price
will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status.
(b) DISPOSITION OF SHARES.
(i) NSO. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws but not the choice of law rules of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below.
OPTIONEE: UTSTARCOM, INC. ----------------------------------- ---------------------------------------- Signature By ----------------------------------- ---------------------------------------- Print Name Title ----------------------------------- ----------------------------------- Residence Address |
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
UTStarcom, Inc.
1275 Harbor Bay Parkway
Suite 100
Alameda, CA 94502
Attention: [Title]
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of UTStarcom, Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated ________, 19 (the "Option Agreement").
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement.
3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
4. RIGHTS AS STOCKHOLDER. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 12 of the Plan.
5. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.
6. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties.
7. GOVERNING LAW; SEVERABILITY. This Agreement is governed by the internal substantive laws but not the choice of law rules, of California.
8. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: UTSTARCOM, INC.
----------------------------------- ----------------------------------------
Signature By
----------------------------------- ----------------------------------------
Print Name Its
ADDRESS: ADDRESS:
----------------------------------- 1275 Harbor Bay Parkway
----------------------------------- Suite 100
Alameda, CA 94502
|
UTSTARCOM, INC.
1997 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
PRC NATIONALS IN THE PRC
[OPTIONEE'S NAME]
You have been granted an option (the "Option") to purchase Common Stock of the Company, subject to the terms and conditions of the Company's 1997 Stock Plan (the "Plan") and this Notice of Grant, as follows:
VESTING SCHEDULE:
Your Option shall be exercisable, in whole or in part, in accordance with the Option Rules (attached hereto as EXHIBIT A) and the following vesting schedule:
[25% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE MONTHS AFTER THE
VESTING COMMENCEMENT DATE, AND 1/48 OF THE SHARES SUBJECT TO THE OPTION SHALL VEST EACH MONTH THEREAFTER, SUBJECT TO YOUR CONTINUING TO BE AN EMPLOYEE, CONSULTANT OR DIRECTOR OF THE COMPANY (A "SERVICE PROVIDER") ON SUCH DATES.]
TERMINATION PERIOD:
Your Option shall be exercisable for [THREE] months after you cease to be a Service Provider. Upon your death or disability, the Option may be exercised for such longer period as provided in the Plan. In no event may you exercise this Option after the Term/Expiration Date set forth above.
EXHIBIT A
OPTION RULES
1. ESCROW. The Option, and any Shares or cash acquired pursuant thereto, shall be held by the Company pursuant to the Escrow Provisions attached hereto as EXHIBIT B.
2. EXERCISE OF OPTION. You may exercise the Option by delivering to the Company the Exercise Notice attached hereto as EXHIBIT C.
3. METHOD OF PAYMENT. You may pay the aggregate Exercise Price by any of the following, or a combination thereof:
(a) if you have funds held by you outside of the People's Republic of China, you may pay by cash or check; or
(b) after an initial public offering of the Company's securities, consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan.
4. NON-TRANSFERABILITY OF OPTION. Your Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution, and only you may exercise the Option during your lifetime.
5. NO GUARANTEE OF CONTINUED SERVICE. THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY YOUR CONTINUED STATUS AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). THIS NOTICE OF GRANT DOES NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH YOUR RIGHT OR THE COMPANY'S RIGHT TO TERMINATE YOUR RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
EXHIBIT B
UTSTARCOM, INC.
1997 STOCK PLAN
ESCROW PROVISIONS
1. OPTION. As set forth in the Notice of Grant, you have been granted the Option under the Plan. The Option shall be held by the Company under these Escrow Provisions in an account in your name.
2. LEGAL AND EQUITABLE TITLE. Legal and equitable title to the Option and any cash or securities acquired pursuant thereto, shall remain with you at all times, notwithstanding that such items may be held by the Company pursuant to these Escrow Instructions.
3. EXERCISE OF OPTION. You may instruct the Company to exercise the Option on your behalf at such time or times as permitted by the Notice of Grant and the Plan.
4. PROCEEDS OF EXERCISE. Shares acquired upon exercise of the Option shall be retained in this Escrow. You may elect to keep any proceeds from the sale of such shares in your account under these Escrow Provisions or to have them distributed to you in RMB within ____________ hours of the sale, pursuant to such channels as the Company reasonably determines appropriate.
5. POWERS OF COMPANY. The Company may take any and all actions, and is hereby granted such powers and discretion, as may appear necessary or proper to comply with the applicable laws of any jurisdictions and to effectuate and carry out the terms and purposes of this Escrow, including, but not limited to, the power to exercise the Option and hold or dispose of the proceeds of such exercise in accordance with the terms of these Escrow Provisions.
6. LIMITATION OF LIABILITY. The Company shall not be liable for any damage caused by the exercise of its discretion as authorized by these Escrow Provisions for any reason, except gross negligence or willful misconduct. The Company shall not be liable for honest mistakes of judgment or for losses or liabilities due to such honest mistakes of judgment.
7. COSTS AND EXPENSES OF THIS ESCROW. All costs and expenses of these Escrow Provisions shall be borne by the Company.
8. GOVERNING LAW. This Escrow will be administered in the State of California, and its validity, construction and all rights hereunder, shall be governed by the laws of the State of California; provided, however, that all matters affecting the title, ownership and transferability of any security, whether created or held hereunder, shall be governed by all applicable federal, state, or foreign securities laws.
EXHIBIT C
1997 STOCK PLAN
EXERCISE NOTICE
[DATE]
UTStarcom, Inc.
1275 Harbor Bay Parkway
Suite 100
Alameda, CA 94502
Attention: [TITLE]
1. EXERCISE OF OPTION. I hereby elect to exercise the Option as to _________ shares of the Company's Common Stock (the "Shares").
2. REPRESENTATIONS. I acknowledge that I have received, read and understood the Plan, Escrow Provisions and the Notice of Grant, and I agree to abide by and be bound by their terms and conditions.
3. TAX CONSULTATION. I understand that I may suffer adverse tax consequences as a result of the receipt of the Option or the purchase or disposition of the Shares. I have consulted with any tax consultants I deem advisable in connection with the Option, and I am not relying on the Company for any tax advice.
4. ENTIRE AGREEMENT. The Plan, Option Rules, Escrow Provisions and the Notice of Grant are incorporated herein by reference. This Agreement, the Plan, the Notice of Grant and the Escrow Provisions constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements between the Company and I with respect to the subject matter hereof, and may not be modified adversely to my interest except by means of a writing signed by the Company and me.
Submitted by: Accepted by:
UTSTARCOM, INC.
------------------------------ ------------------------------
Signature By
------------------------------ ------------------------------
Print Name Its
ADDRESS: ADDRESS: 1275 Harbor Bay Parkway
Suite 100
Alameda, CA 94502
------------------------------
------------------------------
------------------------------
Date Received
|
EXHIBIT 10.5
UTSTARCOM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase Plan of UTStarcom, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company or any committee thereof designated by the Board of Directors of the Company in accordance with Section 14 of the Plan.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean UTStarcom, Inc. and any Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings and commissions, but exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the date of determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock prior to the date of determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable;
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board; or
(iv) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately twenty-four (24) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after June 1 and December 1 of each year and terminating on the last Trading Day in the periods ending twenty-four months later; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before January 31, 2002. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1999 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be adjusted by the Board pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive, overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after June 1 and December 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before January 31, 2002. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 2,500
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of
the Company's Common Stock an Employee may purchase during each Purchase Period of such Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Board may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 hereof. The Company may make pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company's shareholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws.
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 1,000,000 shares plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001, equal to 2% of the outstanding shares on such date, 2,000,000 shares or a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the Reserves, the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date") and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock
on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof.
EXHIBIT A
UTSTARCOM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) |
1. ____________________ hereby elects to participate in the UTStarcom, Inc. Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE
DISPOSITION OF THE COMMON STOCK. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to
meet any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of
the 2-year and 1-year holding periods, I understand that I will be
treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan:
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------------- -----------------------------------------
Signature of Employee
-----------------------------------------
Spouse's Signature (If beneficiary
other than spouse)
|
EXHIBIT B
UTSTARCOM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the UTStarcom, Inc. Employee Stock Purchase Plan which began on ____________, 200_ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
Signature:
Date:
EXHIBIT 10.6
COMMON STOCK PURCHASE WARRANT
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "SHARES") WILL BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES (TOGETHER, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.
NO. 4
VOID AFTER FEBRUARY 5, 2008
UTSTARCOM, INC.
WARRANT TO PURCHASE SIXTEEN THOUSAND (16,000) SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Lintech Ltd., a corporation
organized under the laws of Hong Kong (the "HOLDER") is entitled to subscribe
for and purchase from UTStarcom, Inc., a Delaware corporation (the "COMPANY"),
16,000 shares (as adjusted pursuant to Section 3 hereof) of the fully paid and
nonassessable Common Stock, $.0025 par value (the "SHARES"), of the Company at
the price of $5.00 per share (the "EXERCISE PRICE") (as adjusted pursuant to
Section 3 hereof), subject to the provisions and upon the terms and conditions
hereinafter set forth.
This Warrant is subject to the following terms and conditions:
1. METHOD OF EXERCISE; PAYMENT.
(a) CASH EXERCISE. The purchase rights represented by this Warrant may be exercised by the Holder, in whole or in part, from time to time at the principal office of the Company, by delivering a completed and duly executed Notice of Exercise (attached hereto as EXHIBIT A) and by the payment to the Company of an amount equal to the Exercise Price multiplied by the number of the Shares being purchased, which amount may be paid, at the election of the Holder, by wire transfer or certified check payable to the order of the Company. The person or persons in whose name(s) any certificate(s) representing Shares shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the Shares represented thereby (and such Shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised.
(b) STOCK CERTIFICATES. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the shares with respect to which this Warrant shall not have been exercised shall also be issued to the Holder within such time.
2. STOCK FULLY PAID; RESERVATION OF SHARES. All of the Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise Price therefor, be fully paid and nonassessable, and free from all preemptive rights, rights of first refusal or first offer, taxes, liens and charges with respect to the issuance thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance sufficient shares of its Common Stock to provide for the exercise of the rights represented by this Warrant.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. Subject to the provisions of Section 12 hereof, the number and kind of Shares purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification of the Common Stock (other than a change in par value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger with another corporation in which the Company is a
continuing corporation and in which the Company's stockholders immediately
preceding such consolidation or merger own at least 50% of the voting securities
of the Company following such consolidation or merger and which does not result
in any reclassification of the Shares issuable upon exercise of this Warrant),
or in case of any sale of all or substantially all of the assets of the Company,
the Company, or such successor or purchasing corporation as the case may be,
shall execute a new Warrant, providing that the holder of this Warrant shall
have the right to exercise such new Warrant, and procure upon such exercise and
payment of the same aggregate Exercise Price, in lieu of the Shares of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, sale of all or substantially all of the
Company's assets or merger by a holder of an equivalent number of shares of
Common Stock. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 3. The provisions of this subsection (a), subject to Section 12 hereof,
shall similarly apply to successive reclassifications, consolidations, mergers,
and the sale of all or substantially all of the Company's assets.
(b) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event that the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on its outstanding shares of Common Stock, the number of Shares issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event
that the Company shall at any time combine the outstanding shares of Common Stock, the number of Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.
4. NOTICES.
(a) Upon any adjustment of the Exercise Price and any increase or decrease in the number of Shares purchasable upon the exercise of this Warrant in accordance with Section 3 hereof, then, and in each such case, the Company, within thirty (30) days thereafter, shall give written notice thereof to the Holder at the address of such Holder as shown on the books of the Company which notice shall state the Exercise Price as adjusted and, if applicable, the increased or decreased number of Shares purchasable upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation of each.
(b) Any written notice by the Company required or permitted hereunder shall be given by hand delivery or first class mail, postage prepaid, addressed to the Holder at the address shown on the books of the Company for the Holder.
5. TRANSFER OF WARRANT. Except in accordance with the conditions contained in Section 6 hereof, this Warrant and all rights hereunder are not transferable. In order to effect any transfer of all or a portion of this Warrant or the Shares, the transferor shall deliver a completed and duly executed Notice of Transfer (attached hereto as EXHIBIT B).
6. CONDITION OF EXERCISE OR TRANSFER OF WARRANT.
(a) Unless exercised pursuant to an effective registration statement under the Act which includes the Shares so exercised, it shall be a condition to any exercise or transfer of this Warrant that the Company shall have received, at the time of such exercise or transfer, a representation in writing from the recipient or transferee in the form attached hereto as EXHIBIT A-1 or EXHIBIT B-1, respectively, that the Shares being issued upon exercise, or this Warrant (or portion hereof) transferred, as the case may be, are being acquired for investment and not with a view to any sale or distribution thereof.
(b) It shall be a further condition to any transfer of this Warrant, or of any or all of the Shares issued upon exercise of this Warrant, other than a transfer registered under the Act, that the Holder shall have given written notice to the Company which shall describe the manner and circumstances of the proposed transfer and be accompanied by a written opinion of Holder's legal counsel or a "no-action" letter reasonably satisfactory to the Company stating that such transfer is exempt from the registration and delivery requirements of the Act and applicable state securities laws.
(c) Each certificate evidencing the Shares issued upon exercise of this Warrant, or transfer of such shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall be stamped or imprinted with a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
Subject to this Section 6, the Company may instruct its transfer agent not to register the transfer of all or a part of this Warrant, or any of the Shares, unless one of the conditions specified in the above legend is satisfied.
7. REMOVAL OF LEGEND. Upon request of a holder of a certificate with the legend referred to in Section 6 hereof, the Company shall issue to such holder a new certificate therefor free of any transfer legend, if, with such request, the Company shall have received either an opinion of counsel or a "no-action" letter referred to in Section 6(b) of this agreement to the effect that any transfer by such holder of the shares evidenced by such certificate will not violate the Act and applicable state securities laws; provided, however, that the Company shall not be obligated to remove any such legends prior to the closing date of the Public Offering.
8. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Holder as follows:
(a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms;
(b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to or imposed upon the Shares and the holders thereof are as set forth in the Company's Certificate of Incorporation, a true and complete copy of which has been delivered to the original Holder of this Warrant; and
(d) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation or Bylaws, as amended.
10. REPRESENTATIONS AND WARRANTIES BY THE HOLDER. The Holder represents and warrants to the Company as follows:
(a) This Warrant is being acquired for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Act. Upon exercise of this Warrant, the Holder shall, if so requested by the Company, confirm in writing, in a form reasonably satisfactory to the Company, that the Shares issuable upon exercise of this Warrant are being acquired for investment and not with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares have not been registered under the Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Act pursuant to Section 4(2) thereof, and that they must be held by the Holder indefinitely, and that the Holder must therefore bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Act or is exempted from such registration. The Holder further understands that the Shares have not been qualified under the California Securities Law of 1968 (the "CALIFORNIA LAW") by reason of their issuance in a transaction exempt from the qualification requirements of the California Law pursuant to Section 25102(f) thereof, which exemption depends upon, among other things, the bona fide nature of the Holder's investment intent expressed above.
(c) The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of this Warrant and the Shares purchasable pursuant to the terms of this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase of the Shares pursuant to the terms of this Warrant.
11. RIGHTS OF STOCKHOLDERS. No holder of this Warrant shall be entitled, as a Warrant holder, to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.
12. EXPIRATION OF WARRANT. This Warrant shall expire and shall no longer be exercisable as of 5:00 p.m., California local time, on February 5, 2008.
13. MISCELLANEOUS.
(a) This Warrant is being delivered in the State of California and shall be construed and enforced in accordance with and governed by the laws of such State. The parties expressly stipulate that any litigation under this Warrant shall be brought in the State courts of the Counties of Santa Clara or San Francisco, California and in the United States District Court for the Northern District of California. The parties agree to submit to the jurisdiction and venue of those courts.
(b) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.
(c) The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and of the holder or holders hereof and of the Shares issued or issuable upon the exercise hereof.
(d) This Warrant and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.
(e) The Company shall not, by amendment of its Certificate of Incorporation, or through any other means, directly or indirectly, avoid or seek to avoid the observance or performance of any of the terms of this Warrant and shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.
(f) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the holder of record, in lieu thereof, a new Warrant of like date and tenor.
(g) This Warrant and any provision hereof may be amended, waived or terminated only by an instrument in writing signed by the Company and the Holder.
(h) Receipt of this Warrant by the holder hereof shall constitute acceptance of and agreement to the foregoing terms and conditions.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer.
Issued this 5th day of February, 1998
UTSTARCOM, INC.
By: /s/ Hong Liang Lu
-----------------------
Title: President
-----------------------
|
FOR AND ON BEHALF OF
Acknowledged and Accepted:
/s/ Li Yisheno
_________________________________
Warrant Holder AUTHORIZED SIGNATURE(S)
|
EXHIBIT A
NOTICE OF EXERCISE
TO: UTStarcom, Inc.
1275 Harbor Bay Parkway, Suite 100
Alameda, CA 94502
Attention: Chief Financial Officer
1. The undersigned hereby elects to purchase __________ shares of Common Stock of UTStarcom, Inc. pursuant to the terms of this Warrant, and tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:
3. The undersigned hereby represents and warrants that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares and all representations and warranties of the undersigned set forth in Section 10 of the attached Warrant are true and correct as of the date hereof. In support thereof, the undersigned agrees to execute an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as EXHIBIT A-1.
By:____________________________
Title:_________________________
Date:________________, 19__
EXHIBIT A-1
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : _________________________
SELLER : UTSTARCOM, INC.
COMPANY : UTSTARCOM, INC.
SECURITY : COMMON STOCK ISSUED UPON EXERCISE OF THE COMMON STOCK
PURCHASE WARRANT ISSUED ON _______, 199__
AMOUNT : __________ SHARES
DATE : ____________, 19__
|
In connection with the purchase of the above-listed Securities, I, the Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition, and have acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. I am purchasing these Securities for my own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of my investment intent as expressed herein. In this connection, I understand that, in the view of the Securities and Exchange Commission (the "SEC"), the statutory basis for such exemption may be unavailable if my representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, I understand that the Company is under no obligation to register the Securities. In addition, I understand that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company.
(d) I am familiar with the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions.
The Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires among other things: (1) the availability of certain public information about the Company, (2) the resale occurring not less than two years after the party has purchased, and made full payment for, within the meaning of Rule 144, the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than three years, (3) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if applicable.
(e) I agree, in connection with the Company's initial underwritten public offering of the Company's securities, (1) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of Common Stock of the Company held by me (other than those shares included in the registration) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Company's securities for one hundred eighty (180) days from the effective date of such registration, and (2) I further agree to execute any agreement reflecting (1) above as may be requested by the underwriters at the time of the public offering; PROVIDED HOWEVER that the officers and directors of the Company who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.
By:____________________________
Title:_________________________
Date:________________, 19__
EXHIBIT B
NOTICE OF TRANSFER
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _______________________________________________ the right represented by the attached Warrant to purchase ____________* shares of Common Stock of UTStarcom, Inc., to which the attached Warrant relates, and appoints ______________ Attorney to transfer such right on the books of UTStarcom, Inc., with full power of substitution in the premises.
Dated: ____________________
Signed in the presence of:
* Insert here the number of shares without making any adjustment for additional shares of Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise.
EXHIBIT B-1
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
TRANSFEROR :
COMPANY : UTSTARCOM, INC.
SECURITY : COMMON STOCK PURCHASE WARRANT ORIGINALLY ISSUED ON _______,
199__
AMOUNT : SHARES
DATE : ____________, 19__
|
In connection with the purchase of the above-listed Securities, I, the Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition, and have acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. I am purchasing these Securities for my own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of my investment intent as expressed herein. In this connection, I understand that, in the view of the Securities and Exchange Commission (the "SEC"), the statutory basis for such exemption may be unavailable if my representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, I understand that the Company is under no obligation to register the Securities. In addition, I understand that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company.
(d) I am familiar with the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions.
The Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires among other things: (1) the availability of certain public information about the Company, (2) the resale occurring not less than two years after the party has purchased, and made full payment for, within the meaning of Rule 144, the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than three years, (3) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if applicable.
(e) I agree, in connection with the Company's initial underwritten public offering of the Company's securities, (1) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of Common Stock of the Company held by me (other than those shares included in the registration) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Company's securities for one hundred eighty (180) days from the effective date of such registration, and (2) I further agree to execute any agreement reflecting (1) above as may be requested by the underwriters at the time of the public offering; PROVIDED HOWEVER that the officers and directors of the Company who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable requirements of Rule 144 is not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.
By:____________________________
Title:_________________________
Date:________________, 19__
EXHIBIT 10.7
COMMON STOCK PURCHASE WARRANT
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED PURSUANT TO THE EXERCISE OF THIS WARRANT (THE "SHARES") WILL BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES (TOGETHER, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.
NO. 6
UTSTARCOM, INC.
WARRANT TO PURCHASE TWO HUNDRED FIFTY THOUSAND (250,000) SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Talent Group International, Ltd., a corporation organized under the laws of Hong Kong (the "HOLDER") is entitled to subscribe for and purchase from UTStarcom, Inc., a Delaware corporation (the "COMPANY"), 250,000 shares (as adjusted pursuant to Section 4 hereof) of the fully paid and nonassessable Common Stock, $.0025 par value (the "SHARES"), of the Company at the price of $12.50 per share (the "EXERCISE PRICE") (as adjusted pursuant to Section 4 hereof), subject to the provisions and upon the terms and conditions hereinafter set forth.
This Warrant is subject to the following terms and conditions:
1. TERM AND VESTING.
(a) TERM. Subject to vesting requirements set forth in
Section 1(b) below, this Warrant is exercisable, in whole or in part, any time
from and after the date of issuance of this Warrant and prior to the earlier
of: (i) December 11, 2003; (ii) the consummation of the Company's initial
public offering of its capital stock pursuant to a registration statement filed
under the Securities Act of 1933, as amended (the "ACT"); and (iii) the
consummation of a liquidation,
dissolution or winding up of the Company as set forth in the Company's Certificate of Incorporation. The Company shall be obligated to provide Holder with written notice of termination of this Warrant at least 30 days prior thereto.
(b) VESTING. The right to purchase the Shares hereunder shall vest and become exercisable as follows: 100% of the Shares subject to this Warrant are immediately vested.
2. METHOD OF EXERCISE; PAYMENT.
(a) CASH EXERCISE. The purchase rights represented by this Warrant may be exercised by the Holder, in whole or in part, from time to time at the principal office of the Company, by delivering a completed and duly executed Notice of Exercise (attached hereto as EXHIBIT A) and by the payment to the Company of an amount equal to the Exercise Price multiplied by the number of the Shares being purchased, which amount may be paid, at the election of the Holder, by wire transfer or certified check payable to the order of the Company. The person or persons in whose name(s) any certificate(s) representing Shares shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the Shares represented thereby (and such Shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised.
(b) STOCK CERTIFICATES. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the shares with respect to which this Warrant shall not have been exercised shall also be issued to the Holder within such time.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All of the Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise Price therefor, be fully paid and nonassessable, and free from all preemptive rights, rights of first refusal or first offer, taxes, liens and charges with respect to the issuance thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance sufficient shares of its Common Stock to provide for the exercise of the rights represented by this Warrant.
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. Subject to the provisions of Section 1 hereof, the number and kind of Shares purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification of the Common Stock (other than a change in par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger with another corporation in which the Company is a continuing corporation and in which the Company's stockholders immediately preceding such consolidation or
merger own at least 50% of the voting securities of the Company following such
consolidation or merger and which does not result in any reclassification of
the Shares issuable upon exercise of this Warrant), or in case of any sale of
all or substantially all of the assets of the Company, the Company, or such
successor or purchasing corporation as the case may be, shall execute a new
Warrant, providing that the holder of this Warrant shall have the right to
exercise such new Warrant, and procure upon such exercise and payment of the
same aggregate Exercise Price, in lieu of the Shares of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, sale of all or substantially all of
the Company's assets or merger by a holder of an equivalent number of shares of
Common Stock. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 4. The provisions of this subsection (a), subject to Section 1 hereof,
shall similarly apply to successive reclassifications, consolidations, mergers,
and the sale of all or substantially all of the Company's assets.
(b) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In the event that the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on its outstanding shares of Common Stock, the number of Shares issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock, the number of Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.
5. NOTICES.
(a) Upon any adjustment of the Exercise Price and any increase or decrease in the number of Shares purchasable upon the exercise of this Warrant in accordance with Section 4 hereof, then, and in each such case, the Company, within thirty (30) days thereafter, shall give written notice thereof to the Holder at the address of such Holder as shown on the books of the Company which notice shall state the Exercise Price as adjusted and, if applicable, the increased or decreased number of Shares purchasable upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation of each.
(b) Any written notice by the Company required or permitted hereunder shall be given by hand delivery or first class mail, postage prepaid, addressed to the Holder at the address shown on the books of the Company for the Holder.
6. NON-TRANSFERABILITY OF WARRANT. This Warrant is not assignable or otherwise transferable by the Holder without the written consent of the Company. Notwithstanding the foregoing, the terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and its successors and assigns.
7. CONDITION OF EXERCISE OF WARRANT.
(a) Unless exercised pursuant to an effective registration statement under the Act which includes the Shares so exercised, it shall be a condition to any exercise of this Warrant that the Company shall have received, at the time of such exercise, a representation in writing from the recipient in the form attached hereto as EXHIBIT A-1, that the Shares being issued upon exercise, are being acquired for investment and not with a view to any sale or distribution thereof.
(b) Each certificate evidencing the Shares issued upon exercise of this Warrant, shall be stamped or imprinted with a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
Subject to this Section 7, the Company may instruct its transfer agent not to register the transfer of all or a part of this Warrant, or any of the Shares, unless one of the conditions specified in the above legend is satisfied.
8. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Holder as follows:
(a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms;
(b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to or imposed upon the Shares and the holders thereof are as set forth in the Company's Certificate of Incorporation, a true and complete copy of which has been delivered to the original Holder of this Warrant; and
(d) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation or Bylaws, as amended.
10. REPRESENTATIONS AND WARRANTIES BY THE HOLDER. The Holder represents and warrants to the Company as follows:
(a) This Warrant is being acquired for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Act. Upon exercise of this Warrant, the Holder shall, if so requested by the Company, confirm in writing, in a form reasonably satisfactory to the Company, that the Shares issuable upon exercise of this Warrant are being acquired for investment and not with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares have not been registered under the Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Act pursuant to Section 4(2) thereof, and that they must be held by the Holder indefinitely, and that the Holder must therefore bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Act or is exempted from such registration. The Holder further understands that the Shares have not been qualified under the California Securities Law of 1968 (the "CALIFORNIA LAW") by reason of their issuance in a transaction exempt from the qualification requirements of the California Law pursuant to Section 25102(f) thereof, which exemption depends upon, among other things, the bona fide nature of the Holder's investment intent expressed above.
(c) The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of this Warrant and the Shares purchasable pursuant to the terms of this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase of the Shares pursuant to the terms of this Warrant.
11. RIGHTS OF STOCKHOLDERS. No holder of this Warrant shall be entitled, as a warrant holder, to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.
12. MISCELLANEOUS.
(a) This Warrant is being delivered in the State of California and shall be construed and enforced in accordance with and governed by the laws of such State. The parties expressly stipulate that any litigation under this Warrant shall be brought in the State courts of the Counties of Santa Clara or San Francisco, California and in the United States District Court for the Northern District of California. The parties agree to submit to the jurisdiction and venue of those courts.
(b) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.
(c) The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and of the holder or holders hereof and of the Shares issued or issuable upon the exercise hereof.
(d) This Warrant and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.
(e) The Company shall not, by amendment of its Certificate of Incorporation, or through any other means, directly or indirectly, avoid or seek to avoid the observance or performance of any of the terms of this Warrant and shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.
(f) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver to the holder of record, in lieu thereof, a new Warrant of like date and tenor.
(g) This Warrant and any provision hereof may be amended, waived or terminated only by an instrument in writing signed by the Company and the Holder.
(h) Receipt of this Warrant by the holder hereof shall constitute acceptance of and agreement to the foregoing terms and conditions.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer.
Issued this 20th day of September, 1999.
UTSTARCOM, INC.
By:/s/ Hong Liang Lu --------------------------- Hong Lu, President and Chief Executive Officer |
Acknowledged and Accepted:
/s/ Li Kin Shing --------------------------------- Warrant Holder |
Title:___________________________
EXHIBIT A
NOTICE OF EXERCISE
TO: UTStarcom, Inc.
1275 Harbor Bay Parkway, Suite 100
Alameda, CA 94502
Attention: Chief Financial Officer
1. The undersigned hereby elects to purchase ________ shares of Common Stock of UTStarcom, Inc. pursuant to the terms of this Warrant, and tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:
3. The undersigned hereby represents and warrants that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares and all representations and warranties of the undersigned set forth in Section 10 of the attached Warrant are true and correct as of the date hereof. In support thereof, the undersigned agrees to execute an Investment Representation Statement in a form substantially similar to the form attached to the Warrant as EXHIBIT A-1.
By:____________________________
Title:_________________________
Date:________________,_________
EXHIBIT A-1
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: _________________________
SELLER : UTSTARCOM, INC.
COMPANY : UTSTARCOM, INC.
SECURITY : COMMON STOCK ISSUED UPON EXERCISE OF THE COMMON
STOCK PURCHASE WARRANT ISSUED ON AUGUST __, 1999
AMOUNT : __________ SHARES
DATE : ____________, _______
|
In connection with the purchase of the above-listed Securities, I, the Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition, and have acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. I am purchasing these Securities for my own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of my investment intent as expressed herein. In this connection, I understand that, in the view of the Securities and Exchange Commission (the "SEC"), the statutory basis for such exemption may be unavailable if my representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, I understand that the Company is under no obligation to register the Securities. In addition, I understand that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company.
(d) I am familiar with the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permits limited public resale of "restricted securities" acquired,
directly or indirectly, from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions.
The Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires among other things: (1) the availability of certain public information about the Company, (2) the resale occurring not less than one year after the party has purchased, and made full payment for, within the meaning of Rule 144, the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than two years, (3) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if applicable.
(e) I agree, in connection with the Company's initial underwritten public offering of the Company's securities, (1) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of Common Stock of the Company held by me (other than those shares included in the registration) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Company's securities for one hundred eighty (180) days from the effective date of such registration, and (2) I further agree to execute any agreement reflecting (1) above as may be requested by the underwriters at the time of the public offering; PROVIDED HOWEVER that the officers and directors of the Company who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.
By:____________________________
Title:_________________________
Date:________________,_________
EXHIBIT 10.8
UNITECH TELECOM, INC.
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This EMPLOYMENT AND NON-COMPETITION AGREEMENT ("Agreement"), dated as of the 6th day of October, 1995, is entered into by and between Unitech Telecom, Inc., a Delaware corporation ("Unitech"), and Hong Lu ("Employee").
RECITALS
A. Employee has been employed as an employee of Unitech Telecom, Inc., a Delaware corporation ("Unitech"); and
B. Unitech, StarCom and certain other parties have entered into an Agreement and Plan of Reorganization, dated as of September 28, 1995, (the "Reorganization Agreement"), which requires, among other things, that Employee enter into this Agreement in connection with the merger of a wholly owned subsidiary of Unitech into StarCom (the "Merger") pursuant to which StarCom will be the surviving corporation in the Merger and a wholly owned subsidiary of Unitech (such surviving corporation being hereinafter referred to as "StarCom"), all as more fully described in the Reorganization Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED by and between the parties hereto as follows:
1. EMPLOYMENT.
(a) EMPLOYMENT. During the Employment Term (as hereinafter defined) Unitech hereby employs Employee as its President and Chief Executive Officer, Unitech upon and subject to the terms and conditions set forth in this Agreement. Employee hereby agrees to accept such employment, upon and subject to the terms and conditions set forth in this Agreement. In addition, Unitech shall, subject to the Employee's consent, cause Employee to be nominated and elected to Unitech's Board of Directors.
(b) DUTIES. Effective upon the date hereof, Employee will perform all of the services customarily associated with the position of President and Chief Executive Officer, Unitech during the Employment Term, subject to the policies established by and the direction of the Board of Directors. Employee also agrees to perform such other duties and responsibilities consistent with such position as the Board of Directors of Unitech may assign to him from time to time during the Employment Term. During his Employment Term (as defined in subsection (c) below), Employee shall carry out his duties and responsibilities hereunder in a diligent and competent manner and shall devote substantially all of his business time, attention and energy thereto.
(c) EMPLOYMENT TERM. Employee's employment hereunder (the "Employment
Term") shall commence on the date hereof. Such employment shall be "at will"
employment pursuant to applicable law. If Employee's employment terminates for
any reason other than (i) voluntary termination by Employee, (ii) termination as
a result of death or disability, or (iii) termination for Cause (as defined in
Section 5(a)), Employee shall be entitled to sixty (60) days notice of
termination.
(d) PLACE OF EMPLOYMENT. During the Employment Term, Employee shall render his services at the principal executive offices of Unitech. Employee shall do such traveling as shall be reasonably necessary in connection with his duties and responsibilities hereunder.
(e) Employee agrees to devote substantially all of his business time, attention and energy to the performance of his duties under this Agreement during the Employment Term and shall perform such duties diligently, in good faith and consistent with the best interests of Unitech.
2. COMPENSATION.
(a) SALARY. During the Employment Term, Employee will receive a salary of not less than $12,500 per month ($150,000 per annum), which shall be paid in accordance with Unitech's normal payroll practice and shall be subject to review based upon Unitech's normal performance review practices. Unless otherwise specified herein, Unitech will make such deductions, withholdings and other payments from all sums payable pursuant to this Agreement which Employee requests or which are required by applicable law for taxes and other charges. Unitech shall, in addition to Employee's salary, reimburse Employee for all ordinary and necessary out-of-pocket expenses incurred by him in the performance of his services under this Agreement, subject to and upon receipt by Unitech of invoices or other documentation in support thereof in accordance with Unitech's policies regarding reimbursement of expenses. Employee shall be entitled to receive such bonus as shall be approved by the Board of Directors of Unitech in each year during the Employment Term.
(b) BENEFIT PLANS. Employee will be entitled to participate in or receive benefits under Unitech's employee benefit plans and policies as in effect from time to time in which Employee is eligible to participate, subject to the applicable terms and conditions of the particular benefit plan. These benefit plans may include health care, life insurance, accidental death and disability, short- and long-term disability, stock options, savings and/or bonus plans provided by, through or on behalf of Unitech. Unitech may change, amend, modify or terminate any benefit or bonus plan from time to time.
3. CONFIDENTIALITY AND PROPRIETARY INFORMATION AGREEMENT. Concurrently with the execution of this Agreement, Unitech and Employee will execute the Confidentiality and Proprietary Information Agreement ("Confidentiality Agreement") in the form attached hereto as Attachment 1.
4. COVENANT NOT TO COMPETE.
(a) NON-COMPETE. In consideration of his employment, Employee agrees that so long as he is an Employee of Unitech and, in the case of Employee's termination of employment with Unitech or StarCom, two (2) years from the date of termination, Employee will not directly or indirectly engage in (whether as an employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in, or participate in the financing, operation, management or control of, any person, firm, corporation or business that engages in a "Restricted Business" in a "Restricted Territory" (as such terms are herein defined). It is agreed that ownership of no more than 1% of the outstanding voting stock of a publicly traded corporation shall not constitute a violation of this provision. It is also agreed that this provision shall not apply if the Employee's termination of employment with Unitech is due to (i) a breach by Unitech of the terms of this Agreement as adjudicated by a court of competent jurisdiction (except for a failure of Unitech to pay Employee's salary as provided in Section 2(a) hereof which, for these purposes, will not require such adjudication) or (ii) a final adjudication of Unitech as a bankrupt under any federal or state law.
(b) NON-SOLICIT. Employee agrees that until the later to occur of
(i) the termination of Employee's agreement not to compete pursuant to
Section 4(a) above (ii) 2 years following the termination of Employee's
employment with Unitech, Employee shall not solicit, encourage, or take any
other action which is intended to induce any other employee of Unitech to
terminate his employment with Unitech.
(c) SEVERABILITY. The parties intend that the covenants contained in the preceding paragraphs shall be construed as a series of separate covenants, one for each county, city, state and other political subdivision of the Restricted Territory. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in the preceding paragraphs. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants (or any part thereof) deemed included in said paragraphs, then such unenforceable covenant (or such part) shall be deemed eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced by such court. It is the intent of the parties that the covenants set forth herein be enforced to the maximum degree permitted by applicable law.
(d) REFORMATION. In the event that the provisions of this Section 4 should ever be deemed to exceed the scope, time or geographic limitations of applicable law regarding covenants not to compete, then such provisions shall be reformed to the maximum scope, time or geographic limitations, as the case may be, permitted by applicable laws.
(e) REMEDIES. The Employee hereby acknowledges that the covenants and restrictions contained in this Section 4 are necessary for the protection of Unitech's business and goodwill and are considered by the Employee to be reasonable. Accordingly, the Employee hereby
acknowledges and agrees that any actual or threatened breach of any of the provisions of such Paragraph 4 may cause irreparable harm to Unitech and may not be remediable by an action at law for damages and, therefore, Unitech shall be entitled to seek, as a non-exclusive remedy, in any court of competent jurisdiction, all equitable remedies therefor, including, without limitation, a temporary or permanent injunction or specific performance of the provisions hereof, without the necessity of showing any actual damage or that monetary damages would not provide an adequate remedy at law or posting a bond therefor.
The Employee covenants and agrees that, if the Employee shall violate the foregoing non-compete covenant, Unitech shall be entitled to an accounting and repayment of all profits, compensation, commissions, remunerations, benefits or other payments which the Employee directly or indirectly has realized and/or may realize as a result of, growing out of or in connection with any such violation. Such remedy shall be in addition to and not in limitation of any injunctive relief or other rights or remedies to which Unitech may be entitled at law or in equity or under this Agreement.
5. Employee agrees that he shall not knowingly and intentionally interfere in any manner with the contractual or employment relationship between Unitech and any employee, supplier or customer of Unitech.
6. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings:
(a) "Cause" shall mean:
(i) Employee's continued failure to perform his duties and responsibilities in good faith to the best of his ability after notice thereof from Unitech to Employee;
(ii) Employee personally engaging in knowing and intentional illegal conduct;
(iii) Employee being convicted of a felony, or committing an act of dishonesty or fraud or misappropriating property;
(iv) Employee knowingly and intentionally breaching in any material respect the terms of this Agreement or the Confidentiality Agreement; or
(v) Employee's commencement of employment with another employer while he is an employee of Unitech.
(b) "Restricted Business" shall mean PHS-based wireless local loop, optical multiplexers, and the intelligent networking business, including products and/or services related to
the StarCom Network Systems intelligent services platform. Notwithstanding the foregoing, the Restricted Business shall apply only to products and services in direct competition with Unitech and/or StarCom.
(c) "Restricted Territory" shall mean the counties, cities and states of the United States of America and the country of and each political subdivision of Canada, Australia, Japan, Taiwan, People's Republic of China, Hong Kong, Korea, Singapore, Thailand, each member nation of the European Community or the European Free Trade Association, and all other geographic areas throughout the world.
7. REPRESENTATIONS OF EMPLOYEE. Employee represents that:
(a) he (i) is familiar with the covenants not to compete and not to solicit set forth in this Agreement, (ii) is fully aware of his obligations hereunder, including, without limitation, the length of time, scope and geographic coverage of these covenants, (iii) finds the length of time, scope and geographic coverage of these covenants to be reasonable, and (iv) is receiving specific, bargained-for consideration for his covenants not to compete and not to solicit;
(b) the execution of this Agreement and the Confidentiality and Proprietary Information Agreement, and the performance of Employee's obligations hereunder and thereunder, will not conflict with, or result in a violation or breach of, any other agreement to which Employee is a party or any judgment, order or decree to which Employee is subject.
8. ASSIGNMENT. This Agreement may not be assigned by Employee without the written consent of Unitech. This Agreement may not be assigned by Unitech without the written consent of Employee, except to an assignee who acquires all or substantially all of the business of Unitech, whether by merger, consolidation, sale of assets or otherwise. Unitech will require, as a condition of any such assignment, that any such assignee assume and agree in writing to perform this Agreement in the same manner and to the same extent that Unitech would be required to perform if no such succession had taken place.
9. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between Employee and Unitech with respect to the subject matter hereof, and supersedes any other negotiations, agreements, understandings, representations or past or future practices, whether written or oral.
10. NOTICES. Any notice, report or other communication required or permitted to be given hereunder shall be in writing to both parties and shall be deemed given on the date of delivery, if delivered, or five days after mailing, if mailed first-class mail, certified, postage prepaid, to the following addresses:
(a) If to Unitech:
Unitech Telecom, Inc.
333 Hegenberger Road, Suite 328
Oakland, CA 94621
Attention: President
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Marcia K. Sterling, Esq.
(b) If to Employee:
(c) With a copy to:
(or to such other address as any party hereto may designate by notice given as herein provided).
11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California without giving effect to principles regarding conflict of laws.
12. AMENDMENTS. This Agreement shall not be changed or modified in whole or in part except by an instrument in writing signed by each party hereto, nor shall any covenant or provision of this Agreement be waived except by an instrument in writing signed by the party against whom enforcement of such waiver is sought.
13. EFFECTIVE DATE. This Agreement shall become effective upon the Effective Time of the Merger.
14. ATTORNEYS' FEES. In the event of any legal action or proceeding to enforce or interpret the provisions hereof, the prevailing party shall be entitled to reasonable attorneys' fees, whether or not the proceeding results in a final judgment.
15. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement.
16. EFFECT OF HEADINGS. The section headings herein are for convenience only and shall not affect the construction or interpretation of this Agreement.
17. DEFINITIONS. All capitalized terms used herein shall have the meaning defined in the Reorganization Agreement, unless otherwise defined herein.
18. DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to either party upon any breach or default of the other party hereto shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, nor an acquiescence therein, nor of nor in any similar breach or default thereafter occurring; nor shall any waiver, single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.
19. INDEMNIFICATION. During and after the Employment Term, Unitech shall defend, indemnify and hold Employee harmless from any claims, causes of action, liabilities, damages, costs or expenses incurred by Employee based upon or in connection with the performance of his services under this Agreement to the fullest extent permitted by the laws of the State of Delaware and of the By-Laws of Unitech (and of any such subsidiary). This provision will survive the expiration or termination of the Employment Term.
20. BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives and permitted assigns, but, except as otherwise specifically provided herein, neither this Agreement nor any of the rights, interests or obligations of the parties hereto may be assigned by any of the parties hereto without prior written consent of the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
EMPLOYEE UNITECH TELECOM, INC.
By: /s/ Hong Liang Lu By: /s/ Hong Liang Lu
-------------------------------- -------------------------------------
Name:
-----------------------------------
Title: President
----------------------------------
|
EXHIBIT 10.9
UNITECH TELECOM, INC.
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This EMPLOYMENT AND NON-COMPETITION AGREEMENT ("Agreement"), dated as of the 6th day of October, 1995, is entered into by and between Unitech Telecom, Inc., a Delaware corporation ("Unitech"), and Ying Wu ("Employee").
RECITALS
A. Employee has been employed as an employee of StarCom Network Systems, Inc., a New Jersey corporation ("StarCom"); and
B. Unitech, StarCom and certain other parties have entered into an Agreement and Plan of Reorganization, dated as of October __, 1995, (the "Reorganization Agreement"), which requires, among other things, that Employee enter into this Agreement in connection with the merger of a wholly owned subsidiary of Unitech into StarCom (the "Merger") pursuant to which StarCom will be the surviving corporation in the Merger and a wholly owned subsidiary of Unitech (such surviving corporation being hereinafter referred to as "StarCom"), all as more fully described in the Reorganization Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED by and between the parties hereto as follows:
1. EMPLOYMENT.
(a) EMPLOYMENT. During the Employment Term (as hereinafter defined) Unitech hereby employs Employee as its Executive Vice President on and subject to the terms and conditions set forth in this Agreement. Employee hereby agrees to accept such employment, upon and subject to the terms and conditions set forth in this Agreement. In addition, Unitech shall, subject to the Employee's consent, cause Employee to be nominated and elected to Unitech's Board of Directors and to StarCom's Board of Directors during the Employment Term.
(b) DUTIES. Effective upon the date hereof, Employee will perform all of the services customarily associated with the position of Executive Vice President during the Employment Term, including, without limitation, such services on behalf of StarCom, subject to the policies established by and the direction of the Board of Directors and Chief Executive Officer of Unitech. Employee also agrees to perform such other duties and responsibilities consistent with such position as the Board of Directors or the Chief Executive Officer of Unitech may assign to him from time to time during the Employment Term. During his Employment Term (as defined in subsection (c) below), Employee shall carry out his duties
and responsibilities hereunder in a diligent and competent manner and shall devote substantially all of his business time, attention and energy thereto.
(c) EMPLOYMENT TERM. Employee's employment hereunder (the "Employment
Term") shall commence on the date hereof. Such employment shall be "at will"
employment pursuant to applicable law. If Employee's employment terminates for
any reason other than (i) voluntary termination by Employee, (ii) termination as
a result of death or disability, or (iii) termination for Cause (as defined in
Section 5(a)), Employee shall be entitled to sixty (60) days notice of
termination.
(d) PLACE OF EMPLOYMENT. During the Employment Term, Employee shall render his services at the principal executive offices of StarCom and, from time to time as necessary, at another Unitech facility in the San Francisco Bay Area. Employee shall do such traveling as shall be reasonably necessary in connection with his duties and responsibilities hereunder. Employee shall not be required to move his residence from New Jersey without Employee's consent.
(e) Employee agrees to devote substantially all of his business time, attention and energy to the performance of his duties under this Agreement during the Employment Term and shall perform such duties diligently, in good faith and consistent with the best interests of Unitech. Notwithstanding the foregoing, it is understood that the limited services to be provided to StarCom Products, Inc. shall not be considered to be violative of this provision 1(e).
2. COMPENSATION.
(a) SALARY. During the Employment Term, Employee will receive a salary of not less than $12,500 per month ($150,000 per annum), which shall be paid in accordance with Unitech's normal payroll practice and shall be subject to review based upon Unitech's normal performance review practices. Unless otherwise specified herein, Unitech will make such deductions, withholdings and other payments from all sums payable pursuant to this Agreement which Employee requests or which are required by applicable law for taxes and other charges. Unitech shall, in addition to Employee's salary, reimburse Employee for all ordinary and necessary out-of-pocket expenses incurred by him in the performance of his services under this Agreement, subject to and upon receipt by Unitech of invoices or other documentation in support thereof in accordance with Unitech's policies regarding reimbursement of expenses. Employee shall be entitled to receive such bonus as shall be approved by the Board of Directors of Unitech in each year during the Employment Term.
(b) BENEFIT PLANS. Employee will be entitled to participate in or receive benefits under Unitech's or StarCom's employee benefit plans and policies as in effect from time to time in which Employee is eligible to participate, subject to the applicable
terms and conditions of the particular benefit plan. These benefit plans may include health care, life insurance, accidental death and disability, short- and long-term disability, stock options, savings and/or bonus plans provided by, through or on behalf of Unitech or StarCom. Unitech and/or StarCom may change, amend, modify or terminate any benefit or bonus plan from time to time.
terms and conditions of the particular benefit plan. These benefit plans may include health care, life insurance, accidental death and disability, short- and long-term disability, stock options, savings and/or bonus plans provided by, through or on behalf of Unitech or StarCom. Unitech and/or StarCom may change, amend, modify or terminate any benefit or bonus plan from time to time.
3. CONFIDENTIALITY AND PROPRIETARY INFORMATION AGREEMENT. Concurrently with the execution of this Agreement, Unitech and Employee will execute the Confidentiality and Proprietary Information Agreement ("Confidentiality Agreement") in the form attached hereto as Attachment 1.
4. COVENANT NOT TO COMPETE.
(a) NON-COMPETE. In consideration of the exchange of Unitech Common
Stock for all of the outstanding equity securities of StarCom as contemplated by
the Reorganization Agreement, Employee agrees that so long as he is an Employee
of Unitech and, in the case of Employee's termination of employment with Unitech
or StarCom, two (2) years from the date of termination, Employee will not
directly or indirectly engage in (whether as an employee, consultant,
proprietor, partner, director or otherwise), or have any ownership interest in,
or participate in the financing, operation, management or control of, any
person, firm, corporation or business that engages in a "Restricted Business" in
a "Restricted Territory" (as such terms are herein defined). It is agreed that
ownership of no more than 1% of the outstanding voting stock of a publicly
traded corporation shall not constitute a violation of this provision. It is
also agreed that this provision shall not apply if the Employee's termination of
employment with Unitech or StarCom is due to (i) a breach by Unitech of the
terms of this Agreement as adjudicated by a court of competent jurisdiction
(except for a failure of Unitech to pay Employee's salary as provided in Section
2(a) hereof which, for these purposes, will not require such adjudication) or
(ii) a final adjudication of Unitech as a bankrupt under any federal or state
law.
(b) NON-SOLICIT. Employee agrees that until the later to occur of
(i) the termination of Employee's agreement not to compete pursuant to
Section 4(a) above or (ii) 2 years following the termination of Employee's
employment with Unitech or StarCom, Employee shall not solicit, encourage, or
take any other action which is intended to induce any other employee of Unitech
or StarCom to terminate his employment with Unitech or StarCom.
(c) SEVERABILITY. The parties intend that the covenants contained in the preceding paragraphs shall be construed as a series of separate covenants, one for each county, city, state and other political subdivision of the Restricted Territory. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in the preceding paragraphs. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants (or any part thereof) deemed included in said paragraphs, then such unenforceable covenant (or such part) shall be deemed eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced by such court. It is the intent of the parties that the covenants set forth herein be enforced to the maximum degree permitted by applicable law.
(d) REFORMATION. In the event that the provisions of this Section 4 should ever be deemed to exceed the scope, time or geographic limitations of applicable law regarding covenants not to compete, then such provisions shall be reformed to the maximum scope, time or geographic limitations, as the case may be, permitted by applicable laws.
(e) REMEDIES. The Employee hereby acknowledges that the covenants and restrictions contained in this Section 4 are necessary for the protection of Unitech's business and goodwill and are considered by the Employee to be reasonable. Accordingly, the Employee hereby acknowledges and agrees that any actual or threatened breach of any of the provisions of such Paragraph 4 may cause irreparable harm to Unitech and may not be remediable by an action at law for damages and, therefore, Unitech shall be entitled to seek, as a non-exclusive remedy, in any court of competent jurisdiction, all equitable remedies therefor, including, without limitation, a temporary or permanent injunction or specific performance of the provisions hereof, without the necessity of showing any actual damage or that monetary damages would not provide an adequate remedy at law or posting a bond therefor.
The Employee covenants and agrees that, if the Employee shall violate the foregoing non-compete covenant, Unitech shall be entitled to an accounting and repayment of all profits, compensation, commissions, remunerations, benefits or other payments which the Employee directly or indirectly has realized and/or may realize as a result of, growing out of or in connection with any such violation. Such remedy shall be in addition to and not in limitation of any injunctive relief or other rights or remedies to which Unitech may be entitled at law or in equity or under this Agreement.
5. Employee agrees that he shall not knowingly and intentionally interfere in any manner with the contractual or employment relationship between Unitech or StarCom and any employee, supplier or customer of Unitech or StarCom.
6. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings:
(a) "Cause" shall mean:
(i) Employee's continued failure to perform his duties and responsibilities in good faith to the best of his ability after notice thereof from Unitech to Employee;
(ii) Employee personally engaging in knowing and intentional illegal conduct;
(iii) Employee being convicted of a felony, or committing an act of dishonesty or fraud or misappropriating property;
(iv) Employee knowingly and intentionally breaching in any material respect the terms of this Agreement or the Confidentiality Agreement; or
(v) Employee's commencement of employment with another employer while he is an employee of Unitech.
(b) "Restricted Business" shall mean PHS-based wireless local loop, optical multiplexers, and the intelligent networking business, including products and/or services related to the StarCom Network Systems intelligent services platform. Notwithstanding the foregoing, the Restricted Business shall apply only to products and services relating to such businesses which are in direct competition with Unitech and/or StarCom.
(c) "Restricted Territory" shall mean the counties, cities and states of the United States of America and the country of and each political subdivision of Canada, Australia, Japan, Taiwan, People's Republic of China, Hong Kong, Korea, Singapore, Thailand, each member nation of the European Community or the European Free Trade Association, and all other geographic areas throughout the world.
7. REPRESENTATIONS OF EMPLOYEE. Employee represents that:
(a) he (i) is familiar with the covenants not to compete and not to solicit set forth in this Agreement, (ii) is fully aware of his obligations hereunder, including, without limitation, the length of time, scope and geographic coverage of these covenants, (iii) finds the length of time, scope and geographic coverage of these covenants to be reasonable, and (iv) is receiving specific, bargained-for consideration for his covenants not to compete and not to solicit;
(b) the execution of this Agreement and the Confidentiality and Proprietary Information Agreement, and the performance of Employee's obligations hereunder and there-
under, will not conflict with, or result in a violation or breach of, any other agreement to which Employee is a party or any judgment, order or decree to which Employee is subject.
8. ASSIGNMENT. This Agreement may not be assigned by Employee without the written consent of Unitech. This Agreement may not be assigned by Unitech without the written consent of Employee, except to an assignee who acquires all or substantially all of the business of Unitech, whether by merger, consolidation, sale of assets or otherwise. Unitech will require, as a condition of any such assignment, that any such assignee assume and agree in writing to perform this Agreement in the same manner and to the same extent that Unitech would be required to perform if no such succession had taken place.
9. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between Employee and Unitech with respect to the subject matter hereof, and supersedes any other negotiations, agreements, understandings, representations or past or future practices, whether written or oral.
10. NOTICES. Any notice, report or other communication required or permitted to be given hereunder shall be in writing to the other party and shall be deemed given on the date of delivery, if delivered, or five days after mailing, if mailed first-class mail, certified, postage prepaid, to the following addresses:
(a) If to Unitech:
Unitech Telecom, Inc.
333 Hegenberger Road, Suite 328
Oakland, CA 94621
Attention: President
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Marcia K. Sterling, Esq.
Carmen C. Chang, Esq.
(b) If to Employee:
(c) With a copy to:
(or to such other address as any party hereto may designate by notice given as herein provided).
11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California without giving effect to principles regarding conflict of laws.
12. AMENDMENTS. This Agreement shall not be changed or modified in whole or in part except by an instrument in writing signed by each party hereto, nor shall any covenant or provision of this Agreement be waived except by an instrument in writing signed by the party against whom enforcement of such waiver is sought.
13. EFFECTIVE DATE. This Agreement shall become effective upon the Effective Time of the Merger.
14. ATTORNEYS' FEES. In the event of any legal action or proceeding to enforce or interpret the provisions hereof, the prevailing party shall be entitled to reasonable attorneys' fees, whether or not the proceeding results in a final judgment.
15. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement.
16. EFFECT OF HEADINGS. The section headings herein are for convenience only and shall not affect the construction or interpretation of this Agreement.
17. DEFINITIONS. All capitalized terms used herein shall have the meaning defined in the Reorganization Agreement, unless otherwise defined herein.
18. DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to either party upon any breach or default of the other party hereto shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, nor an acquiescence therein, nor of nor in any similar breach or default thereafter occurring; nor shall any waiver, single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.
19. INDEMNIFICATION. During and after the Employment Term, Unitech shall defend, indemnify and hold Employee harmless from any claims, causes of action, liabilities, damages, costs or expenses incurred by Employee based upon or in connection with the performance of his services under this Agreement to the fullest extent permitted by the laws of the State of Delaware and of the By-Laws of Unitech (and of any such subsidiary). This provision will survive the expiration or termination of the Employment Term.
20. BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives and permitted assigns, but, except as otherwise specifically provided herein, neither this Agreement nor any of the rights, interests or obligations of the parties hereto may be assigned by any of the parties hereto without prior written consent of the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
EMPLOYEE UNITECH TELECOM, INC.
By: /s/ Ying Wu By: /s/ Hong Liang Lu
-------------------------------- ------------------------------------
Name:
----------------------------------
Title: President
---------------------------------
|
** UNITECH EMPLOYMENT AND NON-COMPETITION AGREEMENT **
LOAN AGREEMENT
LOAN AGREEMENT, dated as of June 15, 1998, between UTStarcom, Inc., a Delaware corporation (the "Borrower"), and SOFTBANK Corp., a Japanese corporation (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lender make available to it loans in an aggregate amount of up to $55 million; and
WHEREAS, the Lender is willing to make the loans available to the Borrower on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. THE LOANS
(a) Subject to the terms and conditions hereof, the Lender shall lend
to the Borrower up to $55 million in two portions (the "Loans") in amounts of
(i) $25 million on June 30, 1998 and (ii) at least $10 million plus integral
multiples of $5 million (up to $30 million) on a date on or before December 31,
1998, both as specified by the Borrower by not less than five Business Days
notice to the Lender. Each of the dates on which the Loans are made is herein
called a "Drawdown Date" and, for purposes of this Agreement, a "Business Day"
means any day except a Saturday, Sunday or other day on which commercial banks
in Tokyo or New York City are authorized by law to close.
(b) The Borrower's obligation to repay the Loans shall be evidenced by promissory notes of the Borrower, substantially in the form of Exhibit A attached hereto (the "Notes"), payable to the order of the Lender on a maturity date (the "Maturity Date") which shall be the earlier of (i) two Business Days after the closing date of the initial public offering of common stock of the Borrower and (ii) two years after the latest Drawdown Date.
(c) The Loans shall bear interest until maturity at a rate of 10% per annum (based on a 360-day year for the actual number of days elapsed), payable semi-annually in arrears on the last Business Day of March and September, and on the Maturity Date.
(d) All payments hereunder and under the Notes shall be made to the Lender in U.S. dollars at a bank in New
York City specified by the Lender, net of withholding or other tax on interest.
2. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender that:
(a) ORGANIZATION. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full power and authority to own its property and to carry on its business as presently conducted. The Borrower is duly qualified in good standing to do business in California and New Jersey, and there is no other jurisdiction in which the failure to so qualify would have a material adverse effect on its business or operations.
(b) AUTHORITY. The Borrower has full power and authority to enter into this Agreement, to make the borrowings contemplated hereby, to execute and deliver the Notes and to incur the obligations provided for herein and therein, all of which have been duly authorized by all proper and necessary action. No consent or approval of stockholders is required as a condition to the validity or performance of this Agreement and the Notes.
(c) AUTHORIZATIONS. All authorizations, consents, approvals, registrations, exemptions and licenses with or from governmental authorities which are necessary for the borrowing hereunder, the execution and delivery of this Agreement and the Notes, and the performance by the Borrower of its obligations hereunder and thereunder have been effected or obtained and are in full force and effect.
(d) BINDING AGREEMENT. This Agreement constitutes, and each of the Notes, when executed and delivered pursuant hereto for value received, will constitute, a valid and legally binding obligation of the Borrower enforceable in accordance with its terms.
(e) NO CONFLICTS. There is no statute, regulation, rule, order or judgment, no charter, by-law or preference stock provision of the Borrower, and no provision of any mortgage, indenture, contract or agreement binding on the Borrower or affecting its property, which would prohibit, conflict with or in any way prevent the execution, delivery, or carrying out of the terms of this Agreement and of the Notes in any material respect.
(f) FINANCIAL CONDITION. The consolidated financial statements of the Borrower and its subsidiaries as
of December 31, 1997, and the related statements of earnings, shareholders equity and cash flows for the fiscal year then ended, heretofore delivered to the Lender, fairly present the financial condition and results of operations of the Borrower and its subsidiaries as of the date and for such period, and have been prepared in accordance with generally accepted accounting principles consistently applied. There are no liabilities, direct or indirect, fixed or contingent, of the Borrower or its subsidiaries as of the date of such financial statements which are not reflected therein or in the notes thereto. Since December 31, 1997, there has been no material adverse change in the business, properties, financial condition or operations, present or prospective, of the Borrower or its subsidiaries.
(g) LITIGATION. There are no proceedings or investigations pending or, to the best of the Borrower's knowledge, threatened before any court or arbitrator or before or by any governmental authority which, in any one case or in the aggregate, if determined adversely to the interests of the Borrower or any of its subsidiaries, would have a material adverse effect on the business, properties, financial condition or operations, present or prospective, of the Borrower and its subsidiaries, taken as a whole.
3. COVENANTS
(a) Until repayment in full of the Loans, the Borrower will:
(i) Furnish to the Lender (A) as soon as available but in no event
more than 60 days after the end of each quarterly period of the Borrower's
fiscal year consolidated balance sheets of the Borrower and its
subsidiaries as of the close of such period and consolidated statements of
income and expense; (B) as soon as available but in no event more than 120
days after the close of each of the Borrower's fiscal years audited balance
sheets of the Borrower and its subsidiaries together with audited
consolidated statements of income and expense, retained earnings, paid-in
capital and surplus and changes in financial position for such fiscal year,
prepared in accordance with generally accepted accounting principles; and
(C) such additional information, reports or statements as the Lender may
from time to time reasonably request.
(ii) Notify the Lender promptly after the discovery by any officer of the Borrower of the occurrence of (A) any Event of Default, or any event which with the giving of notice of lapse of time, or
both, would constitute an Event of Default; (B) any material litigation or proceedings that are instituted against the Borrower or its subsidiaries or any of their respective assets; and (C) any other development in the business or affairs of the Borrower or its subsidiaries which could be reasonably expected to have a material adverse effect on the business, properties, financial condition or operations, present or prospective, of the Borrower and its subsidiaries, taken as a whole -- in each case describing the nature thereof and the action the Borrower proposes to take with respect thereto.
(b) Until payment in full of the Loans, without the prior written consent of the Lender, the Borrower will not:
(i) Enter into any merger or consolidation or acquire the assets of any person, or sell, lease or otherwise dispose of all or substantially all of its assets, or permit any of its subsidiaries so to do, except that a wholly-owned subsidiary may be merged or consolidated with one or more other wholly-owned subsidiaries or into the Borrower.
(ii) Create, incur, assume or suffer to exist any liability for
borrowed money, or permit any subsidiary so to do, except (A) indebtedness
to the Lender, (B) indebtedness of the Company or any subsidiary secured by
mortgages, encumbrances or liens specifically permitted by
Section 3(b)(iii) below and (C) intercompany indebtedness.
(iii) Create, incur, assume or suffer to exist any mortgage, pledge, lien or other encumbrance of any kind upon, or any security interest in, any of its property or assets, whether now owned or hereafter acquired, or permit any of its subsidiaries so to do, except:
(A) liens for taxes not delinquent or being contested in good faith and by appropriate proceedings and for which reserves adequate under generally accepted accounting principles are being maintained,
(B) deposits or pledges to secure obligations under workmen's compensation, social security or similar laws, or under unemployment insurance,
(C) deposits or pledges to secure bids, tenders, contracts (other than contracts for the
payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business,
(D) mechanics', workmen's, materialmen's or other like liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith, and
(E) any mortgage, encumbrance or other lien upon, or security interest in, any property hereafter acquired by the Borrower or its subsidiaries, created contemporaneously with such acquisition to secure or provide for the payment or financing of any part of the purchase price thereof, or the assumption of any mortgage, encumbrance or lien upon, or security interest in, any such property hereafter acquired existing at the time of such acquisition, or the acquisition of any such property subject to any mortgage, encumbrance or other lien or security interest without the assumption thereof, provided that such mortgage, encumbrance, lien or security interest attaches only to the property so acquired.
(iv) Make loans or advances to any person, firm, joint venture, corporation or other entity, or permit any subsidiary so to do, exceeding in the aggregate for the Company and its subsidiaries $5,000,000 principal amount at any one time outstanding, other than intercompany loans and loans to employees, officers and directors in the ordinary course of business.
(v) Assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, joint
venture, corporation or other entity (other than in connection with a
merger permitted by Section 3(b)(i) above), or permit any subsidiary so to
do, except (A) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business,
(B) guarantees by the Company of contractual obligations (other than for
the payment of borrowed money) of any wholly-owned subsidiary, and
(C) guarantees of indebtedness for borrowed money permitted under
clause (ii) above.
(vi) Declare any cash dividends on any shares of its capital stock, or apply any of its property or assets to the purchase, redemption or other retirement
of, or make any other distribution by reduction of capital or otherwise in respect of, capital stock of the Company.
4. CONDITIONS
The obligation of the Lender to make the Loans is subject to the following conditions precedent:
(a) On the Drawdown Date the Lender shall have received the following documents, each satisfactory in form and substance to the Lender:
(i) A Note, dated the Drawdown Date.
(ii) Certified copies of all corporate action taken by the Borrower to authorize this Agreement and such Note.
(iii) The favorable written opinion of Wilson, Sonsini, Goodrich & Rosati, counsel for the Borrower, dated the Drawdown Date, as to the matters referred to in paragraphs (a)-(e) and (g) of Section 2.
(b) On the Drawdown Date (i) the Borrower shall have complied with
all the terms, covenants and conditions of this Agreement, (ii) there shall
have occurred no Event of Default and no event which, with the giving of
notice or the lapse of time, or both, would constitute an Event of Default,
(iii) the representations and warranties contained in Section 2 shall be
true in all material respects with the same effect as though made on and as
of the Drawdown Date, and (iv) the Lender shall have received a certificate
dated the Drawdown Date and signed by an executive officer of the Borrower
to the foregoing effect.
5. EVENTS OF DEFAULT
(a) If one of more of the following events (each, an "Event of Default") shall occur:
(i) Default shall be made in the payment of principal of or interest on any of the Loans when due and payable; or
(ii) Default shall be made in the due observance or performance of any term, covenant, or agreement contained in Section 3(b); or
(iii) Default shall be made in the due observance or performance of any other term, covenant or agreement contained in this Agreement, and such default shall have continued unremedied for a period of 30 days after any officer of the Borrower becomes aware of such default; or
(iv) Any representation or warranty made by the Borrower herein or any statement or representation made in any certificate, report or opinion delivered in connection herewith shall prove to have been incorrect or misleading in any material respect when made; or
(v) Any obligation of the Borrower or any of its subsidiaries for the payment of borrowed money is not paid when due or becomes or is declared due and payable prior to the expressed maturity thereof, or there shall have occurred an event which, with the giving of notice or lapse of time, or both, would cause any such obligation to become or be declared due and payable; or
(vi) The Borrower or any of its subsidiaries makes an assignment for the benefit of creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or any trustee for the Borrower or any subsidiary or any substantial part of its property, commences any proceeding relating to the Borrower or any subsidiary under any reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against the Borrower or any subsidiary any such proceeding which remains undismissed for a period of 60 days, or the Borrower or any subsidiary by any act indicates its consent to, approval of or acquiescence in any such proceeding or the appointment of any receiver of or any trustee for the Borrower or any subsidiary or any substantial part of its property, or suffers any such receivership or trusteeship to continue undischarged for a period of 60 days; or
(vii) One or more judgments against the Borrower or any of its subsidiaries or attachments against its property, which in the aggregate exceed $10,000,000, or the operation or result of which could be to interfere materially and adversely with the conduct of the business of the Borrower or any subsidiary, remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of 30 days;
then upon the happening of any of the foregoing Events of Default which shall be continuing, the Notes shall become and be immediately due and payable upon declaration to that effect delivered by the Lender to the Borrower; provided, that upon the happening of any event specified in subsection (f) of this Section 5 the Notes shall be immediately due and payable without declaration or other notice to the Borrower. The Borrower expressly waives any presentment, demand, protest or other notice of any kind.
(b) In the event the Notes are not paid as contemplated by
Section 5(a), the Lender shall have the option of converting the Notes into such
number of shares of Series C Preferred Stock as is determined by dividing the
unpaid principal amount by $6.88 or the corresponding adjusted Series B
Conversion Price determined as provided in the Borrower's Certificate of
Incorporation.
6. MISCELLANEOUS
(a) The Borrower agrees to pay all out-of-pocket expenses incurred by the Lender, including reasonable fees and disbursements of counsel, in connection with the preparation, execution and delivery of, and the enforcement of, this Agreement and the Notes.
(b) This Agreement shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that neither party may assign any of its rights hereunder without the prior written consent of the other parties.
(c) Any provision of this Agreement or the Notes may be amended or waived only if such amendment or waiver is in writing and is signed by the Borrower and the Lender.
(d) Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by the Lender of any right preclude any other or future exercise thereof or the exercise of any other right.
(e) In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.
(f) Any judicial proceeding against the Borrower with respect to this Agreement or the Notes may be brought in any court of competent jurisdiction in the City of New York. The Borrower hereby accepts the jurisdiction of any such court and irrevocably agrees to be bound by any judgment rendered thereby, and waives any objection as to the venue of any proceeding brought in such court. Nothing herein shall limit the right of the Lender to bring proceedings against the Borrower in the courts of any other jurisdiction.
(g) Any communication, demand or notice to be given hereunder or with respect to the Notes will be duly given when delivered in writing (including communication by facsimile) to the following addresses:
If to the Borrower:
Address: UTStarcom, Inc.
333 Hegenberger Road, Suite 328
Oakland, California 94621
Attention: Mr. Hong Liang Lu, President
Telephone: (510) 632-8802
Facsimile: (510) 632-8827
|
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Steven E. Bochner, Esq.
Carmen Chang, Esq.
Telephone: (415) 493-9300
Facsimile: (415) 493-6811
If to the Lender:
Address: SOFTBANK Corp.
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103, Japan
Attention: Yoshitaka Kitao, Executive Vice
President and CFO
Hitoshi Hasegawa, Esq.
General Counsel
Telephone: (813) 5642-8020
Facsimile: (813) 5641-3400
|
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Stephen A. Grant, Esq.
Telephone: (212) 558-3504 Facsimile: (212) 558-3588
or to such other address as either party may specify by notice in writing to the other party.
(h) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, United States of America.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
UTSTARCOM, INC.
By: /s/ Ed Supplee --------------------------- Ed Supplee Vice President of Finance Chief Financial Officer |
SOFTBANK CORP.
By: /s/ Masayoshi Son
---------------------------
Masayoshi Son
President and Chief
Executive Officer
|
EXHIBIT A
PROMISSORY NOTE
U.S.$[LOAN AMOUNT] [DRAWDOWN DATE]
UTSTARCOM, INC., a Delaware corporation (the "Borrower"), for value received, hereby promises to pay to the order of SOFTBANK Corp., a Japanese corporation (the "Lender"), the principal sum of $________ on the Maturity Date (as such term is defined in the Loan Agreement referred to below), and to pay interest on such principal sum at a rate of 10% per annum on the last Business Day of March and September, and on the Maturity Date, as provided in such Loan Agreement.
This is one of the Notes referred to in a Loan Agreement, dated as of June 15, 1998, between the Borrower and the Lender and its maturity is subject to acceleration on the terms and conditions set forth therein.
If this Note becomes due and payable on a Saturday, Sunday or other day on which commercial banks in Tokyo and New York City are authorized by law to close, the maturity shall be extended to the next succeeding business day, and interest shall be payable at the rate herein specified during such extension.
This Note shall be governed by and construed in accordance with the laws of the State of New York.
UTSTARCOM, INC.
EXHIBIT 23.1
CONSENT OF PRICEWATERHOUSECOOPERS LLP
We hereby consent to the use in this registration statement on Form S-1 of our reports dated December 16, 1999, relating to the financial statements and financial statement schedule of UTStarcom, Inc. which appear in such registration statement. We also consent to the references to our firm under the heading "Experts."
/s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Francisco, California December 20, 1999 |
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED FINANCIAL STATEMENTS OF UTSTARCOM, INC. AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998, AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR | 9 MOS |
| FISCAL YEAR END | DEC 31 1998 | DEC 31 1999 |
| PERIOD START | JAN 01 1998 | JAN 01 1999 |
| PERIOD END | DEC 31 1998 | SEP 30 1999 |
| CASH | 16,126 | 35,275 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 63,952 | 90,311 |
| ALLOWANCES | 3,957 | 5,718 |
| INVENTORY | 19,540 | 28,388 |
| CURRENT ASSETS | 124,559 | 157,540 |
| PP&E | 12,063 | 13,455 |
| DEPRECIATION | 3,718 | 5,553 |
| TOTAL ASSETS | 142,121 | 176,683 |
| CURRENT LIABILITIES | 68,247 | 92,857 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 74 | 73 |
| COMMON | 1,995 | 402 |
| OTHER SE | 0 | 0 |
| TOTAL LIABILITY AND EQUITY | 142,121 | 176,683 |
| SALES | 105,167 | 124,701 |
| TOTAL REVENUES | 105,167 | 124,701 |
| CGS | 65,246 | 72,677 |
| TOTAL COSTS | 36,047 | 40,219 |
| OTHER EXPENSES | 1,031 | (198) |
| LOSS PROVISION | 645 | 1,761 |
| INTEREST EXPENSE | 213 | 885 |
| INCOME PRETAX | 2,034 | 12,102 |
| INCOME TAX | 1,414 | (1,023) |
| INCOME CONTINUING | 1,366 | 11,892 |
| DISCONTINUED | (893) | (1,656) |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | 473 | 10,236 |
| EPS BASIC | .32 | 1.18 |
| EPS DILUTED | .03 | 0.14 |