-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J426DO2QPFaDtAp2yNIrZlyIJhu5LvsXM26mQTJZ+tH71+EQVD4xVkWG4agpJ2fo 9bWtSjjFi1z9tZJOX28dBA== 0000927016-99-003312.txt : 19990928 0000927016-99-003312.hdr.sgml : 19990928 ACCESSION NUMBER: 0000927016-99-003312 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19990927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILLITECH CORP CENTRAL INDEX KEY: 0000712511 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042751645 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-87885 FILM NUMBER: 99717948 BUSINESS ADDRESS: STREET 1: 20 INDUSTRIAL DRIVE EAST CITY: SOUTH DEERFIELD STATE: MA ZIP: 01373 BUSINESS PHONE: 4136650089 MAIL ADDRESS: STREET 1: 20 INDUSTRIEAL DRIVE EAST STREET 2: P O BOX 109 CITY: SOUTH DEERFEILD STATE: MA ZIP: 013730109 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on September 27, 1999. File No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------- MILLITECH CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 3679 04-2751645 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction of Classification Code Number) Identification No.) incorporation or organization) 20 Industrial Drive East South Deerfield, MA 01373-0109 (413) 665-8551 (Address, including ZIP code, and telephone number, including area code, of registrant's principal executive offices) John L. Youngblood President and Chief Executive Officer MILLITECH CORPORATION 20 Industrial Drive East South Deerfield, MA 01373-0109 (413) 665-8551 (Name, address, including ZIP code, and telephone number, including area code, of agent for service) Copies to: DAVID L. LOUGEE, ESQ. WILLIAM R. KOLB, ESQ. JEFFREY L. DONALDSON, ESQ. JOHN D. HANCOCK, ESQ. Mirick, O'Connell, DeMallie & Lougee, Foley, Hoag & Eliot llp llp One Post Office Square 100 Front Street Boston, MA 02109 Worcester, Massachusetts 01608-1477 (617) 832-1000 (508) 791-8500 ----------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. ----------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If 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 the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ----------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed maximum aggregate Amount of Title of each class of offering registration securities to be registered price(1) fee - -------------------------------------------------------------------------------- Common Stock, $.01 par value.......................... $72,450,000 $20,141.10 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(1) Estimated pursuant to Rule 457(o) solely for purposes of calculating the registration fee. ----------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1999 Shares [Logo of Telaxis Communications Corporation] Common Stock ------------ Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $ and $ per share. We will apply to list our common stock on The Nasdaq Stock Market's National Market under the symbol "TLXS." The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares. Investing in our common stock involves risks. See "Risk Factors" on page 6.
Underwriting Discounts and Proceeds to Price to Public Commissions Telaxis --------------- ------------- ----------- Per share.................................. $ $ $ Total...................................... $ $ $
Delivery of the shares of common stock will be made on or about , 1999. 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. Credit Suisse First Boston Banc of America Securities LLC CIBC World Markets The date of this prospectus is , 1999 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. ------------ TABLE OF CONTENTS
Page ---- Prospectus Summary.................. 3 Risk Factors........................ 6 Special Note Regarding Forward- Looking Statements................. 14 Use of Proceeds..................... 15 Dividend Policy..................... 15 Capitalization...................... 16 Dilution............................ 18 Selected Financial Data............. 19 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 20 Business............................ 29
Page ---- Management....................... 40 Material Relationships and Related-Party Transactions...... 47 Principal Stockholders........... 49 Description of Capital Stock..... 51 Shares Eligible for Future Sale.. 55 Underwriting..................... 57 Notice to Canadian Residents..... 58 Legal Matters.................... 59 Experts.......................... 59 Where You Can Find More Information..................... 60 Index to Financial Statements.... F-1
------------ You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. ------------ Dealer Prospectus Delivery Obligation Until , 1999 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. ------------ "Telaxis Communications," "Telaxis" and the Telaxis logo are our trademarks. All other trademarks or service marks appearing in this prospectus are trademarks or service marks of the respective companies that own them. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully. Telaxis Communications Corporation We develop and supply high-speed, or broadband, wireless access equipment used by network service providers to deliver integrated voice, video and data services to business and residential subscribers. Our products provide a high performance alternative to other access technologies, such as traditional copper wires, digital subscriber lines and cable modems, that connect the network service provider and the subscriber. Our products enable high-speed Internet access, electronic commerce, remote access, telecommuting and extensions of corporate networks to branch offices. Using our products, network service providers can enter markets quickly and economically, and then expand their networks as the number of subscribers grows. Our product line consists of wireless transmitter and receiver equipment that is installed outdoors in a cell-based arrangement. Each cell consists of a hub that transmits and receives network traffic to and from customer premises equipment, or CPE units, installed at multiple subscriber locations. This cell- based arrangement is commonly referred to as point-to-multipoint architecture. We have developed two families of broadband point-to-multipoint wireless access products. Our modular hubs and CPE units can be rapidly tailored for competitive trials and initial commercial deployments. These modular products address a network service provider's need for accelerated time-to-market. Our planar hubs and CPE units, based on a printed circuit board design, can be mass-produced using low-cost, highly automated manufacturing techniques. These planar products address a network service provider's need for cost-effective mass deployment. We sell our products primarily to network system integrators, such as Newbridge Networks and Motorola, which include our products in broadband wireless systems sold to network service providers. Our products have been successfully demonstrated in more than 40 customer trials worldwide over the last four years. We believe this experience is unmatched by any other supplier of broadband point-to-multipoint wireless access equipment. As a result of these trials, our products have been selected, either directly or by network system integrators, for commercial deployment by network service providers, including: . American Wireless . Korea Telecom . BellSouth Movicom . Maxlink Communications . Central Texas Communications . Nexsatel . Convergence Communications . South Central Telecom . Formus . Telenordia . Gateway Telecom . Tri-Corners Telecom . Home Telephone Our objective is to be the leading developer and supplier of broadband point-to-multipoint wireless access equipment for use by network service providers worldwide. Our strategy to accomplish this objective is to: . Penetrate the global market with our two product families . Capitalize upon our early customer acceptance . Expand strategic relationships with network system integrators . Reduce product costs while increasing performance and adding functionality . Leverage technology partnerships . Establish brand identity 3 Our principal executive offices and manufacturing facilities are located at 20 Industrial Drive East, South Deerfield, Massachusetts 01373-0109. Our telephone number is (413) 665-8551. Our Web site is located at www.telaxiscomm.com. Information contained in our Web site is not incorporated by reference into this prospectus, and you should not consider this information as part of this prospectus. Our company was incorporated in Massachusetts in 1982. The Offering Common stock offered.............. shares Common stock outstanding after shares this offering.................... Use of proceeds................... For general corporate purposes, including working capital, and for potential acquisitions. Proposed Nasdaq National Market TLXS symbol........................... The number of shares to be outstanding after the offering is based on the number of shares of common stock outstanding as of June 30, 1999 and gives effect to the conversion of all outstanding shares of our preferred stock into 20,976,881 shares of common stock upon the closing of this offering. This number excludes: . 2,850,651 shares issuable upon the exercise of options outstanding as of June 30, 1999 at an exercise price of $.50 per share . 5,786,383 shares available for issuance upon the exercise of options which have been or may be granted after June 30, 1999 under our active stock plans, including our 1999 stock plan adopted on September 13, 1999 . 2,237,445 shares issuable upon the exercise of warrants outstanding as of June 30, 1999 at a weighted average exercise price of $.57 per share 4 Summary Financial Data (in thousands, except per share data) The following tables summarize our financial data. The statement of operations data reflect only our continuing operations. You should read our financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The pro forma balance sheet data reflect our issuance of $1.0 million of subordinated promissory notes in July 1999, our issuance of $14.9 million, net of estimated issuance costs, of redeemable preferred stock on September 17, 1999 and our contemporaneous repayment of $2.0 million of subordinated promissory notes, and the conversion of our currently outstanding redeemable preferred stock into common stock upon the closing of this offering. The pro forma as adjusted balance sheet data reflect our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Year Ended December 31, Six Months Ended June 30, -------------------------- ---------------------------- 1996 1997 1998 1998 1999 ------- ------- -------- ------------ ------------ (unaudited) (unaudited) Statement of Operations Data: Sales................... $ 201 $ 1,733 $ 2,386 $ 1,037 $ 2,762 Gross margin (loss)..... 54 (595) (4,814) (751) (17) Operating loss.......... (1,829) (6,726) (13,172) (5,331) (3,716) Loss from continuing operations............. $(2,239) $(6,712) $(11,253) $ (4,751) $ (3,845) Basic and diluted loss per share from continuing operations.. $ (2.07) $ (7.08) $ (11.44) $ (4.83) $ (3.87) Shares used in computing basic and diluted loss per share......... 1,080 948 984 983 993 Pro forma basic and diluted loss per share from continuing operations(1).......... $ (0.89) $ (0.25) Shares used in computing pro forma basic and diluted loss per share(1)............... 12,638 15,303
- -------------------- (1) For an explanation of these computations, see Note 1 to our financial statements.
June 30, 1999 ----------------------------------- Pro Forma Actual Pro Forma As Adjusted ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) Balance Sheet Data: Cash and cash equivalents................. $ 405 $14,305 $ Working capital (deficit)................. (421) 15,479 Total assets.............................. 10,650 24,550 Long-term debt and capital lease obligations.............................. 1,686 1,686 Redeemable preferred stock................ 32,793 -- Total stockholders' (deficit) equity...... (29,875) 17,818
Except where we state otherwise, the information we present in this prospectus: . reflects the discontinuation of our millimeter-wave products business segment . reflects the amendment of our charter to, among other things, increase the authorized number of shares of common stock to 100,000,000 shares and change our name to "Telaxis Communications Corporation" from "Millitech Corporation" . assumes that the underwriters do not exercise their option to purchase additional shares after the closing of this offering 5 RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial also may impair our business operations. If any of the following risks occurs, our business, operating results and financial condition could be seriously harmed. In addition, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. Risks Related To Our Business We have incurred substantial losses and may not be profitable in the future. Our continuing operations have not achieved profitability. We cannot predict whether we will become profitable. Our failure to achieve profitability within the time frame that investors expect may adversely affect the market price of our common stock. We had losses from continuing operations of $3.8 million in the six months ended June 30, 1999, $11.3 million in 1998 and $6.7 million in 1997. As a result of losses from continuing and discontinued operations, at June 30, 1999, we had an accumulated deficit of $30.6 million. We have generated relatively small amounts of product sales. We do not believe that our sales growth rates are sustainable because those rates are calculated from a small revenue base. In addition, we intend to increase expenditures in all areas, including manufacturing and engineering, research and development, and sales and marketing, in order to execute our business strategy. Disappointing quarterly results could cause our stock price to fall. Our quarterly sales and operating results are difficult to predict and may continue to fluctuate significantly from quarter to quarter. If our quarterly sales or operating results fall below the expectations of investors, the price of our common stock could fall substantially. Our quarterly results may fluctuate for several reasons, including the following: . the timing and size of orders for our products . the mix of our product sales, which we expect will shift over time generally toward our less profitable CPE units . the hiring and loss of personnel, particularly in manufacturing and sales and marketing, including significant recruiting bonuses or other hiring expenses . our lengthy sales cycle, which typically ranges from six to 18 months, making it difficult for us to predict our future business operations and make plans for the future . our manufacturing capacity constraints and our ability to fulfill orders . the timing of our investments in additional manufacturing capacity . unforeseen additional charges related to our discontinued operations We expect to increase our research and development, sales and marketing, and general and administrative expenses. As a result, we expect to continue to incur significant quarterly losses for at least the next several quarters. Moreover, many of our expenses, such as employee compensation and rent, are relatively fixed. We budget some of these expenses largely according to the sales we expect to generate, and if our sales fall below our expectations, we could incur significantly greater quarterly losses. Other factors could also cause variations in our quarterly sales and operating results. Many of these factors are outside our control. 6 Do not rely on our discontinued operations to predict our future operating results. Historically, our operations focused on a business segment that we discontinued in August 1999. We classify the results of that segment as a discontinued operation in our financial statements. We shipped our first prototype broadband point-to-multipoint wireless access equipment for trial in 1995. However, the commercial market for these products did not emerge until recently. We received the first volume order for our broadband point-to- multipoint wireless access products in June 1999. Accordingly, you have limited financial data that you can use to evaluate our future prospects in the broadband point-to-multipoint wireless access market. You should evaluate our prospects in light of the risks, expenses and challenges we will encounter because of our recent focus on this market. We depend upon a small number of network system integrators for substantially all of our sales. We depend on a small number of network system integrators to market, sell, install, finance and support broadband point-to-multipoint wireless access systems that include our products. Our network system integrators' failure to accomplish these tasks successfully would adversely affect our sales and operating results. One network system integrator accounted for 70% of our sales in the six months ended June 30, 1999 and three network system integrators accounted for 68% of our sales in 1998. These sales related primarily to customer trials and initial commercial deployments. We have no long-term purchase commitments or exclusive purchase agreements with these or any other customers. Because there are a relatively small number of network system integrators with the resources and technical expertise necessary to offer broadband point-to-multipoint wireless access systems, and because these network system integrators extensively test and evaluate products such as ours before making a purchase decision, we may be unable to replace our network system integrators quickly. Moreover, because we may be able to supply only a few network system integrators, we may be unable to reduce our dependence on a few customers. Our network system integrators could stop purchasing products from us because our products do not meet their needs, because they cannot sell broadband point-to-multipoint wireless access solutions profitably or for other reasons, such as a corporate reorganization, acquisition or other transaction that alters their strategic focus. We do not control our network system integrators and have little, if any, influence over their strategic decisions. Those decisions could limit our prospects in ways we cannot predict. If our customers reduce orders for our products, we could lose sales and suffer damage to our reputation in the industry. The failure of our network system integrators to sell broadband point-to- multipoint wireless access solutions that include our products would adversely affect our sales and operating results. Even if our products meet all of our network system integrators' needs, other factors may impede the success of their broadband point-to-multipoint wireless access solutions. For example, installation costs may be high and difficult to reduce. In addition, our network system integrators may not have or use the financial, marketing and other resources necessary to ensure that their solutions will succeed in the marketplace. For example, network service providers may insist that network system integrators provide extensive financing for the deployment of large broadband point-to-multipoint wireless access networks, and our network system integrators may be unwilling or unable to provide the necessary financial resources. Without providing financing, our network system integrators may be unable to sell systems containing our products, which would adversely affect our sales and operating results. We may not be able to manufacture our products as quickly as our customers require, which could cause us to lose sales. Currently, we are unable to manufacture products as quickly as our customers require. This manufacturing constraint could cause us to lose sales, damage our reputation, incur financial liabilities and jeopardize our long-term prospects. If we receive any substantial order in the near future, we may be unable to fulfill the order on a timely basis. We currently have a single line of assembly, and equipment downtime at any stage of the assembly process would halt production. We believe we will need to build additional manufacturing capacity in the near future. Many factors may impair our ability to manufacture our products in large quantities, including: . our limited experience with volume manufacturing 7 . the complexity of our products . our ability to obtain numerous sole-source components . our ability to hire sufficient technical and engineering talent . our ability to manage our supply chain and inventory levels . our ability to maintain quality in a high volume production environment . our limited financial resources Any third-party manufacturer we engage may not perform to our satisfaction, which could adversely affect our business. We believe we will need to engage third-party manufacturers to supplement our manufacturing capacity. Few, if any, third-party manufacturers have the technical capabilities to meet our quality standards and production goals. Therefore, it may be difficult and time-consuming to identify and engage an appropriate third-party manufacturer. Any third-party manufacturer we engage may not perform to our expectations. We will have little, if any, control over their performance. Their failure to meet our expectations in any respect could cause us to lose sales, harm our reputation and otherwise adversely affect our business. Moreover, we have limited experience dealing with third-party manufacturers and may encounter unforeseen problems that are costly, time- consuming and difficult to resolve. Any such problem could have a material adverse effect on our business. If we are unable to engage a third-party manufacturer, we will need to build additional manufacturing facilities of our own. Our products include single-source components, and our inability to obtain these components would halt production and could have a material adverse effect on our sales and operating results. We currently purchase a number of important components, such as electronic filters, semiconductor devices, circuit boards, frequency references and housings, from single-source suppliers for which alternative sources are not readily available. Any delay or interruption in the supply of these components could impair our ability to deliver our products and could reduce our sales. Any of our single-source suppliers could enter into exclusive agreements with or be acquired by our competitors, increase their prices, refuse to sell their products, discontinue products or go out of business. Even if alternative suppliers are available to us, identifying them is difficult and time- consuming, and they may not meet our quality standards. We may not be able to obtain sufficient quantities of these components on the same or substantially the same terms. Consolidations among our suppliers could result in other sole- source supply situations. An increase in the cost of these components could make our products less competitive, lower our margins and have a material adverse effect on our business, financial condition and results of operations. As our customers enter new markets, we sometimes have to adapt our products rapidly to the frequency and regulatory requirements that exist in those markets, and we may incur significant costs making the necessary modifications. Each of our products is designed for a specific range of frequencies. Because different governments license different portions of the frequency spectrum for the broadband wireless access market, and because network service providers license a multitude of specific frequencies, we sometimes have to adapt our products rapidly to use different frequencies. This design process can be difficult and time-consuming, and could therefore increase our costs and cause delays in the delivery of products to our customers. We may be unable to achieve the continuing cost reductions and technological improvements required for our products to remain competitive. We expect that market conditions, particularly falling prices for competing broadband access solutions, will force us to reduce our prices over time. If we do not continue to reduce our product costs, we will continue to incur operating losses. In order to reduce product costs, we must use low-cost, automated manufacturing 8 techniques, increase manufacturing volume and improve yield. Low-cost automated manufacturing of products such as ours has not been demonstrated to be feasible in high volumes. We may not have and may not be able to acquire the experience, technical know-how and other resources to achieve these goals. Our products have been purchased primarily by network system integrators for customer trials and for sales to network service providers for early deployment. Before our network system integrators commit to future orders for our products, they may establish additional product specifications, manufacturing parameters or other conditions of sale that we cannot meet. Our failure or unwillingness to meet those specifications, parameters or conditions could have a material adverse effect on our sales and operating results. We expect to expand our operations significantly, and our failure to manage our expansion could harm our business and adversely affect our financial condition and results of operations. We are rapidly and significantly expanding our operations, including the number of our employees, the geographic scope of our activities and our product offerings. Our failure to manage growth effectively could harm our business and adversely affect our financial condition and operating results. This expansion has placed a significant strain on all of our resources. We are reassigning or retraining approximately 20 employees from our discontinued operations to work in our continuing operations and we are converting facilities from our discontinued operations for use in our continuing operations. We expect that this retraining and conversion process will be difficult and time-consuming. To manage our growth, we must: . hire, train and manage significant numbers of qualified employees, particularly manufacturing, engineering, sales and marketing personnel . improve our core technologies . expand our manufacturing capabilities . manage our relationships with customers, suppliers and other business partners . improve our existing and implement new operational, financial and management information controls, reporting systems and procedures We expect to continue to derive a substantial portion of our sales from international sources, and difficulties associated with international operations could harm our business. We sell substantially all of our products to domestic and foreign network system integrators, which offer systems including our products to network service providers on a global basis. We believe our products are primarily used by network service providers outside the United States. Sales outside the United States frequently involve additional risks and difficulties, including: . licenses, tariffs and other trade barriers imposed on products such as ours . political and economic instability . compliance with a wide variety of complex laws and treaties relating to telecommunications equipment . delays or difficulties collecting accounts receivable . the significant lack of legal protection for intellectual property . fluctuations in currency exchange rates If our network system integrators suffer losses as a result of any of these factors in connection with foreign deployments, they could seek to renegotiate terms or otherwise pass those losses on to us. Either outcome could have a material adverse effect on our sales or operating results. The loss of any of our executive officers or other key employees could adversely affect our business. Our executive officers and key employees are crucial to our future success, and the loss of their services could seriously impair our ability to implement our business plan successfully. If we lost the services of any of 9 these individuals, we might lack needed leadership, experience, industry expertise and technical expertise, and we would have to devote substantial resources to finding a replacement. Until we found a suitable replacement, our management team would be incomplete, which could have a material adverse effect on our business. In addition, our highly technical business requires significant numbers of qualified and experienced engineers, designers and other technical employees, many of whom have attractive employment alternatives. The strong demand for these employees raises our employee compensation expenses, and our failure to retain these employees or hire qualified replacements for reasonable compensation could have a material adverse effect on our business and results of operations. If we, our suppliers, network system integrators, or network service providers fail to be year 2000 compliant, our business might be severely disrupted. Software and hardware that inaccurately process dates after December 31, 1999 present several areas of risk for our business. In particular, we are subject to: . costs and lost sales that we may incur if any of our products fail to be year 2000 compliant, including potential warranty or other claims from our customers; . business shutdowns or slowdowns as a result of a failure of the internal systems we use to run our business, which could disrupt our business operations; . interruption of product or component supplies, or a reduction in product quality, as a result of the failure of systems used by our suppliers, including any third-party manufacturer we may engage; and . reductions or deferrals in sales as a result of year 2000 compliance issues of network system integrators or network service providers. Our intellectual property rights may be inadequate to preserve or prevent others from using our proprietary technology. Our success depends to a significant degree upon the preservation and protection of our product and manufacturing process designs and other proprietary technology. Our intellectual property rights, and our ability to enforce those rights, may be inadequate to prevent others from using our technology or substantially similar technology they may independently develop. The use of that technology by others could eliminate any competitive advantage we have, cause us to lose sales and otherwise harm our business. To protect our proprietary technology, we generally limit access to our technology, treat portions of our technology as trade secrets and obtain confidentiality or non- disclosure agreements from persons with access to our technology. We have also obtained and applied for patents in the United States and other countries, and we rely on protections available under copyright and trademark law. These steps may be inadequate to provide the protection we need. A significant portion of our proprietary technology is know-how, and employees with know-how may depart before transferring their know-how to other employees. Moreover, the laws of other countries where we market our products may afford even less protection for our intellectual property. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and costly, even if we were to prevail. Claims by others that we have violated their intellectual property rights could prevent the sale of our products, cause us to pay damages and otherwise harm our business. If we were to discover that any of our products violated the intellectual property rights of a third party, we might be unable to redesign our product to avoid violating their rights, and we might be unable to obtain a license on commercially reasonable terms to use their intellectual property. In such a case, we may be unable to continue selling that product, which could have a material adverse effect on our revenues. For instance, we have received a letter claiming that we may owe patent license fees for wafers we purchased for research and development purposes not involving our continuing operations. We do not conduct comprehensive patent searches to determine whether the technology used in our products infringes any patents, and any searching we do conduct would not reveal technology covered by confidential patent applications. Any claim that we infringe or otherwise violate the intellectual property rights of others could cause us to incur substantial costs defending against the claim, even if the claim 10 is invalid, and could distract our management from our business. Furthermore, a party making such a claim could obtain a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from selling our products. Any of these events could have a material adverse effect on our business, operating results and financial condition. RISKS RELATED TO OUR INDUSTRY The broadband point-to-multipoint wireless access industry is new and its future is uncertain. If significant demand for this technology does not develop, our business, financial condition and results of operations will be adversely affected. Broadband point-to-multipoint wireless access technology is new and unproven in the marketplace. This technology may prove unsuitable for widespread commercial deployment. Many factors will influence the success or failure of broadband wireless access technology, including: . its capacity to handle growing demands for faster transmission of increasing amounts of video, voice and data . its cost-effectiveness and performance compared to other forms of broadband access, whose prices and performance continue to improve . its reliability and security . whether the products can be manufactured in sufficient volume . its suitability for a sufficient number of geographic regions . the availability of sufficient frequencies for network service providers to deploy products at commercially reasonable rates . the availability of sufficient site locations for network service providers to install products at commercially reasonable rates . safety and environmental concerns regarding broadband wireless transmissions Broadband point-to-multipoint wireless access solutions are also competing with other high-speed solutions such as digital subscriber lines, cable, fiber, other high-speed wire, satellite and point-to-point wireless technologies. Many of these alternative technologies can take advantage of existing installed infrastructure and have achieved significantly greater market acceptance and penetration than broadband point-to-multipoint wireless access technologies. Moreover, current broadband point-to-multipoint wireless access technology has inherent technical limitations that may inhibit its widespread adoption in many areas, including the need for line-of-sight installation and reduced communication distance in bad weather. We expect broadband point-to-multipoint access technologies to face increasing competitive pressures from both current and future alternative technologies. In light of these factors, many network service providers may be reluctant to invest heavily in broadband point-to- multipoint wireless access solutions and, accordingly, the market for these solutions may fail to develop or may develop more slowly than we expect. Either outcome would have a material adverse effect on our business, financial condition and results of operations. The broadband point-to-multipoint wireless access industry is intensely competitive, and our failure to compete effectively could adversely affect our sales and operating results. The market for broadband point-to-multipoint wireless access equipment is rapidly evolving and highly competitive. A number of large telecommunications equipment suppliers, such as Alcatel, Ericsson and Nortel Networks, as well as a number of smaller companies, have developed or are developing products that compete with ours. Many of our competitors are substantially larger than we are and have significantly greater financial, sales, marketing, distribution, technical, manufacturing and other resources. These competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties to increase their ability to gain market share rapidly. We expect to face increasing competitive pressures from both current and future competitors in the markets we serve. 11 Compliance with changing domestic and foreign laws, regulations and industry standards may be difficult and may adversely affect our sales and results of operations. Participants in the broadband industry, including ourselves and other suppliers of broadband point-to-multipoint wireless access equipment, suppliers of competing communications technologies, network system integrators and network service providers, must comply with a significant number of evolving communications laws, regulations and standards in the United States and abroad. Industry participants may face additional costs, difficulties and challenges if new laws, regulations or standards are adopted, or if existing laws, regulations or standards are re-interpreted, or if they undertake activities that require them to comply with additional laws, regulations and standards. These costs, difficulties and challenges could have a material adverse effect on the market for our products, which could cause us to lose sales, or could otherwise render our business unprofitable. If our products do not comply with all of the legal and regulatory requirements and standards that apply in a jurisdiction, we may face liability for any violation and may be unable to offer our products in that jurisdiction. These requirements and standards vary widely among jurisdictions, and we may be unable to obtain necessary approvals for the marketing and sale of our products. In the United States, the Telecommunications Act of 1996 significantly altered the regulatory environment for the communications industry, and both the United States Congress and the Federal Communications Commission continue to monitor and respond to the effects of that legislation. For example, the FCC is considering changes to its regulations relating to access to telephone lines, the ability of third parties to install equipment at a network service provider's central location and the compatibility requirements for equipment that runs on telephone lines. Large, well-financed companies may successfully lobby for new laws or regulations that operate to our disadvantage. In addition, a reversal of the general trend toward deregulation in the telecommunications industry could materially and adversely affect network service providers, and thereby materially and adversely affect our business, financial condition and results of operations. RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK The market price of our common stock is likely to be volatile. The market price of our common stock could fluctuate significantly for many reasons, including the following: . our financial performance or the performance of our competitors . technological innovations or other trends in our industry . successes or failures at significant product evaluations or field trials . the introduction of new products by us or our competitors . the arrival or departure of key personnel . acquisitions, strategic alliances or joint ventures involving us or our competitors . changes in estimates of our performance or recommendations by securities analysts . decisions by major participants in the communications industry . decisions by investors to de-emphasize investment categories, groups or strategies that include our company or industry . market conditions in the industry, the financial markets and the economy as a whole In addition, the stock market has recently experienced extreme price and volume fluctuations. These fluctuations are often unrelated to the operating performance of particular companies. These broad market 12 fluctuations may adversely affect the market price of our common stock. When the market price of a company's stock drops significantly, stockholders often institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources. Any of these events could have a material adverse effect on our business, financial condition and results of operations. Future sales of common stock by our existing stockholders could cause our stock price to fall. If our stockholders sell substantial amounts of common stock in the public market, including shares issuable upon the exercise of outstanding options and warrants, the market price of our common stock could fall. The perception among investors that these sales will occur could produce the same effect. After this offering, we will have shares of common stock outstanding. The shares we are selling in this offering will be freely tradeable in the public market. Giving effect to lock-up agreements executed by our existing stockholders, the remaining shares of common stock outstanding after this offering will be available for sale in the public market as follows:
Percent of Total Shares Number of Shares Outstanding Date of Availability for Sale ---------------- ---------------- ----------------------------- % , 1999 (date of this prospectus) to , 2000 (90 days after the date of this prospectus) , 2000 (90 days after the date of this prospectus) to , 2000 (180 days after the date of this prospectus), in some cases subject to Rule 144 , 2000 (180 days after the date of this prospectus), in some cases subject to Rule 144 At various times after , 2000
Our underwriters could waive the selling restrictions imposed by the lock-up agreements at any time, which could accelerate the resale of outstanding shares of common stock. In addition, at , 1999, there were outstanding warrants to purchase shares and options to purchase shares not subject to lock-up agreements. The shares issuable upon exercise of the warrants will become available for sale in the public market in accordance with Rule 144 and the shares issuable upon exercise of the options will become available for sale in the public market upon vesting and after we file a registration statement covering those shares. We intend to file such a registration statement as promptly as practicable after this offering. In addition, some of our securityholders have rights to require us to register their shares for resale in the public market. For a more detailed description, see "Description of Capital Stock--Registration Rights," "Shares Eligible for Future Sale" and "Underwriting." Our securities have no prior public market, and our stock price may decline after the offering. Before this offering, there has been no public market for our common stock, and an active public market for our common stock may not develop or be sustained after this offering. If an active public market for our common stock does not develop, the liquidity of your investment may be limited, and our stock price may decline below our initial public offering price. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters and may bear no relationship to the price that will prevail in the public market. We have anti-takeover defenses that could delay or prevent an acquisition of our company. Our articles of organization and by-laws and Massachusetts law contain provisions that might enable our management to resist a takeover of our company. These provisions could discourage, delay or prevent a change in control of our company or an acquisition of our company at a price that many stockholders may find attractive. These provisions may also discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that 13 investors might be willing to pay in the future for shares of our common stock. For a description of these provisions, see "Description of Capital Stock--Anti- takeover Provisions of Massachusetts Law and Our Articles of Organization and By-Laws." We will have broad discretion in how we use the proceeds of this offering, and our use of those proceeds may not yield a favorable return. We intend to use all of our proceeds from this offering for general corporate purposes, including working capital, and for potential acquisitions. Accordingly, we will have broad discretion in using our proceeds. You will not have the opportunity to evaluate the economic, financial or other information that we will use to determine how to use our proceeds. If we cannot raise additional capital we may need on acceptable terms, we may not achieve our business goals. If we do not have sufficient capital to fund our operations, we may be forced to discontinue product development, reduce our sales and marketing efforts, forego attractive business opportunities and lose the ability to respond to competitive pressures. Any of these outcomes could have a material adverse effect on our business, financial condition and results of operations. We expect that the net proceeds from this offering, cash on hand and borrowings under our credit facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. After that, we may need to raise additional funds, and additional financing may not be available on favorable terms, if at all. We may also require additional capital to acquire or invest in complementary businesses or products or obtain the right to use complementary technologies. If we issue additional equity securities to raise funds, the ownership percentage of our existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock. You will suffer immediate and substantial dilution. The initial public offering price will significantly exceed the net tangible book value per share of our common stock. Accordingly, if you purchase common stock in this offering, you will incur immediate and substantial dilution of your investment. To the extent that outstanding options or warrants are exercised, you will incur additional dilution. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business," contains forward-looking statements. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider the risks outlined under "Risk Factors." These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results. 14 USE OF PROCEEDS We expect to receive net proceeds of approximately $ from the sale of shares of common stock, or approximately $ from the sale of shares if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds of this offering primarily for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire complementary businesses, products and technologies or to establish joint ventures that we believe will complement our current or future business. However, we have no specific plans, agreements or commitments to do so and are not currently engaged in any negotiations for any acquisition or joint venture. Pending our use of these proceeds, we will invest the net proceeds in short-term, interest-bearing, investment-grade securities. The amounts that we actually expend for general corporate purposes will vary significantly depending on a number of factors, including future sales growth and the amount of cash we generate from operations, if any. DIVIDEND POLICY We have never declared or paid any cash dividends. We currently intend to retain any future earnings to fund the development and growth of our business. In addition, under our credit facilities, we cannot pay dividends without our creditors' consent, with limited exceptions. Therefore, we currently do not anticipate paying cash dividends in the foreseeable future. 15 CAPITALIZATION The following table sets forth: . our actual capitalization as of June 30, 1999 . our pro forma capitalization as of June 30, 1999, after giving effect to: (a) our issuance of $1.0 million of subordinated promissory notes in July 1999 (b) our issuance of $14.9 million, net of estimated issuance costs, of redeemable preferred stock on September 17, 1999 and our contemporaneous repayment of $2.0 million in outstanding subordinated promissory notes (c) the conversion of our currently outstanding redeemable preferred stock into 20,976,881 shares of common stock upon the closing of this offering (d) the amendments of our charter . our pro forma as adjusted capitalization as of June 30, 1999, which gives effect to our sale of shares of common stock at an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us You should read the following table in conjunction with our financial statements and accompanying notes included elsewhere in this prospectus.
As of June 30, 1999 ----------------------------------- Pro Forma Actual Pro Forma As Adjusted ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) Notes payable and current maturities of long-term debt............................. $ 1,675 $ 675 $ 675 ======== ======= ======= Current maturities of capital lease obligations................................ $ 795 $ 795 $ 795 ======== ======= ======= Long-term debt: Long-term debt, net of current portion.... $ 1,246 $ 1,246 $ 1,246 Capital lease obligations, net of current portion.................................. 440 440 440 -------- ------- ------- Total long-term debt, net of current portion................................ 1,686 1,686 1,686 -------- ------- ------- Redeemable preferred stock, $.01 par value; issued in classes A, B, D and E; 19,080,000 total shares authorized and 14,310,214 total shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted................................... 32,793 -- -- Stockholders' (deficit) equity: Preferred stock, $.01 par value; 7,500,000 shares authorized and no shares issued or outstanding, actual; 4,500,000 shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted.................................. -- -- -- Common stock, $.01 par value; 36,000,000 shares authorized and 1,000,360 shares issued and outstanding, actual; 100,000,000 authorized, pro forma and pro forma as adjusted; 21,977,241 shares issued and outstanding, pro forma; shares issued and outstanding, pro forma as adjusted............................... 10 219 Additional paid-in capital................. 763 48,247 Accumulated deficit........................ (30,648) (30,648) (30,648) -------- ------- ------- Total stockholders' (deficit) equity...... (29,875) 17,818 -------- ------- ------- Total capitalization...................... $ 4,604 $19,504 $ ======== ======= =======
16 The foregoing information excludes the following shares as of June 30, 1999: . 2,850,651 shares issuable upon the exercise of options outstanding as of June 30, 1999 at an exercise price of $.50 per share . 5,786,383 shares available for issuance upon the exercise of options which have been or may be granted after June 30, 1999 under our active stock plans, including our 1999 stock plan adopted on September 13, 1999 . 2,237,445 shares issuable upon the exercise of warrants outstanding as of June 30, 1999 at a weighted average exercise price of $.57 per share 17 DILUTION If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Our pro forma net tangible book value at June 30, 1999 was approximately $17.8 million, or $0.81 per share of common stock. Pro forma net tangible book value per share represents total tangible assets less total liabilities, divided by the pro forma number of shares of common stock outstanding at June 30, 1999, after giving effect to our issuance of redeemable preferred stock on September 17, 1999 for $14.9 million, net of estimated issuance costs, our issuance and repayment of subordinated promissory notes, and the conversion of our currently outstanding shares of redeemable preferred stock into 20,976,881 shares of common stock upon the closing of this offering. After giving effect to our sale of shares of common stock at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at June 30, 1999 would have been $ , or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors, or approximately % of the assumed initial public offering price of $ per share. The following table illustrates this per share dilution: Assumed initial public offering price per share.................... $ Pro forma net tangible book value per share at June 30, 1999..... $0.81 Increase per share attributable to new investors................. ----- Pro forma as adjusted net tangible book value per share after the offering.......................................................... ---- Dilution per share to new investors................................ $ ====
The following table shows, on a pro forma as adjusted basis at June 30, 1999, the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and by new investors purchasing common stock in this offering, after giving effect to: . our issuance of shares of redeemable preferred stock on September 17, 1999 for $14.9 million, net of estimated issuance costs . the conversion of our currently outstanding shares of redeemable preferred stock into common stock . our sale of shares of common stock at an assumed initial public offering price of $ per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us
Average Shares Purchased Total Consideration Price ------------------ ------------------- Per Number Percent Amount Percent Share ---------- ------- ----------- ------- ------- Existing stockholders............ 21,977,241 % $48,466,000 % $2.21 New investors.................... % % $ ---------- ----- ----------- ----- Total.......................... 100.0% $ 100.0% ========== ===== =========== =====
This discussion assumes no exercise of any stock options or warrants outstanding as of June 30, 1999. At that date, there were 2,850,651 shares issuable upon the exercise of outstanding options at an exercise price of $.50 per share and 2,237,445 shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.57. Additionally, there were 5,786,383 shares available for issuance upon the exercise of options which have been or may be granted under our active stock plans after June 30, 1999. To the extent holders exercise these outstanding options or warrants, or any options we have granted or may grant after June 30, 1999, there will be further dilution to new investors. 18 SELECTED FINANCIAL DATA You should read the following selected financial data with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and notes appearing elsewhere in this prospectus. The following statement of operations data reflect only our continuing operations, which had minimal operating activity during the years ended December 31, 1994 and 1995. The statement of operations data for the years ended December 31, 1996, 1997 and 1998 and the balance sheet data at December 31, 1997 and 1998 are derived from the financial statements and notes audited by PricewaterhouseCoopers LLP appearing elsewhere in this prospectus. The statement of operations data for the years ended December 31, 1994 and 1995 and the balance sheet data as of December 31, 1994, 1995 and 1996 are derived from financial statements not appearing in this prospectus. The statement of operations data for the six months ended June 30, 1998 and June 30, 1999 and balance sheet data as of June 30, 1999 are unaudited. In our opinion, all necessary adjustments, which consist only of normal recurring adjustments, have been included to present fairly the unaudited six-month results, which should be read with our financial statements and notes appearing elsewhere in this prospectus. Historical results are not necessarily indicative of results that may be expected for any future period. We have never declared or paid any cash dividends.
Six Months Ended Year Ended December 31, June 30, -------------------------------------- ----------------------- 1994 1995 1996 1997 1998 1998 1999 ----- ----- ------- ------- -------- ----------- ----------- (unaudited) (unaudited) (in thousands, except per share data) Statement of Operations Data: Sales................... $ -- $ -- $ 201 $ 1,733 $ 2,386 $ 1,037 $ 2,762 Cost of sales........... -- -- 147 2,328 7,200 1,788 2,779 ----- ----- ------- ------- -------- ------- ------- Gross margin (loss)..... -- -- 54 (595) (4,814) (751) (17) Operating expenses Research and development, net..... -- -- 433 3,724 4,630 2,717 1,801 Selling and marketing............ -- -- 353 667 1,006 470 482 General and administrative....... -- -- 1,097 1,740 2,722 1,393 1,416 ----- ----- ------- ------- -------- ------- ------- Total operating expenses............ -- -- 1,883 6,131 8,358 4,580 3,699 ----- ----- ------- ------- -------- ------- ------- Operating loss.......... -- -- (1,829) (6,726) (13,172) (5,331) (3,716) Other income (expense).. -- -- (410) (626) 757 (75) (129) ----- ----- ------- ------- -------- ------- ------- Loss from continuing operations before income taxes........... -- -- (2,239) (7,352) (12,415) (5,406) (3,845) Income tax benefit...... -- -- -- (640) (1,162) (655) -- ----- ----- ------- ------- -------- ------- ------- Loss from continuing operations............. -- -- $(2,239) $(6,712) $(11,253) $(4,751) $(3,845) Basic and diluted loss per share from continuing operations.. -- -- $ (2.07) $ (7.08) $ (11.44) $ (4.83) $ (3.87) Shares used in computing basic and diluted loss per share......... -- -- 1,080 948 984 983 993 Pro forma basic and diluted loss per share from continuing operations(1).......... $ (0.89) $ (0.25) Shares used in computing pro forma basic and diluted loss per share(1)............... 12,638 15,303
- --------------------- (1) For an explanation of these computations, see Note 1 to our financial statements.
December 31, --------------------------------------------- June 30, 1994 1995 1996 1997 1998 1999 ------- ------- ------- -------- -------- ----------- (unaudited) (in thousands) Balance Sheet Data: Cash and cash equivalents............ $ 1,078 $ 1,071 $ 1,213 $ 10,294 $ 2,635 $ 405 Working capital (deficit).............. 3,694 3,962 3,266 8,439 3,271 (421) Total assets............ 11,597 12,016 10,728 20,059 14,955 10,650 Long-term debt and capital lease obligations, net of current portion................ 2,385 1,929 3,257 1,690 1,047 1,686 Redeemable preferred stock.................. 12,467 12,467 12,465 25,425 32,793 32,793 Total stockholders' deficit................ (7,258) (6,693) (9,560) (14,998) (24,591) (29,875)
19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with our financial statements and the accompanying notes. Overview We develop and supply broadband point-to-multipoint wireless access equipment used by network service providers to deliver integrated voice, video and data services to business and residential subscribers. We sell our products primarily to network system integrators, which include our products in broadband wireless systems sold to network service providers. We have developed two families of broadband point-to-multipoint wireless access products. Our modular hubs and CPE units can be rapidly tailored for competitive trials and initial commercial deployments. These modular products address a network service provider's need for accelerated time-to-market. Our planar hubs and CPE units, based on a printed circuit board design, can be mass-produced using low- cost, highly automated manufacturing techniques. These planar products address a network service provider's need for cost-effective mass deployment. We commenced operations in 1982 and have derived the significant majority of our sales from our millimeter-wave products business segment. In August 1999, we adopted a plan to focus all of our resources on our broadband point-to- multipoint wireless access business segment and to dispose of the millimeter- wave products segment. As a result, we have presented the operations of the millimeter-wave products segment as a discontinued operation in our financial statements. The following management's discussion and analysis focuses on our ongoing broadband point-to-multipoint wireless access business. Our first prototype broadband point-to-multipoint wireless access equipment was evaluated in a trial in 1995. Before receiving our first volume order for equipment in June 1999, virtually all of our shipments of products were for customer trials and initial commercial deployments. To date, we have assembled all of our products in-house, and only in limited volume. In the future, we may engage third-party manufacturers to supplement our manufacturing capacity. A substantial portion of our sales are comprised of shipments to customers located outside of the United States, and we expect this trend to continue. To date, international sales have been denominated solely in U.S. dollars and, accordingly, we have not been exposed to fluctuations in non-U.S. currency exchange rates. Results of Operations The following table provides continuing operations data as a percentage of sales for the periods presented. The percentages may not add due to rounding.
Six Months Year Ended Ended December 31, June 30, -------------------------- --------------- 1996 1997 1998 1998 1999 -------- ------ ------ ------ ------ Sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales.................. 73.1 134.3 301.8 172.4 100.6 -------- ------ ------ ------ ------ Gross margin (loss)............ 26.9 (34.3) (201.8) (72.4) (0.6) Operating expenses Research and development, net......................... 215.4 214.9 194.0 262.0 65.2 Selling and marketing........ 175.6 38.5 42.2 45.3 17.5 General and administrative... 545.8 100.4 114.1 134.3 51.3 -------- ------ ------ ------ ------ Total operating expenses... 936.8 353.8 350.3 441.7 133.9 -------- ------ ------ ------ ------ Operating loss................. (910.0) (388.1) (552.1) (514.1) (134.5) Other income (expense)......... (204.0) (36.1) 31.7 (7.2) (4.7) -------- ------ ------ ------ ------ Loss from continuing operations before income taxes........... (1,113.9) (424.2) (520.3) (521.3) (139.2) Income tax benefit............. -- (36.9) (48.7) (63.2) -- -------- ------ ------ ------ ------ Loss from continuing operations.................... (1,113.9)% (387.3)% (471.6)% (458.1)% (139.2)%
20 Six Months Ended June 30, 1998 and 1999 Sales Sales increased 166% from $1.0 million for the six months ended June 30, 1998 to $2.8 million for the six months ended June 30, 1999. This increase primarily reflects the increase in sales of our planar products. Cost of Sales Cost of sales consists of component and material costs, direct labor costs, warranty costs, overhead related to manufacturing our products and customer support costs. Cost of sales increased 55% from $1.8 million for the six months ended June 30, 1998 to $2.8 million for the six months ended June 30, 1999. This increase was attributable primarily to increased shipments of our planar products. Gross margins were negative 72% for the six months ended June 30, 1998 and were negative 0.6% for the six months ended June 30, 1999. This improvement was attributable primarily to increased shipments of our higher margin planar products and a significant shipment of modular products at favorable pricing terms. Research and Development Expenses Research and development expenses consist primarily of personnel and related costs associated with our product development efforts. These include costs for development of products and components, test equipment and related facilities. Our gross research and development expenses decreased 22% from $2.7 million for the six months ended June 30, 1998 to $2.1 million for the six months ended June 30, 1999. This decrease reflects the reassignment of a group of engineers to a customer support function and the elimination of a senior management position. Some of our customers have provided funding to offset our development costs for specific products. Net of these reimbursements, our research and development expenses decreased 34% from $2.7 million for the six months ended June 30, 1998 to $1.8 million for the six months ended June 30, 1999. Selling and Marketing Expenses Selling and marketing expenses consist of employee salaries and benefits, consultant fees, and expenses for advertising, travel, technical assistance, trade shows, and promotional and demonstration materials. Sales and marketing expenses increased 3% from $470,000 for the six months ended June 30, 1998 to $482,000 for the six months ended June 30, 1999. We added personnel to our customer support group as noted above, and increased marketing efforts in targeting key accounts. Partially offsetting the cost of these efforts was the reduction of senior management and staff as we relocated our sales function from Texas to Massachusetts. General and Administrative Expenses General and administrative expenses consist primarily of executive, administrative, human resources, quality assurance, management information systems and finance related costs. General and administrative expenses were $1.4 million for both periods. In the six months ended June 30, 1999, we incurred significant expenditures for recruiting and relocation, and we also continued spending on our new management information system. However, these costs were offset by the reassignment of personnel to selling and marketing. Other Income (Expense) Other income (expense) consists of interest earned on cash and cash equivalents offset by interest expense and miscellaneous non-operating expenses. Total other expense increased 72% from $75,000 for the six months ended June 30, 1998 to $129,000 for the six months ended June 30, 1999. Interest income decreased by $159,000 in 1999 as a result of lower invested cash balances. This decrease in interest income was partially offset by a decrease in interest expense of $105,000 due to repayment of the outstanding balance under a bank line of credit. 21 Income Tax Benefit In the six months ended June 30, 1998, we have recorded an income tax benefit in continuing operations to the extent that the loss from continuing operations offsets income from discontinued operations. No tax benefit has been recorded in the six months ended June 30, 1999 due to the uncertainty in deducting current losses against future taxable income. Years Ended December 31, 1996, 1997 and 1998 Sales Sales increased $1.5 million from $201,000 in 1996 to $1.7 million in 1997. Sales increased 38% from 1997 to $2.4 million in 1998. The increase in sales from 1996 to 1997 was attributable to increased sales of modular products as well as sales of individual modules. The increase in sales from 1997 to 1998 reflects increased sales of modular products as well as sales from our newly- introduced planar products. Cost of Sales Cost of sales increased by $2.2 million from $147,000 in 1996 to $2.3 million in 1997. Cost of sales increased $4.9 million from 1997 to $7.2 million in 1998. The increase in cost of sales from 1996 to 1997 was attributable to increased shipments of modular products as well as shipments of individual modules. The increase in cost of sales from 1997 to 1998 was attributable to increased shipments of modular products as well as shipments of our newly- introduced planar products. Gross margins were 27% in 1996, negative 34% in 1997, and negative 202% in 1998. These negative gross margins resulted from our strategy of providing substantial discounts to encourage customer trials of our products and demonstrate the viability of broadband point-to-multipoint wireless technology. We also developed automated manufacturing processes and added capacity and personnel in anticipation of future volume orders for our products. In 1998, we incurred a charge of $1.1 million to write off obsolete inventory. Research and Development Expenses Our gross research and development expenses increased $3.4 million from $433,000 in 1996 to $3.8 million in 1997. Gross research and development expenses increased 48% from 1997 to $5.6 million in 1998. The increase from 1996 to 1997 reflected significant investments to develop our modular products and adapt them for different frequency ranges. The increase from 1997 to 1998 reflected significant investments to develop our planar products and adapt our modular products for additional frequency ranges. These activities required us to substantially increase the size of our research and development staff by 52%, from 29 personnel at the end of 1997 to 44 at the end of 1998. Net of customer reimbursements, our research and development expenses increased $3.3 million from $433,000 in 1996 to $3.7 million in 1997. Net research and development increased 24% from 1997 to $4.6 million in 1998. Selling and Marketing Expenses Selling and marketing expenses increased 89% from $353,000 in 1996 to $667,000 in 1997. Selling and marketing expenses increased 51% from 1997 to $1.0 million in 1998. The increase in selling and marketing expenses from 1996 to 1997 was attributable to our increased efforts to expand our presence in the broadband wireless access marketplace and initiate contacts with various network system integrators and network service providers. The increase in selling and marketing expenses from 1997 to 1998 was attributable to our hiring of additional key personnel to enhance our relationships with major customers and prospects. From 1996 through 1998, we invested significantly in installation and demonstration of our equipment at various locations worldwide. 22 General and Administrative Expenses General and administrative expenses increased 59% from $1.1 million in 1996 to $1.7 million in 1997. General and administrative expenses increased 56% from 1997 to $2.7 million in 1998. The increase from 1996 to 1997 resulted from our intensified recruiting efforts. Also, travel costs increased, as our executives worked to promote the company and increase our recognition in the telecommunications industry. The increase in general and administrative expenses from 1997 to 1998 was attributable to the reconfiguration of facilities to expand our manufacturing and engineering operations. In addition, we began to implement a new integrated financial and management information system. Other Income (Expense) Total other expense increased 53% from $410,000 in 1996 to $626,000 in 1997. Total other expense changed from $626,000 in expense in 1997 to $757,000 in income in 1998. The increase in other expense from 1996 to 1997 was attributable to additional interest incurred on $3 million of subordinated notes and additional borrowings under our bank line of credit. The change in other expense from 1997 to other income in 1998 was primarily due to the recognition of $997,000 in income related to the termination of a development contract with a customer. Interest expense in 1998 was $210,000 lower than in 1997 due to repayment of the subordinated notes and bank line of credit. Interest income increased by $193,000 due to proceeds invested from a private placement completed in October 1997. Income Tax Benefit We have recorded an income tax benefit in continuing operations to the extent that the loss from continuing operations offsets income from discontinued operations. For 1997, the income tax benefit from continuing operations is net of additional tax expense of $264,000, due to an increase in the valuation allowance recorded against deferred tax assets. 23 Quarterly Results of Operations The following table provides, for the periods presented, continuing operations data derived from our statement of operations in dollars and as a percentage of sales. The statement of operations data have been derived from our unaudited financial statements. In management's opinion, these statements have been prepared on substantially the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods presented. This information should be read with our financial statements and notes appearing elsewhere in this prospectus. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.
Quarter Ended --------------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, 1998 1998 1998 1998 1999 1999 --------- -------- --------- -------- --------- -------- (in thousands) Statement of Operations Data: Sales .................. $ 414 $ 623 $ 410 $ 939 $ 1,177 $ 1,585 Cost of sales .......... 1,047 741 1,261 4,151 1,581 1,198 ------- ------- ------- ------- ------- ------- Gross margin (loss) .... (633) (118) (851) (3,212) (404) 387 Operating expenses Research and development expenditures ......... 1,332 1,385 1,443 1,456 917 1,198 Research and development reimbursement ........ -- -- (508) (478) (120) (194) ------- ------- ------- ------- ------- ------- Research and development, net .... 1,332 1,385 935 978 797 1,004 Selling and marketing ...................... 182 288 149 387 318 164 General and administrative ....... 685 708 666 663 578 838 ------- ------- ------- ------- ------- ------- Total operating expenses ............ 2,199 2,381 1,750 2,028 1,693 2,006 ------- ------- ------- ------- ------- ------- Operating loss ......... (2,832) (2,499) (2,601) (5,240) (2,097) (1,619) Other income (expense) Interest expense ...... (127) (132) (112) (102) (68) (86) Income from contract cancellation.......... -- -- -- 997 -- -- Interest income ....... 118 66 16 33 17 8 ------- ------- ------- ------- ------- ------- Total other income (expense) ........... (9) (66) (96) 928 (51) (78) ------- ------- ------- ------- ------- ------- Loss from continuing operations before income taxes .......... (2,841) (2,565) (2,697) (4,312) (2,148) (1,697) Income tax benefit ..... 191 464 372 135 -- -- ------- ------- ------- ------- ------- ------- Loss from continuing operations ............ $(2,650) $(2,101) $(2,325) $(4,177) $(2,148) $(1,697) As a Percentage of Sales(1): Sales .................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales .......... 252.9 118.9 307.6 442.1 134.3 75.6 ------- ------- ------- ------- ------- ------- Gross margin (loss) .... (152.9) (18.9) (207.6) (342.1) (34.3) 24.4 Operating expenses Research and development expenditures ......... 321.7 222.3 352.0 155.1 77.9 75.6 Research and development reimbursement ........ -- -- (123.9) (50.9) (10.2) (12.2) ------- ------- ------- ------- ------- ------- Research and development, net .... 321.7 222.3 228.0 104.2 67.7 63.3 Selling and marketing ...................... 44.0 46.2 36.3 41.2 27.0 10.3 General and administrative ....... 165.5 113.6 162.4 70.6 49.1 52.9 ------- ------- ------- ------- ------- ------- Total operating expenses ............ 531.2 382.1 426.8 216.0 143.8 126.6 ------- ------- ------- ------- ------- ------- Operating loss ......... (684.1) (401.1) (634.4) (558.0) (178.2) (102.1) Other income (expense) Interest expense ...... (30.7) (21.2) (27.3) (10.9) (5.8) (5.4) Income from contract cancellation ......... -- -- -- 106.2 -- -- Interest income ....... 28.5 10.6 3.9 3.5 1.4 0.5 ------- ------- ------- ------- ------- ------- Total other income (expense) ........... (2.2) (10.6) (23.4) 98.8 (4.3) (4.9) ------- ------- ------- ------- ------- ------- Loss from continuing operations before income taxes .......... (686.2) (411.7) (657.8) (459.2) (182.5) (107.1) Income tax benefit ..... 46.1 74.5 90.7 14.4 -- -- ------- ------- ------- ------- ------- ------- Loss from continuing operations ............ (640.1)% (337.2)% (567.1)% (444.8)% (182.5)% (107.1)%
- --------------------- (1) Percentages may not add due to rounding. 24 Our past sales and results of operations have fluctuated significantly from quarter to quarter, and we expect these fluctuations to continue in the future. The following discussion highlights significant events that have impacted our sales and financial results for the six quarters in the period ended June 30, 1999. Our sales have increased each quarter beginning in the quarter ended September 30, 1998. This increase was attributable primarily to increased shipments of our planar products. Cost of sales has generally increased primarily as a result of the increase in units shipped. We also incurred a charge of $1.1 million in the quarter ended December 31, 1998 to write off obsolete inventory. Before the quarter ended June 30, 1999, we generally had negative gross margins. These negative gross margins reflect substantial discounts provided to encourage customer trials of our products and demonstrate the viability of broadband point-to-multipoint wireless access technology. Our gross margins improved significantly in each quarter beginning in the quarter ended March 31, 1999. This improvement was attributable primarily to the increased shipments of our higher-margin planar products. We had a positive gross margin of 24% in the quarter ended June 30, 1999. Our total operating expenses decreased as a percentage of sales in each quarter beginning in the quarter ended December 31, 1998. This decrease reflects the reduction of senior management positions as we reorganized our sales, research and development, and administrative functions in the quarter ended December 31, 1998. In addition, some of our customers have provided funding to offset our development costs for specific products. Our operating loss decreased as a percentage of sales in each quarter beginning in the quarter ended December 31, 1998. The change from other expense to other income in the quarter ended December 31, 1998 was the result of the recognition of $1.0 million of other income related to the termination of a development contract with a customer. Liquidity and Capital Resources Since 1997, we have financed our operations primarily through the sale of redeemable preferred stock and, to a much lesser extent, from cash generated by our discontinued operations. We have also issued subordinated notes and used equipment lease financing and bank lines of credit to provide cash. At June 30, 1999, we had $1.0 million of subordinated notes outstanding. We raised net proceeds of $12.8 million in 1997 and $7.3 million in 1998 from the issuance of redeemable preferred stock. At June 30, 1999, we had cash and cash equivalents of $405,000. At June 30, 1999, we had no bank borrowings and did not have a line of credit facility. Cash used in operating activities for the six months ended June 30, 1999 was $3.3 million compared to $4.7 million for the six months ended June 30, 1998. Cash used in operating activities was $8.5 million in 1998, $426,000 in 1997 and $1.8 million in 1996. Cash used in operating activities has primarily represented funding of our net losses. Cash used in investing activities for the six months ended June 30, 1999 was $747,000 compared to $2.6 million for the six months ended June 30, 1998. Cash used in investing activities was $3.7 million in 1998, and $817,000 in 1997. In each period, these amounts related primarily to the purchase of equipment used in our manufacturing and research and development activities. Cash provided by investing activities was $28,000 in 1996 and resulted from the sale of certain property and equipment, net of additional equipment purchases. Cash provided by financing activities for the six months ended June 30, 1999 was $1.8 million compared to cash used by financing activities of $948,000 in the six months ended June 30, 1998. The financing activities for the six months ended June 30, 1999 consisted of the issuance of subordinated notes and term notes collateralized by equipment. Cash provided by financing activities was $4.5 million in 1998, and $10.3 million in 1997. In each of these years, financing activities consisted primarily of the issuance of redeemable preferred stock. Cash provided by financing activities was $1.9 million in 1996 and resulted from borrowings under a bank line of credit and proceeds from the issuance of term notes. Our future cash requirements will depend upon a number of factors, including the timing and level of research and development activities and sales and marketing campaigns, and our ability to significantly increase 25 our manufacturing volumes. We believe that our cash and cash equivalent balances and the proceeds from this offering will provide sufficient capital to fund our operations for at least 12 months. Thereafter, we may require additional capital to fund our operations. In addition, from time to time we evaluate opportunities to acquire complementary technologies or companies. Should we identify any such opportunities, we may need to raise additional capital to fund the acquisitions and our operations. There can be no assurance that financing will be available to us on favorable terms or at all. Year 2000 Issues Many currently installed computer systems, software products and other devices do not properly recognize dates after December 31, 1999. This "year 2000" problem could result in product failures, system failures or miscalculations causing disruptions of operations. If the computer systems, software products and devices upon which we rely do not correctly process dates after December 31, 1999, our business could be adversely affected. State of Readiness--Products. We have reviewed all of our products and their components to determine whether they are date-sensitive. Based on our review, we do not believe there are any date-sensitive features in any of our products or their components. Accordingly, we believe our products, as well as our inventories of product components, are year 2000 compliant. State of Readiness--Third Parties. Because we depend on third parties, such as single source suppliers, network system integrators and contract manufacturers, we are assessing their year 2000 compliance. We have circulated written surveys to our material component suppliers regarding their internal year 2000 compliance. We have received and reviewed completed surveys from a majority of our component suppliers. We are pursuing the suppliers that have not responded to our survey for more information regarding their year 2000 compliance. The suppliers who responded to our survey stated that they believe they are year 2000 compliant or will be year 2000 compliant by December 31, 1999. We have also had discussions regarding year 2000 compliance with our network system integrator customers and selected third-party manufacturers we may engage, but have not received definite assurances that year 2000 problems will not materially affect their ability to do business with us. We do not believe we will know by December 31, 1999 the year 2000 readiness of all third parties with which we do business. State of Readiness--Internal Systems. We have completed our evaluation of all of our internal systems for year 2000 compliance. These systems include our information technology systems, such as our financial systems, enterprise resource planning systems, network hardware, server and PC operating systems, and core software applications, including our design software. These systems also include our non-information technology systems, such as our telephone switches, security systems, and office and facilities equipment. In most cases, we obtained these systems from third parties, and our evaluation consisted of inquiries made to vendors to determine whether their products were year 2000 compliant. As a result of our evaluation, we replaced desktop computers and upgraded and tested our network software and several software applications. We believe that our critical internal systems are now year 2000 compliant. Costs of Remediation. We estimate that the total costs that we incurred in order to comply with year 2000 requirements was approximately $30,000. This amount represents only our costs of upgrading or replacing software and hardware ahead of schedule in order to obtain year 2000 compliant versions. We do not separately track the internal costs of our year 2000 remediation efforts. These costs consist primarily of payroll expenses for our information systems personnel and selected research and development personnel. Risks and Contingency Plans--Products. Despite our review, our products may contain year 2000 defects or use components with year 2000 defects. Our contingency plan is to re-design our products to be year 2000 compliant or to use year 2000 compliant components. This redesign process could be difficult and time-consuming, and the associated costs may be material. If components are not year 2000 compliant, we would have to replace our inventories of those components, and compliant alternatives may not be readily available. 26 Moreover, we have represented to our customers that our products are year 2000 compliant. If our products are not year 2000 compliant, we could be liable for the damages caused by our erroneous representation, and we could also lose sales. These liabilities or lost sales could be significant, which could have a material adverse effect on our business. Risks and Contingency Plans--Third Parties. We do not know the year 2000 readiness of our material suppliers that have not completed our survey. Moreover, the suppliers who returned our surveys may have been mistaken or untruthful in responding to the survey. If year 2000 problems disrupt the operations of our suppliers, we may be unable to obtain necessary components for our products. Because we lack alternative suppliers for many components, we are unable to develop contingency plans. Similarly, year 2000 problems that affect our network system integrators, or their network service provider customers, could cause them to reduce or defer purchases or deployments of our products. Because we depend on and have little or no control over our network system integrators, we are unable to develop contingency plans. We cannot predict the impact that year 2000 problems will have on our business relationships with other third parties, and do not have specific contingency plans with respect to those third parties. These problems could have a material adverse effect on our business. Risks and Contingency Plans--Internal Systems. Because we believe our internal systems are year 2000 compliant, we have not developed and do not intend to develop any specific contingency plans for year 2000 problems that may arise with these systems. If we encounter a year 2000 problem with a critical system, the problem could severely disrupt our operations, damage our reputation, distract us from planned business activities and cause us to incur significant expenses to remedy the problem. These or other consequences of any year 2000 problem could have a material adverse effect on our business. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"), which establishes standards for reporting information about operating segments in interim and annual financial reporting. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 did not have a material effect on our financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for fiscal years beginning after December 15, 1998 and provides guidance over accounting for computer software developed or obtained for internal use including the requirement to capitalize specified costs and amortization of such costs. We have adopted the provisions of SOP 98-1 for our six month period ended June 30, 1999. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), which establishes accounting and reporting standards for derivative instruments and hedging activities. The statement requires recognition of all derivatives at fair value in the financial statements. FASB Statement No. 137, Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133, defers implementation of SFAS No. 133 until fiscal years beginning after June 15, 2000. We have reviewed SFAS No. 133 and believe that, upon implementation, the standard will not have a significant effect on our financial statements. 27 Disclosures About Market Risk The following discusses our exposure to market risk related to changes in interest rates, equity prices and foreign currency exchange rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors, including those set forth in "Risk Factors." As of June 30, 1999, we had cash and cash equivalents of $405,000. Substantially all of these amounts consisted of highly liquid investments with remaining maturities at the date of purchase of less than 90 days. These investments are subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical increase or decrease in market interest rates by 10 percent from the June 30, 1999 rates would cause the fair value of these short-term investments to decline by an insignificant amount. Due to the short duration of these investments, an immediate increase in interest rates would not have a material effect on our financial condition or results of operations. Declines in interest rates over time will, however, reduce our interest income. We do not own any material equity investments. Therefore, we do not currently have any direct equity price risk. Currently, all sales to international customers are denominated in United States dollars and, accordingly, we are not currently exposed to foreign currency exchange rate risks. 28 BUSINESS Overview We develop and supply broadband wireless access equipment used by network service providers to deliver integrated voice, video and data services to business and residential customers. Our products provide a high performance alternative to other technologies, such as traditional copper wires, digital subscriber lines and cable modems, that connect the network service provider and the subscriber. Our products enable high-speed Internet access, electronic commerce, remote access, telecommuting and extensions of corporate networks to branch offices. Using our products, network service providers can enter markets quickly and economically, and then expand their networks as the number of subscribers grows. Our product line consists of wireless transmitter and receiver equipment that is installed outdoors in a cell-based arrangement. Each cell consists of a hub that transmits and receives network traffic to and from CPE units installed at multiple subscriber locations. This cell-based arrangement is commonly referred to as point-to-multipoint architecture. We sell our products primarily to network system integrators, such as Newbridge Networks and Motorola, which include our products in broadband wireless systems sold to network service providers. Our products have been successfully demonstrated in more than 40 customer trials worldwide over the last four years. We believe this experience is unmatched by any other supplier of broadband point-to-multipoint wireless access equipment. As a result of these trials, our products have been selected, either directly or by network system integrators, for commercial deployment by network service providers, including: . American Wireless . Korea Telecom . BellSouth Movicom . Maxlink Communications . Central Texas Communications . Nexsatel . Convergence Communications . South Central Telecom . Formus . Telenordia . Gateway Telecom . Tri-Corners Telecom . Home Telephone
Industry Background The Growing Demand for Broadband Communications The amount of data being transmitted over the Internet and private communications networks is increasing rapidly due to the growing number of users accessing these networks and the increasing range of data-intensive activities for which they use these networks. Businesses increasingly use the Internet to enhance their reach to customers and suppliers with applications such as electronic commerce, supply chain management, Web hosting, global marketing and customer support. Businesses are also using the Internet to create data networks among corporate sites, remote offices and telecommuters in order to facilitate employee communications, e-mail, file sharing, and research and analysis. Consumers use the Internet to communicate, collect and publish information, conduct retail purchases and access online entertainment. These network-based business and consumer activities require the transmission of increasingly large amounts of data quickly and reliably. As a result, broadband access is becoming increasingly important. Deregulation and Competition are Driving Deployment of Broadband Access Technologies Global telecommunications deregulation is creating significant competition among providers of advanced communications services, thereby accelerating the deployment of broadband access technologies. In the United States, incumbent telephone companies such as Ameritech, Bell Atlantic, BellSouth, GTE, Pacific Bell, SBC 29 Communications and US West were, until recently, the exclusive providers of the copper wire connections between their network backbones and subscribers, commonly known as the "last mile." The federal Telecommunications Act of 1996 intensified the competitive environment in the United States by requiring telephone companies to lease portions of their networks, including the last mile, to competing carriers. Additionally, telephone companies and cable operators are seeking to expand their service offerings by entering each others' markets. Similar deregulation and competition are occurring in many regions of the world. To compete in this environment, many network service providers seek to differentiate themselves and maximize revenue per subscriber by offering integrated voice, video and data services, which require broadband access. Developing Nations are Installing Communications Infrastructure In many parts of the world, communication services are either inadequate or non-existent due to the lack of existing infrastructure. A number of developing nations have privatized their state-owned telecommunications monopolies and opened their markets to new network service providers. In constructing new networks, many network service providers deploy broadband access technologies to expand the services they offer and maximize revenue. Traditional Network Access Solutions Have Limitations To meet the growing demand for high-speed data transmission, many network service providers have installed high-speed fiber optic transmission equipment, switches and routers in the Internet backbone and in interoffice networks. While the network backbone is capable of delivering data at very high speeds, a bottleneck exists in the last mile, which was originally built to provide traditional analog telephone service. Along the fiber optic network backbone, data moves at speeds up to 10 billion bits per second, or 10 Gbps. Subscribers have traditionally connected to the backbone using dial-up analog modems, which transmit data at rates up to 56.6 thousand bits per second, or 56.6 Kbps, or using integrated service digital network, or ISDN, modems, which transmit data at rates up to 128 Kbps. At these modem speeds, several minutes are often required to access a media-rich Web site, and several hours may be required to transfer or download large files. This bottleneck frustrates subscribers and limits the capability of network service providers to satisfy the demand for high-speed Internet access, multimedia entertainment, real-time telecommuting and branch office inter-networking. Additionally, the continued growth in both the number of analog modem users and their time spent connected to the Internet compounds the congestion experienced on many networks. Where subscribers require higher-speed connections, network service providers have traditionally deployed copper-based T1 services in the United States and E1 services internationally. A T1 line is a high-capacity, dedicated telecommunications line which can support data transmission rates of up to 1.5 million bits per second, or 1.5 Mbps, which is 26.5 times the speed of analog modems. An E1 line can support data transmission rates of up to 2.0 Mbps, or 35 times the speed of analog modems. Although T1 and E1 services have met the broadband access needs of many large businesses, these services are either unavailable to or prohibitively expensive for many small businesses, remote offices, telecommuters and consumers. Alternative Access Solutions are Emerging Because analog and ISDN modem technologies do not satisfy the high-speed access needs of many subscribers, and T1 or E1 access is often unavailable or prohibitively expensive, alternative access solutions have been developed such as: DSL. Digital subscriber line, or DSL, technology improves the data transmission rate of a telephone company's existing copper wire network. However, most deployments offer either high-speed asymmetrical services or slower symmetrical services. Asymmetrical data rates provide higher transmission speeds from the network to the subscriber and lower speeds from the subcriber to the network. Symmetrical data rates provide equal transmission speeds to and from the subscriber. DSL transmission rates are limited by the length and quality of available copper wires. 30 Cable. Two-way cable modems enable asymmetrical data services to be delivered over a network originally designed to provide television service to residential subscribers. Cable networks connect to the home using coaxial cable, which has greater transmission capacity than the copper wires used by telephone companies. However, these networks often are costly to upgrade for two-way data services. Fiber. Fiber offers the highest data transmission rate of any access solution, but is the most costly to deploy. Corporations and institutions use fiber connections where critical operations require such data rates. Satellite. Broadband satellite solutions enable asymmetrical, two-way access services. These solutions use broadcast satellite technology for high-speed transmissions from the network service provider to the subscriber, but use slower wire-based connections to transmit data from the subscriber to the network service provider. The data rate available to each subscriber in a service area decreases as usage increases. Point-to-Point Wireless. Point-to-point wireless technology enables symmetrical data services using a dedicated link between a subscriber and a network. However, the network service provider must install dedicated equipment at each end of a link for each new subscriber. Therefore, economies of scale are limited. Broadband Point-to-Multipoint Wireless. Broadband point-to-multipoint wireless technology provides higher-speed symmetrical access than all other alternative broadband solutions except high-cost dedicated links using fiber or point-to-point wireless. Broadband point-to-multipoint wireless access technology also offers the following advantages: . Rapid Deployment. Network service providers can initiate service quickly because they are not required to install copper wire, cable or fiber. . Low-cost Market Entry. Network service providers can initiate service economically with one hub and a small number of CPE units. . Economies of Scale. Network service providers can add subscribers rapidly and cost-effectively, as each installed hub can support many CPE units. [CHART SHOWING BROADBAND ACCESS DATA RATES] Mass Deployment of Broadband Point-to-Multipoint Solutions Presents Challenges Broadband point-to-multipoint wireless access equipment typically must be tailored for frequency requirements that vary from country to country and within each country. A further complication by the lack of 31 universal standards for equipment specifications and protocols. As a result, suppliers of broadband point-to-multipoint wireless access equipment face challenges in achieving economies of scale and developing cost-effective products suitable for mass deployment. Conventional industry practice is to build broadband point-to-multipoint wireless access equipment using multiple modules connected by small metal pipes and wires. This approach requires considerable hand assembly and tuning and is not suited to automated manufacturing. Therefore, assembly is often outsourced to low-cost labor environments, which greatly reduces the ability to deliver tailored products in a timely fashion. An opportunity exists to substantially reduce the cost of broadband point- to-multipoint wireless access equipment by integrating the functionality of multiple conventional modules onto printed circuit boards, thereby enabling the use of low-cost manufacturing processes. However, major technical difficulties have plagued the development and production of printed circuit boards that operate at high frequencies and at high data rates because they typically generate distorted or unwanted signals. The Telaxis Solution Our solution consists of two product families that enable both the adoption and growth of broadband wireless access for a diverse range of markets and applications worldwide. Our modular products address a network service provider's need for rapid time-to-market. Our planar products address a network service provider's need for cost-effective mass deployment. Modular products for rapid time-to-market Our modular products feature a flexible architecture that enables us to deliver a tailored solution in as little as four to six weeks for network service provider trials and initial stages of deployment. This allows network service providers using our modular products to be among the first to offer broadband wireless services in new markets. We are able to achieve rapid turnaround for the following reasons: . Extensive Design Expertise and Database. Our 17 years of experience in millimeter-wave design and manufacturing provides us with an extensive database of circuit designs that we can readily simulate and modify. . Flexible Platform. We have developed a flexible multiple module architecture that enables us to modify our products rapidly to address different frequencies, customer interfaces and performance requirements. . Proven Modules. Through successful demonstrations in more than 40 customer trials over the past four years, we have developed a large number of transmitters, receivers and other modules that we can quickly reproduce in our automated manufacturing facility. . Integrated Facilities. Our integrated design and manufacturing facilities allow us to produce a custom circuit from concept to completion in a matter of days. Planar products for cost-effective mass deployment Large-scale commercial buildouts by network service providers require cost- effective products. Our planar products integrate the functionality of multiple conventional modules onto printed circuit boards, thereby enabling the use of low-cost automated manufacturing processes. We believe we are the only provider of broadband point-to-multipoint wireless access equipment that has successfully implemented these manufacturing techniques. As a result, we are able to offer products suitable for mass deployment with the following benefits: . Lower cost . Higher performance . Greater reliability . Smaller size 32 Strategy Our objective is to be the leading worldwide provider of broadband point-to- multipoint wireless access equipment. Our strategy to accomplish this objective is to: Penetrate the global market with our two product families. Our strategy is to secure new customer relationships by delivering tailored products to network system integrators and network service providers more rapidly than our competitors. Once network service providers and network system integrators use our modular products in successful trials and initial deployments, we are strategically positioned to sell them our cost-effective planar products for mass deployment. Capitalize upon our early customer acceptance. We shipped our first broadband point-to-multipoint access prototype in 1995. Our equipment has been successfully demonstrated in more than 40 customer trials worldwide. We believe this experience is unmatched by any other supplier. As a result of these trials, our products have been selected, either directly or by network system integrators, for initial commercial deployment by many network service providers. We intend to build upon this acceptance of our products to become the primary provider of broadband point-to-multipoint wireless access equipment to these and other network service providers as they deploy commercial buildouts. Expand strategic relationships with network system integrators. We believe successful deployment of broadband wireless access equipment requires close working relationships with network system integrators. We have established relationships with Newbridge Networks, Motorola and Hughes Network Systems Europe, that include joint marketing, sales development and supply agreements. Our relationships with key industry leaders offer us insight into market requirements and deployment trends, which shapes development of our long-term product strategy. We intend to build upon our existing relationships and establish new relationships with network system integrators to increase distribution of our products and build brand awareness. Reduce product costs while increasing performance and adding functionality. We continue to reduce the cost and improve the reliability of our planar products by integrating various components directly into the circuit board design. We are also developing a CPE unit with an antenna integrated into its die-cast housing, which will significantly reduce product cost and size. In order to reduce our customers' installation costs, we are developing products with simple cabling and mounting hardware. Leverage technology partnerships. We have established a relationship with the University of Massachusetts to design proprietary millimeter-wave integrated circuits to achieve higher levels of integration and reduce costs. We have a joint design and manufacturing relationship with California Amplifier to combine our complementary expertise in designing and manufacturing low-cost wireless products. We intend to continue to partner with other technology developers to maintain and enhance our technology leadership position. Establish brand identity. We intend to establish brand awareness with network service providers and to build upon our position in the broadband point-to-multipoint wireless access equipment market. Historically, our products have been sold primarily under private label by prominent network system integrators. In the future, we will increasingly brand or co-brand our products to build name recognition. In addition, we plan to invest in a broad range of marketing programs, including participation in trade shows, advertising in print publications, direct marketing to major customers and Web- based marketing. Products We have two product families, consisting of modular products which can be rapidly tailored for new markets and planar products for cost-effective mass deployment. Our modular and planar product families consist of hub and CPE equipment that is installed outdoors in a cell-based arrangement. Our products provide capacity for data rates several times the rates supported by today's modem technology. We believe that the highest symmetrical data rate available with today's point-to-multipoint modem technology is 35 Mbps. Our products operate at various frequencies ranging from 24 gigahertz, or GHz, to 44 GHz, and are available with a range of interfaces, including hybrid fiber coax, or HFC, and digital audio visual counsel, or DAVIC. 33 CPE Products. We have concentrated our development efforts on the CPE unit. Because multiple CPE units are supported by each hub, cost reduction of the CPE unit has the most significant impact on the ability of a network service provider to deploy broadband access services to its customers on a cost-effective basis. Our modular CPE units address our customers' need for rapid time-to-market, and our planar CPE units address their need for cost-effective mass deployment. Modular CPE. Our modular CPE unit can be quickly adapted to meet the individual frequency, performance and interface requirements of a network service provider. This product is currently available with DAVIC or HFC interfaces. [Photograph of our modular CPE] Planar CPE. Our planar CPE unit is a highly integrated unit using single- board, planar architecture that enables highly automated, cost-effective manufacturing. These units enable network service providers to lower their costs of deployment in commercial service buildouts. This product is currently available with a DAVIC interface and we are developing an HFC interface. [Photograph of our planar CPE] We are also developing a planar CPE unit that incorporates a proprietary antenna and is designed to achieve significant size and cost reductions. This CPE unit is designed to address the low-cost, high volume consumer market segment to the extent it emerges. Hub Products Each hub provides two-way connectivity to multiple CPE units out to a range of approximately two to three miles. Modular hub. Our modular hub can be quickly adapted to meet the performance and interface requirements of a network service provider. This hub has the flexibility to accommodate various combinations of transmitter or receiver modules within a single housing. Antennas can be included within the housing or attached externally. This hub is available with DAVIC or HFC interfaces. [Photograph of our modular hub] Planar hub. Our planar hub consists of separate transmitter and receiver units that are deployed together to provide two-way connectivity. The receiver unit works in conjunction with one or more transmitter units to form a hub. The planar hub unit enables network service providers to lower their costs of deployment in commercial service buildouts. The planar hub is available with DAVIC or HFC interfaces. [Photograph of our planar hub] Technology Our 17 years of experience in millimeter-wave technology is the foundation for our capability in the broadband point-to-multipoint wireless market. Our products transmit and receive signals at various frequencies ranging from 24 GHz to 44 GHz and interface with modems that operate at frequencies below 2 GHz. A key element of our competitive advantage stems from our ability to integrate millimeter-wave and microwave semiconductor devices and other electronic components onto a single printed circuit board inside a die-cast housing which is a functioning element of the overall product. The result is an integrated outdoor unit using planar architecture that enables highly automated, cost-effective manufacturing. Millimeter-wave technology uses frequencies that are ten times higher than microwave technology, resulting in electronic components that are ten times smaller. The higher frequency causes greater signal interference between components, depending on their location and spacing on the circuit board. The small size of the components and the need to place them precisely on the circuit board present challenges for the design, development and manufacturing of millimeter-wave products. Historically, hand tuning of each unit was required to prevent the products from transmitting excessively distorted or unwanted signals that could interfere with other radios or electronic equipment, which is prohibited 34 by governmental agencies worldwide. Our years of experience in developing products that operate at high frequencies enable us to minimize excessively distorted or unwanted signals and eliminate the need for hand tuning during the manufacturing process. Furthermore, our automated processes are highly repeatable, thereby minimizing mechanical misalignments in the placement of components onto printed circuit boards. These misalignments contribute directly to the creation of distorted and unwanted signals. In order to integrate millimeter-wave and microwave technologies into an outdoor unit using planar architecture, we have developed additional expertise in several areas, including: . Micro-controller adaptation. We design interface circuits and software to incorporate micro-controllers into our products. These micro- controllers provide our products a high degree of functionality, including automatic adaptation to changing operating environments. . Antennas. We design antennas and other sophisticated waveguide-based components to reduce the size, cost and complexity of the packaging of our products, while improving performance. . Reference oscillators. We design and integrate reference oscillators onto our printed circuit boards to minimize signal distortion and to reduce cost. . Microwave translation circuits. We design and integrate microwave translation circuits enabling our products to interface with various modems. . Power supplies. We have a development program underway to integrate power supplies onto our printed circuit boards to reduce cost and increase reliability. . Material selection and mechanical assemblies. We select materials and design mechanical assemblies using the die-cast housing as a functional part of the product. This has enabled us to minimize unwanted signal interference while protecting our electronic components from damage. The accompanying photograph contrasts the physical architecture of our planar and modular CPE units. [Photograph contrasting our planar and modular CPE units] Customers We sell our products primarily to network system integrators, including Newbridge and Motorola Networks. The network system integrators in turn develop complete broadband network solutions for their customers, the network service providers. Occasionally, we sell our products directly to network service providers. Our equipment has been successfully demonstrated in more than 40 customer trials worldwide over the last four years. We believe this experience is unmatched by any other supplier of broadband point-to-multipoint wireless access equipment. As a result of these trials, we have been selected, either directly or by network system integrators, to supply equipment for commercial deployment by network service providers, including: . American Wireless . Korea Telecom . BellSouth Movicom . Maxlink Communications . Central Texas Communications . Nexsatel . Convergence Communications . South Central Telecom . Formus . Telenordia . Gateway Telecom . Tri-Corners Telecom . Home Telephone
For the six months ended June 30, 1999, sales to Newbridge Networks represented 70% of sales and sales to Convergence Communications represented 22% of sales. For the year ended December 31, 1998, sales to Newbridge Networks represented 30% of sales, sales to Convergence Communications represented 26% of sales, and sales to Nexsatel, an affiliate of Formus, represented 12% of sales. 35 Network System Integrator Relationships We have established relationships with three network system integrators to facilitate the deployment of our products and to meet the requirements of network service providers. In June 1999, all three of these network system integrators introduced solutions that include our products at the Supercomm trade show in Atlanta. . Newbridge Networks. We have entered into product development and reseller agreements with Newbridge Networks. Through this relationship, our equipment has been evaluated in trials in North America, South America, Asia and Europe. As a result of these trials, Newbridge Networks has selected our equipment for commercial deployment in Canada, Argentina and the United States. . Motorola. Motorola has deployed our equipment in trials in North America and Asia. We are currently developing equipment for commercial deployment in the United States. . Hughes Network Systems (HNS) Europe. We have entered into a joint marketing and sales agreement with HNS Europe. Through this relationship, our equipment has undergone trials in North America and Europe. Manufacturing Conventional industry practice is to build point-to-multipoint wireless access equipment using multiple modules connected by small metal pipes and wires. This approach has evolved from the more mature microwave industry, where hand assembly and hand tuning is common due to low volume production. We have developed extensive expertise in automated assembly and testing of printed circuit board, planar products that operate at frequencies many times higher than those used in the microwave industry. We have focused this experience on the development of manufacturing strategies for high-volume production of cost- effective broadband wireless access products for mass deployment. Concurrent process development. We develop our automated manufacturing processes concurrently with the design and development of our millimeter-wave products. These concurrent activities facilitate the design of products that can be manufactured with very high tolerances, thereby minimizing unwanted and distorted signals and eliminating the need for hand tuning. Automated component assembly. Our automated manufacturing technology enables the repeated, high-precision placement and attachment of small chips, and the bonding of wires between the chips and the printed circuit board. In the production of millimeter-wave devices, this high precision is the critical requirement to minimize distorted and unwanted signals and to achieve acceptable performance. Final assembly and test. Our final assembly and automated test facility is designed for pilot production runs ranging from several hundred to a few thousand units. We use these pilot production runs to validate our manufacturing processes in a carefully controlled environment at our facilities. For high-volume production, we plan to supplement our manufacturing capacity by establishing a relationship with a development and manufacturing partner. Marketing, Sales and Customer Service Marketing The global communications equipment industry is dominated by a limited number of network system integrators. As a result, we focus our marketing efforts on network system integrators and their customers, the network service providers. Our marketing activities target technical experts and product managers who heavily influence purchase decisions. Additionally, we coordinate with our network system integrator partners to support their marketing programs. We regularly provide them with design information, technical data and promotional material to enable their sales forces to promote our products. 36 We build brand awareness through several promotional programs, including the following: . Participation in trade shows . Speaking at industry forums . Web-based communication and promotion . Publication of press releases Sales Our sales approach is to start by building a technical relationship with the network system integrator. Typically, a senior executive from our technical organization initiates discussions regarding a potential partnership. We then assign an account manager to coordinate our efforts and focus our resources on developing the relationship. This account manager aligns our engineering teams and managers with their counterparts in the network system integrator's organization to provide highly responsive technical and operational support during trials of our equipment. After successful demonstration of our products, we often adapt them for incorporation into the network system integrator's broadband point-to-multipoint wireless systems. We support the network system integrator in trials with network service providers. The objective of these trials is the adoption of our equipment for mass deployment. Customer Service A key element of our sales approach is to be highly responsive to customers' needs. We provide customer service in the following areas: . System engineering. We provide engineering support for system trials, site surveys, specification development, integration of third-party equipment, installation and follow-on test support. . Problem resolution. We provide prompt responses to customer problem reports, including telephone support, field service, and repair or replacement of equipment. . Field support. Our customer service personnel are on call to provide global field support. We provide field support primarily for trials and initial deployments. . Repairs. We maintain a repair center staffed with technicians who work directly with our quality assurance team to analyze failures and repair equipment. Currently, we conduct all customer support activities from our South Deerfield, Massachusetts headquarters. As network buildouts progress, we intend to establish support centers closer to our major customer deployments. Research and Development The goal of our development activities is to reduce the cost and increase the functionality of our products, while adapting them to the frequency and interface specifications required for new markets. Our experience in millimeter-wave and microwave technologies enables us to develop cost-effective broadband point-to-multipoint wireless access products. We continue to advance our core competencies and to extend these core competencies to meet rapidly changing market needs. We are pursuing several development projects, including: . Adapting our products to additional frequencies . Developing additional modem interfaces . Integrating microwave components into planar architectures . Improving our products to reduce deployment costs . Integrating the antenna into the die-cast housing . Developing proprietary semiconductor devices 37 Our multidisciplinary research and development team consists of engineers and scientists whose specialities include microwave engineering, millimeter- wave engineering, electrical engineering, mechanical engineering, chemistry, physics, computer science and materials science. We also maintain close working relationships with the University of Massachusetts and various technical organizations. Competition The market for broadband point-to-multipoint wireless access equipment is rapidly evolving and highly competitive. A number of large telecommunications equipment suppliers, such as Alcatel, Ericsson and Nortel Networks, as well as a number of smaller companies, have developed or are developing products that compete with ours. Many of our competitors are substantially larger than we are and have significantly greater financial, sales, marketing, distribution, technical, manufacturing and other resources. These competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties to increase their ability to gain market share rapidly. We expect to face increasing competitive pressures from both current and future competitors in the markets we serve. The rapid technological developments within the network equipment industry result in frequent changes to our group of competitors. The principal competitive factors in our market include: . Product availability . Relationships with network system integrators and network service providers . Product performance, features and inter-operability . Product development speed . Price . Ability to manufacture and distribute products . Technical support and customer service . Brand recognition Broadband point-to-multipoint wireless access solutions are also competing with other high-speed solutions such as digital subscriber lines, cable, fiber, other high-speed wire, satellite and point-to-point wireless technologies. Many of these alternative technologies can take advantage of existing installed infrastructure and have achieved significantly greater market acceptance and penetration than broadband point-to-multipoint wireless access technologies. We expect to face increasing competitive pressures from both current and future technologies in the broadband access market. Intellectual Property Our success depends to a significant degree upon the preservation and protection of our product and manufacturing process designs and other proprietary technology. Although we employ a variety of intellectual property in the development and manufacturing of our products, we believe that none of our intellectual property is individually critical to our current operations. However, taken as a whole, we believe our intellectual property rights are significant. To protect our proprietary technology, we generally limit access to our technology, treat portions of our technology as trade secrets and obtain confidentiality or non-disclosure agreements from persons with access to our technology. To date, we have been granted two United States patents, one of which has been issued. In addition, we have two United States patent applications pending. We have counterpart patents pending in three international jurisdictions. We also rely on protections available under copyright and trademark law. Our intellectual property rights, and our ability to enforce those rights, may be inadequate to prevent others from using our technology or substantially similar technology they may independently develop. The use of that technology by others could eliminate any competitive advantage we have, cause us to lose sales and otherwise harm our business. A significant portion of our proprietary technology is know-how, and employees 38 with know-how may depart before transferring their know-how to other employees. Moreover, the laws of other countries where we market our products may afford even less protection for our intellectual property. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and costly, even if we were to prevail. Facilities We lease approximately 78,000 square feet of facilities comprised of three buildings in South Deerfield, Massachusetts. The term of the lease for our primary facility expires in September 2000. We also lease approximately 4,200 square feet in Richardson, Texas. We believe that our existing facilities are adequate to meet our current requirements and that suitable space will be available as needed. Employees On June 30, 1999, we had 130 employees in our continuing operations, including approximately 56 in manufacturing, 42 in engineering, 9 in quality assurance, 7 in sales, marketing and customer service and 16 in finance and administration. We are not a party to any collective bargaining agreement. We believe that relations with our employees are good. Legal Proceedings We are not currently a party to any material legal proceedings. 39 MANAGEMENT Directors and Executive Officers Our directors, executive officers and key employees as of September 27, 1999 are as follows:
Name Age Position - ---- --- -------- Albert E. Paladino, 67 Chairman of the Board of Directors Sc.D.(1)............... John L. Youngblood, 58 President, Chief Executive Officer and Director Ph.D.(1)............... Mervyn N. FitzGerald.... 54 Senior Vice President, Operations Ransom D. Reynolds...... 56 Senior Vice President, Business Development Dennis C. Stempel....... 36 Vice President, Chief Financial Officer and Treasurer Kenneth R. Wood(2)...... 45 Vice President, Engineering Robert F. Browning(2)... 42 Vice President, Manufacturing Allan M. Doyle, 69 Director Jr.(1)(3).............. Robert C. Fleming(1).... 43 Director James W. Fordyce(3)..... 56 Director David A. Norbury........ 48 Director Matthew S. Robison...... 38 Director
- --------------------- (1) Member of the compensation committee (2) Key employee (3) Member of the audit committee Dr. Albert E. Paladino has been our Chairman of the Board since January 1992 and a director since March 1984. Since December 1998, he has been a private investor. He was a General Partner of Advanced Technology Ventures, a venture capital firm, from 1981 through 1998. He is also a member of the board of directors of TranSwitch Corporation, a publicly-traded developer of semiconductor solutions for the communications markets, RF Micro Devices, a publicly-traded manufacturer of radio frequency integrated circuit components, and Helioss Corporation, a developer of high-capacity millimeter-wave communications equipment. Dr. Paladino holds a B.S. and an M.S. in engineering from Alfred University and an Sc.D. in materials science from the Massachusetts Institute of Technology. Dr. John L. Youngblood has been our Chief Executive Officer and a director since June 1992, and our President since March 1993. From August 1991 to June 1992, he was a management consultant. From May 1991 to August 1991, Dr. Youngblood served as Executive Vice President of IMO Industries, a manufacturer of analytical and optical instruments, electronic and mechanical controls, and power transmission products. From January 1985 to May 1991, he held various positions, including Chairman, Chief Executive Officer and President, at Kollmorgen Corporation, a publicly-traded manufacturer of high-performance electronic motion control products. He holds a B.S. in electrical engineering from the University of Texas at Arlington, and both an M.S. and a Ph.D. in electrical engineering from Oklahoma State University. Mervyn N. FitzGerald has been our Senior Vice President, Operations since September 1999. From September 1996 to September 1999, Mr. FitzGerald served as Vice President, Operations and Customer Service for the broadband wireless access division of Nortel Networks, a provider of communications products and services. From February 1995 to September 1996, he served as General Manager of AlliedSignal Canada, a Canadian subsidiary of Allied Signal Inc., a diversified aerospace manufacturer. From February 1992 to February 1995, he served as Vice President, Operations for C-MAC Industries, a contract manufacturing company. Mr. FitzGerald holds a B.S. in applied nuclear and solid state physics from Polytechnic of the South Bank in London, England. Ransom D. Reynolds has been our Senior Vice President, Business Development since February 1993. From May 1987 to February 1993, Mr. Reynolds served as Director of the electro-optical division of Kollmorgen Corporation. He holds a B.S. in physics from Southwest Texas State University and an M.B.A. from the University of Houston. 40 Dennis C. Stempel has been our Vice President, Chief Financial Officer and Treasurer since April 1999. From November 1998 to April 1999, Mr. Stempel served as our Director of Finance. From April 1996 to November 1998, he served as a controller at Pratt & Whitney, a division of United Technologies Corporation and a manufacturer of aircraft engines and space propulsion systems. From March 1993 to April 1996, he served as the Director of Finance for Anocoil Corporation, a manufacturer of lithographic printing plates. He worked for Coopers & Lybrand from 1989 to 1993, including serving as a certified public accountant from 1992 to 1993. Mr. Stempel holds a B.S. in accounting from the University of Massachusetts. Kenneth R. Wood has been our Vice President, Engineering since December 1997. From April 1990 to December 1997, he was our Senior Microwave Engineer and Program Manager. Mr. Wood holds a B.S. in electrical engineering from the University of Pretoria and an M.S. in microwaves from the University of London. Robert F. Browning has been our Vice President, Manufacturing since July 1996. From December 1992 to July 1996, he served first as our manager and then as our Director of Manufacturing. Mr. Browning holds a B.S. in electrical engineering from Western New England College. Allan M. Doyle, Jr. has been a director since March 1984. From 1964 to May 1996, Mr. Doyle served as a member of the board of directors of Kollmorgen Corporation. Before his retirement in 1990, he served as Vice Chairman of the board of directors of Kollmorgen, and before that he served as Chief Financial Officer. From 1990 to 1993, Mr. Doyle was an Associate Professor of Management at Union College. Mr. Doyle holds a B.A. in industrial administration from Union College and an M.B.A. from the Columbia University School of Business. Robert C. Fleming has been a director since November 1997. Since November 1995, he has been a General Partner of Prism Venture Partners, a venture capital firm. From July 1993 to November 1995, he was a General Partner of Norwest Venture Capital, also a venture capital firm. Mr. Fleming holds an A.B. in engineering from Dartmouth College and an M.B.A. from the Wharton School. James W. Fordyce has been a director since June 1987. He has served as a General Partner of Prince Ventures, a venture capital firm, since 1981. Mr. Fordyce holds a B.A. in English literature from the University of Pennsylvania, a Master's degree in philosophy, politics and economics from the University of Oxford, and an M.B.A. from the Harvard Business School. David A. Norbury has been a director since September 1999. He has been President, Chief Executive Officer and a director of RF Micro Devices since September 1992. Mr. Norbury holds a B.S. in electrical engineering from the University of Michigan, an M.S. in electrical engineering from Stanford University and an M.B.A. from Santa Clara University. Matthew S. Robison has been a director since November 1997. Mr. Robison has served as Vice President and Senior Technology Analyst for Ferris, Baker Watts, an investment banking firm, since January 1999. From January 1997 to January 1999, Mr. Robison was a General Partner at Botti Brown Asset Management, an asset management firm. From October 1994 to January 1997, Mr. Robison served as Vice President and Research Analyst for Montgomery Securities. Mr. Robison currently serves as a director of Anaren Microwave, a publicly-traded manufacturer of wireless, satellite and electronics products. Mr. Robison holds a B.S. from the University of Denver. Our board of directors is divided into three classes, with one class of directors elected each year at the annual meeting of stockholders for a three- year term of office. Messrs. Fleming and Doyle will serve in the class whose terms expire in 2000. Messrs. Robison and Fordyce will serve in the class whose terms expire in 2001. Drs. Youngblood and Paladino and Mr. Norbury will serve in the class whose terms expire in 2002. Our executive officers are elected annually by the directors and serve at the discretion of the directors. There are no family relationships among our directors and executive officers. 41 Committees of the Board of Directors We have a compensation committee, consisting of Drs. Youngblood and Paladino, and Messrs. Doyle and Fleming. The compensation committee: . reviews the compensation and benefits of our executive officers and recommends stock option grants under our stock option plans . makes recommendations to the board of directors regarding compensation matters We have an audit committee, consisting of Messrs. Doyle and Fordyce. The audit committee: . reviews and evaluates our audit and control functions . reviews the results and scope of the audit and other services provided by our independent auditors . makes recommendations to the board of directors regarding the selection of independent auditors We have a finance and executive committee consisting of Drs. Paladino and Youngblood and Mr. Fleming. The finance and executive committee: . maintains continuity between the board of directors and our executive officers . acts on behalf of the board of directors between meetings but refers any major decisions to the full board of directors. Director Compensation After this offering, we will pay all non-employee directors: . a $10,000 annual retainer for serving on the board . a $2,000 annual retainer for serving as chairman of a standing committee of the board . $1,000 for each board meeting attended in person . $500 for each committee meeting attended in person We will also reimburse our non-employee directors for reasonable expenses incurred in attending meetings of the board of directors and its committees. In addition to cash compensation, we intend to grant: . a non-qualified stock option to purchase 12,000 shares of our common stock that vests in three equal annual installments beginning on the date of grant to each new non-employee director elected or appointed to the board . a fully vested, non-qualified stock option to purchase 9,000 shares of our common stock to each incumbent non-employee director immediately following each annual meeting of stockholders, as long as the director has served at least one year before the date of the annual meeting In January 1998, we granted (a) an option to purchase 9,000 shares of common stock at $.50 per share to Dr. Paladino, Messrs. Doyle and Fordyce and a former director, our four non-employee directors who had served for at least one year before our 1997 annual stockholders meeting, (b) an option to purchase 12,000 shares of our common stock at $.50 per share to Messrs. Robison and Fleming, the two newly appointed non-employee directors, and (c) an option to purchase 53,550 shares of our common stock at $.50 per share to Dr. Paladino in recognition of his active role in the management and financing activities of our company. The option granted to Mr. Fleming was issued to Prism Venture Partners, the venture capital firm of which Mr. Fleming is a general partner. In May 1998, we granted an additional option to purchase 9,000 shares of our common stock at $.50 per share to Dr. Paladino, Messrs. Doyle and Fordyce and a former director, our four non-employee directors who had served for at least one year before our 1998 annual stockholders meeting. 42 In 1998, we paid Dr. Paladino $60,000 for his services as Chairman of the Board. During 1998, we did not pay our directors any other cash compensation for their services as directors except for reimbursement of the reasonable expenses they incurred in attending meetings of the board of directors and its committees. In May 1999, we granted an option to purchase 9,000 shares of our common stock at $.50 per share to Dr. Paladino, Messrs. Doyle, Fordyce and Robison, Prism Venture Partners and a former director. In August 1999, we granted Dr. Paladino an option to purchase 80,000 shares of our common stock at $1.25 per share and an additional option to purchase 20,198 shares of our common stock at $2.25 per share, both in recognition of his active role in the management and financing activities of our company. In September 1999, we granted an option to purchase 12,000 shares of our common stock at $2.25 per share to Mr. Norbury as a newly appointed director. Compensation Committee Interlocks and Insider Participation The board of directors has a compensation committee consisting of four of our directors. Dr. Youngblood, our President and Chief Executive Officer, served as a member of our compensation committee during 1998. Dr. Youngblood participated in discussions regarding the compensation of our executive officers. None of our executive officers or members of our board of directors serves as a member of the board of directors or compensation committee of any other entity that has an executive officer serving as a member of our board of directors or compensation committee, except that Dr. Paladino serves as a member of the board of directors and of the compensation committee of RF Micro Devices, of which Mr. Norbury, one of our directors, is President and Chief Executive Officer. Executive Compensation Summary Compensation. The following table summarizes the compensation earned for services rendered to us in all capacities during 1998 by our Chief Executive Officer and our only other executive officer who earned more than $100,000 in salary and bonus during 1998. We refer to these executives as our "named executive officers" elsewhere in this prospectus. The compensation summarized in this table does not include medical, group life insurance, or other plan benefits that are available generally to all of our salaried employees or perquisites or other personal benefits that do not in the aggregate exceed the lesser of $50,000 or 10% of the officer's salary and bonus. Summary Compensation Table For 1998
Long-Term Compensation --------------------- Annual Compensation Awards ------------------- --------------------- Securities Underlying Name and Principal Position Salary ($) Options (#) - --------------------------- ------------------- --------------------- John L. Youngblood................... $216,825 200,000 President and Chief Executive Officer Ransom D. Reynolds................... 142,543 140,000 Senior Vice President, Business Development
Option Grants in 1998. The following table provides information regarding all options granted to our named executive officers in 1998. Amounts reported in the last two columns of the table represent hypothetical values that the holder could realize by exercising the options immediately before their expiration, assuming the value of our common stock appreciates at the specified compounded annual rates over the terms of the options. These numbers are calculated based on the SEC's rules and do not represent our estimate of future stock price growth. Actual gains, if any, on stock option exercises and common stock holdings will depend on the timing of exercise and the future performance of our common stock. We may not achieve the rates of appreciation 43 assumed in this table, and the named executive officers may not receive the calculated amounts. This table does not take into account any appreciation in the price of our common stock from the date of grant to the current date. The values shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Option Grants in 1998
Potential Realizable Individual Grants Value at Assumed ------------------------------------------------ Annual Rates of Number of Percent of Stock Price Securities Total Options Appreciation for Underlying Granted to Exercise Option Term Options Employees in Price Expiration -------------------- Name Granted (#) Fiscal Year (%) ($/Share) Date 5% ($) 10% ($) - ---- ----------- --------------- --------- ---------- --------- ---------- John L. Youngblood...... 150,000 10.1% $0.50 01/05/08 $ 47,167 $ 119,530 50,000 3.4 0.50 02/25/08 15,722 39,843 Ransom D. Reynolds...... 140,000 9.4 0.50 01/05/08 44,022 111,561
All options were granted at fair market value on the date of grant as determined by our board of directors. The board of directors determined the fair market value of our common stock based on various factors, including the illiquid nature of an investment in our common stock, recent sales of redeemable preferred stock, our limited operating history and our future prospects. Each of these options vests over a four-year period, vesting as to 20% of the shares subject to the option on the date of grant and as to an additional 20% on each anniversary of the date of grant until the option has fully vested. These options become fully vested upon (a) a merger or consolidation of our company with any other company, (b) the sale of substantially all of our assets or (c) the sale of more than 50% of our outstanding stock to an unrelated person or group. All options granted to the named executive officers in 1998 terminate on the earliest of (a) three months after the date of termination of the executive's employment if he ceases to be employed by us except as a result of his death or disability, (b) one year after his death or disability, or (c) 10 years from the date of grant. In August 1999, we granted an additional option to Dr. Youngblood to purchase 180,000 shares at $1.25 per share and an additional option to Mr. Reynolds to purchase 80,000 shares at $1.25 per share. These options otherwise have the same terms as the options granted to these individuals in 1998. Fiscal Year-End Option Values. The following table provides information regarding the value of all unexercised options held by the named executive officers at the end of 1998. The value of unexercised in-the-money options represents the difference between the fair market value of our common stock on December 31, 1998 and the option exercise price, multiplied by the number of shares underlying the option. There was no public trading market for our common stock on December 31, 1998. Accordingly, solely for the purposes of this table, we have assumed that the fair market value of our common stock on December 31, 1998 was $ , the assumed initial public offering price. Neither named executive officer exercised any options in 1998. 1998 Fiscal Year-End Option Values
Number of Shares of Common Stock Value of Unexercised Underlying Unexercised In-the-Money Options at Fiscal Options at Year-End (#) Fiscal Year-End ($) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- John L. Youngblood.......... 415,000 210,000 Ransom D. Reynolds.......... 96,000 134,000
44 Employment Agreement and Change-of-Control Provisions In January 1994, we entered into an employment agreement with Dr. Youngblood. Dr. Youngblood's employment agreement had an original term of 24 months and now renews automatically on a quarterly basis, provided that Dr. Youngblood's employment has not terminated before the renewal date. Dr. Youngblood's annual compensation was initially set at an annual base salary of $190,000, and has since been increased to his current annual base salary of $220,000. We currently furnish Dr. Youngblood with a company automobile at our expense. Dr. Youngblood is entitled to receive severance payments for a minimum of six months and a maximum of 24 months after termination of his employment depending on the circumstances under which his employment terminates. The maximum 24-month severance period will only apply if we terminate Dr. Youngblood's employment without cause after we undergo a "change of control" that was not approved by a majority of our board of directors. A "change of control" is defined in Dr. Youngblood's agreement to include any transaction that results in (a) a person or group holding 50% or more of the combined voting power of our outstanding securities or (b) changes to our board of directors such that the persons who were either directors on the date of Dr. Youngblood's employment agreement or their nominated successors no longer comprise a majority of the board. If we terminate Dr. Youngblood's employment for cause, he will not be entitled to severance payments. Upon (a) our merger or consolidation with another company, (b) the sale of substantially all of our assets to another company, or (c) the sale of more than 50% of our outstanding capital stock to an unrelated person or group, substantially all unvested options held by Dr. Youngblood and Mr. Reynolds will vest and become immediately exercisable. Stock Plans We currently maintain the three stock plans described below. We refer to these stock plans as the "active stock plans" elsewhere in this prospectus.
Shares or Options Outstanding Shares Available for Shares or Options Issued Issuance Under Adoption Expiration Reserved Under Plan as of Plan as of Plan Name Date Date Under Plan September 17, 1999 September 17, 1999 --------- -------- ---------- ---------- ------------------ ------------------ 1996 Stock Plan..... 01/26/96 01/26/06 600,000 279,000 321,000 1997 Stock Plan..... 06/11/97 06/11/07 3,700,000 2,878,975 821,025 1999 Stock Plan..... 09/13/99 09/13/09 3,500,000 -- 3,500,000
In addition to the active stock plans, there are a total of approximately 537,900 shares subject to options issued under our 1986 Stock Option Plan, 1987 Stock Plan and 1988 Stock Plan. Although those three plans have expired and no new options, stock or other stock rights may be issued under those plans, the outstanding options under those plans will remain outstanding until their expiration or exercise. The 1986 Plan provided for the grant of incentive stock options to employees, including officers and directors who are employees. The other stock plans provide for the grant of incentive stock options to employees and non- qualified stock options and stock awards to employees, directors and consultants. Additionally, the 1996, 1997 and 1999 Stock Plans provide for the grant of stock appreciation rights to employees, directors and consultants. The compensation committee of the board of directors administers the stock plans and recommends to the board of directors the terms of stock rights granted, including (if applicable) the exercise price, the number of shares subject to individual option awards and the vesting period of options. The exercise price of incentive stock options cannot be lower than 100% of the fair market value of the common stock on the date of grant and, in the case of incentive stock options granted to holders of more than 10% of our voting power, not less than 110% of the fair market value. The term of an incentive stock option cannot exceed ten years, and the term of an incentive stock option granted to a holder of more than 10% of our voting power cannot exceed five 45 years. Stock purchase rights may be issued either alone, in addition to, or in tandem with other awards granted under the stock plans and/or cash awards made outside of the stock plans. Incentive stock options granted under our stock plans generally become exercisable over a four-year period, with 20% of the shares subject to the option vesting on the date of grant and 20% vesting on each anniversary of the date of grant until fully vested. The board of directors may amend, modify or terminate the stock plans at any time as long as the amendment, modification or termination does not impair the rights of plan participants with respect to outstanding options or other stock rights. We intend to file, after the effective date of this offering, a Registration Statement on Form S-8 to register up to approximately shares of common stock reserved for issuance under the stock plans described above. The Registration Statement will become effective automatically upon filing. After the Registration Statement has been filed, shares issued under the stock plans may be sold in the open market, subject, in the case of certain holders, to the Rule 144 limitations applicable to affiliates and the lock-up agreements. Our 401(k) Plan In 1990, we adopted a 401(k) plan for our employees. The plan is subject to the Employee Retirement Income Security Act of 1974. All of our employees who are at least 18 years old may make salary reduction contributions under the plan. Employees must have six months of qualified service to qualify for all other contributions under the plan. In general, a participant may contribute up to 15% of his or her annual compensation. We may elect to make both matching contributions and discretionary contributions under the plan. In recent years, we have made matching contributions equal to 50% of the participant's contributions, subject to limits. Any discretionary profit-sharing contributions we may make in a year would be allocated to plan participants based on the proportion that the participant's compensation for the year bears to the compensation of all participants for the year. We did not make any discretionary contributions in 1998. Total employee and employer contributions under the plan for any participant may not exceed the lesser of 25% of compensation or $30,000. Participants are immediately vested in their voluntary contributions under the plan and vest in all other contributions under the plan based on their years of service. Participants are fully vested after four years of qualified service. We may modify, amend or terminate the plan, subject to the provisions of the Employee Retirement Income Security Act of 1974. If we terminate the plan, participants will become fully vested in their account balances under the plan. Our Incentive Compensation Plan Each year, we adopt an incentive compensation plan for our employees. In general, our full-time employees who have been employees for at least six months are entitled to participate in the plan. The plan establishes an incentive bonus pool, calculated according to a formula based on our achievement of specified key operating objectives. We allocate approximately 75% of the pool for distribution to all eligible employees and 25% of the pool for distribution to individuals who have made special contributions to our company. We did not make any payments under our 1998 incentive compensation plan. 46 MATERIAL RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS The following is a description of transactions since January 1, 1996 to which we have been a party and in which the amount involved exceeded $60,000 and any director, executive officer or holder of more than five percent of our capital stock had or will have a direct or indirect material interest. Since January 1, 1996, we have issued preferred stock, promissory notes, and warrants as follows: . On September 25, 1996 and July 31, 1997, we issued an aggregate of $3,000,000 in principal amount of 10% subordinated convertible notes due September 1998 and July 1999, respectively. As part of this transaction, we issued warrants to the participating investors to purchase an aggregate of 1,800,000 shares of our common stock at an exercise price of $.50 per share. . On November 21, 1997 and December 18, 1997, we issued an aggregate of 7,200,000 shares of our Class D redeemable preferred stock at a purchase price of $1.80 per share. . On October 27, 1998, November 13, 1998, December 29, 1998, and September 17, 1999, we issued an aggregate of 9,941,508 shares of our Class E redeemable preferred stock at a purchase price of $2.25 per share. . On April 15, 1999 and July 16, 1999, we issued an aggregate of $2,000,000 in principal amount of 9.75% subordinated promissory notes due on the earlier of December 31, 1999 or the date we sell equity securities for at least $5,000,000. As part of this transaction, we issued warrants to the participating investors to purchase an aggregate of 400,000 shares of our common stock at an exercise price of $.50 per share. Our executive officers, directors and 5% stockholders participated in the foregoing transactions as follows:
10% Note 9.75% Note Financing Financing ------------------ ------------------ Number Number of Number of Number Principal of Class D Class E Principal of Purchaser Amount Warrants Shares Shares Amount Warrants --------- --------- -------- --------- --------- --------- -------- Directors and executive officers: Albert E. Paladino...... $ 25,000 15,000 14,088 39,692 $ 8,250 1,650 John L. Youngblood...... 30,000 18,000 16,906 13,949 4,000 800 Ransom D. Reynolds...... 30,000 18,000 16,906 8,889 -- -- Allan M. Doyle, Jr. .... 25,000 15,000 14,088 6,595 -- -- James W. Fordyce........ 102,485 61,491 57,755 25,154 3,000 600 Five percent stockholders: SVE Star Ventures Group.................. -- -- 1,497,689 3,744,015 400,000 80,000 Prism Venture Partners I, L.P. ............... -- -- 1,666,667 711,111 600,000 120,000 Alliance Technology Ventures Group......... -- -- -- 2,248,889 306,000 61,200 Techgains Group......... -- -- 555,556 1,006,754 210,000 42,000 Axiom Venture Partners II, L.P. .............. -- -- 1,111,112 412,916 240,000 48,000 Spring Point Group...... -- -- 555,556 655,614 -- -- Prince Venture Partners II Limited Partnership............ 375,000 225,000 211,333 409,594 200,000 40,000 United of Omaha Life Insurance Company...... 1,000,000 600,000 563,555 -- -- --
Mr. Fleming, a member of our board of directors, is affiliated with Prism Venture Partners I, L.P. Mr. Fordyce, a member of our board of directors, is affiliated with Prince Venture Partners II Limited Partnership. The SVE Star Ventures Group is comprised of five affiliated entities -- Star Growth Enterprise, SVE Star Ventures Enterprises No. V, SVM Star Ventures Management GmbH No. 3, SVE Star Ventures Managementgesellschaft mbH Nr. 3 & Co. Betelligungs KG Nr. 2, and SVE Star Ventures Enterprises No. VII. Collectively, these entities beneficially own 5% or more of our capital stock. 47 The Alliance Technology Venture Group is comprised of two affiliated entities -- Alliance Technology Ventures II, L.P. and ATV II Affiliates Fund, L.P. Collectively, these entities beneficially own 5% or more of our capital stock. The Techgains Group is comprised of three affiliated entities - Technology Associates Management Co., Ltd., Techgains International Corp., and Techgains Corp. Collectively, these entities beneficially own 5% or more of our capital stock. The Spring Point Group is comprised of two affiliated entities - Spring Point Partners L.P. and Spring Point Offshore Fund. Collectively, these entities beneficially own 5% or more of our capital stock. In September 1999, we agreed to issue 225,000 shares of common stock to Mervyn N. FitzGerald, our Senior Vice President, Operations, for a purchase price of $1.25 per share. In connection with this issuance of shares, we will loan Mr. FitzGerald the $281,250 purchase price. The interest rate on the loan will be the applicable federal rate, and the loan must be repaid upon Mr. FitzGerald's sale of the shares. These shares will vest 20% on the date of issuance and as to an additional 20% on the next four anniversaries of the date of issuance. The unvested amount of these shares will be subject to repurchase at a price of $1.25 per share upon Mr. FitzGerald's termination of employment. Upon (a) our merger or consolidation with another company, (b) the sale of substantially all of our assets to another company, or (c) the sale of more than 50% of our outstanding capital stock to an unrelated person or group, all unvested shares will immediately vest. Sale of Contraband Detection System Business. In June 1996, we sold the assets, contracts and documentation relating to our contraband detection systems business to Millimetrix LLC, a company controlled by Dr. G. Richard Huguenin. At the time of the sale, Dr. Huguenin was one of our directors and executive officers. We received the following as consideration for this business: . $606,873 in cash . a $250,000 promissory note, payable over time . 19.9% of the ownership of Millimetrix . the right to receive royalty payments As part of the transaction, we granted Millimetrix a license to use intellectual property related to the business and the right to acquire the licensed intellectual property if agreed conditions were met. Millimetrix also assumed operating leases related to the business, agreed to lease space from us, and hired some of our employees. In connection with the sale, Dr. Huguenin resigned as one of our directors and executive officers and surrendered all of his outstanding stock options. At the same time, we repurchased 206,666 shares of our common stock from Dr. Huguenin for $103,333 and granted him a non-qualified stock option to purchase 270,000 shares of common stock at an exercise price of $.50 per share. Millimetrix failed to perform its obligations in connection with this transaction, and we have obtained a judgment against it. Our Policy on Interested Transactions We have implemented a policy whereby contracts and business arrangements with our officers, directors or stockholders, entities they own in whole or in part, or entities for whom they serve as officers, directors, trustees or members must be on an arm's-length basis and approved by the board of directors. Our articles of organization and by-laws require approval of the contract or transaction by a majority of the independent directors who have no interest in the contract or transaction. 48 PRINCIPAL STOCKHOLDERS The following table provides information regarding the beneficial ownership of our outstanding common stock as of September 17, 1999, and as adjusted to reflect our sale of common stock in this offering, by: . each person or group that we know owns more than 5% of the common stock, . each of our directors, . each of our executive officers, and . all of our directors and executive officers as a group. Beneficial ownership is determined in accordance with rules of the SEC and includes shares over which the indicated beneficial owner exercises voting and/or investment power. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of September 17, 1999 are deemed outstanding for computing the percentage ownership of the person holding the options or warrants but are not deemed outstanding for computing the percentage ownership of any other person. Except as we otherwise indicate, we believe the beneficial owners of the common stock listed below, based on information furnished by them, have sole voting and investment power with respect to the number of shares listed opposite their names. Unless we otherwise indicate, the address for each stockholder below is c/o Millitech Corporation, 20 Industrial Drive East, South Deerfield, Massachusetts 01373- 0109.
Percentage of Shares Outstanding Number of Shares --------------------------------------- Name of Beneficial Owner Beneficially Owned Before Offering After Offering - ------------------------ ------------------ ---------------- --------------- SVE Star Ventures 5,668,434 25.2% Group(1)............... Possart Strasse No. 9 81679 Munich, Germany Prism Venture Partners 2,513,378 11.1 I, L.P(2).............. c/o Prism Venture Management, Inc. 100 Lowder Brook Drive, Suite 2500 Westwood, MA 02090 Robert C. Fleming(3).... 2,513,378 11.1 Alliance Technology 2,310,089 10.3 Ventures Group(4)...... 8995 Westside Parkway, Suite 200 Alpharetta, GA 30004 Techgains Group(5)...... 1,604,310 7.1 2378 West 239th Street Torrance, CA 90501 Axiom Venture Partners 1,572,028 7.0 II, L.P(6)............. City Place II--17th Floor 185 Asylum Street Hartford, CT 06103 James W. Fordyce(7)..... 1,346,023 6.0 Spring Point Group(8)... 1,211,170 5.4 1 Montgomery Street, Suite 3300 San Francisco, CA 94104 Prince Venture Partners 1,171,023 5.2 II Limited Partnership(9)......... 25 Ford Road Westport, CT 06880 United of Omaha Life 1,163,555 5.0 Insurance Company(10).. c/o Mutual of Omaha Insurance Company Mutual of Omaha Plaza Omaha, NE 68175 John L. Youngblood(11).. 565,655 2.5 Albert E. Paladino(12).. 260,301 1.2 Mervyn N. FitzGerald(13)......... 225,000 1.0 Ransom D. Reynolds(14).. 195,795 *
49
Percentage of Shares Outstanding Number of Shares -------------------------------------- Name of Beneficial Owner Beneficially Owned Before Offering After Offering - ------------------------ ------------------ ---------------- --------------- Allan M. Doyle, 65,683 * Jr.(15)................ Dennis C. Stempel(16)... 30,222 * David A. Norbury(17).... 25,222 * Matthew S. Robison(18).. 22,111 * All executive officers and directors as a group (10 persons)..... 5,249,390 22.3
- --------------------- * Less than 1%. (1) Represents (a) 2,222,222 shares held by Star Growth Enterprise, (b) 1,035,984 shares held by SVE Star Ventures Enterprises No. V, (c) 978,853 shares held by SVM Star Ventures Management GmbH Nr. 3, (d) 183,927 shares held by SVE Star Ventures Management GmbH Nr. 3 & Co. Betelligungs KG Nr. 2, (e) 1,167,448 shares held by SVE Star Ventures Enterprises No. VII and (f) warrants held by SVE Star Ventures Enterprises No. VII to purchase 80,000 shares of common stock. (2) Includes 4,600 shares issuable upon the exercise of stock options within 60 days of September 17, 1999 and warrants to purchase 120,000 shares of common stock. (3) Mr. Fleming is a general partner and co-manager of Prism Venture Partners I, L.P. The shares listed represent the 2,513,378 shares beneficially held by Prism Venture Partners I, L.P. Mr. Fleming disclaims beneficial ownership of the shares beneficially held by Prism Venture Partners I, L.P., except to the extent of his pecuniary interest in those shares. Mr. Fleming's address is the same as the address of Prism Venture Partners I, L.P. (4) Represents (a) 2,204,444 shares held by Alliance Technology Ventures II, L.P., (b) warrants held by Alliance Technology Ventures II, L.P. to purchase 60,000 shares of common stock, (c) 44,445 shares held by ATV II Affiliates Fund, L.P. and (d) a warrant held by ATV II Affiliates Fund, L.P. to purchase 1,200 shares of common stock. (5) Represents (a) 56,754 shares held by Technology Associates Management Co., Ltd., (b) a warrant to purchase 2,000 shares held by Technology Associates Management Co., Ltd., (c) 600,000 shares held by Techgains International Corp., (d) a warrant held by Techgains International Corp. to purchase 20,000 shares of common stock, (e) 905,556 shares held by Techgains Corp. and (f) a warrant held by Techgains Corp. to purchase 20,000 shares of common stock. (6) Includes warrants to purchase 48,000 shares of common stock. (7) Mr. Fordyce is a general partner of Prince Venture Partners II Limited Partnership. The shares listed represent (a) 1,171,023 shares beneficially held by Prince Venture Partners II Limited Partnership, (b) 109,909 shares held by Mr. Fordyce, (c) 3,000 shares issuable upon exercise of stock options held by Mr. Fordyce within 60 days of September 17, 1999 and (d) warrants held by Mr. Fordyce to purchase 62,091 shares of common stock. Mr. Fordyce disclaims beneficial ownership of the shares beneficially held by Prince Venture Partners II Limited Partnership, except to the extent of his pecuniary interest in those shares. (8) Represents 815,614 shares held by Spring Point Partners L.P. and 395,556 shares held by Spring Point Offshore Fund. (9) Includes warrants to purchase 265,000 shares of common stock. (10) Includes warrants to purchase 600,000 shares of common stock. (11) Includes 516,000 shares issuable upon exercise of stock options within 60 days of September 17, 1999 and warrants to purchase 18,800 shares of common stock. (12) Includes 100,198 shares issuable upon exercise of stock options within 60 days of September 17,1999. (13) Of the shares held by Mr. FitzGerald, 180,000 are subject to repurchase by us. See "Material Relationships and Related-Party Transactions." (14) Includes 152,000 shares issuable upon exercise of stock options within 60 days of September 17, 1999 and a warrant to purchase 18,000 shares of common stock. (15) Includes 9,000 shares issuable upon the exercise of stock options within 60 days of September 17, 1999 and a warrant to purchase 15,000 shares of common stock. (16) Includes 28,000 shares issuable upon exercise of stock options within 60 days of September 17, 1999. (17) Includes 3,000 shares issuable upon exercise of stock options within 60 days of September 17, 1999. (18) Includes 11,000 shares issuable upon exercise of stock options within 60 days of September 17, 1999. 50 DESCRIPTION OF CAPITAL STOCK Upon the closing of this offering, we will be authorized to issue up to 100,000,000 shares of common stock, $.01 par value, and 4,500,000 shares of undesignated preferred stock, $.01 par value. As of September 17, 1999, there were 1,476,860 shares of common stock outstanding held of record by 118 stockholders and 20,976,881 shares of redeemable preferred stock held by 85 stockholders. Upon the closing of this offering, these shares of redeemable preferred stock will automatically convert into 20,976,881 shares of common stock. Following this offering, there will be shares of common stock outstanding, or shares if the underwriters exercise their over-allotment option in full, assuming no exercise of outstanding options or warrants. Common Stock The holders of common stock are entitled to one vote per share on all matters to be voted on by stockholders. When a quorum is present at a meeting, the holders of a majority of the common stock present or represented and voting on a matter will decide any matter to be voted on by the stockholders except where a class vote is required by law or the articles of organization or where a larger vote is required by law or the articles of organization. Elections are determined by a plurality of the votes cast by stockholders entitled to vote at the election. Subject to preferences of any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably any dividends the board of directors declares out of funds legally available for the payment of dividends. Dividends are non-cumulative. If we are liquidated, dissolved or wound up, the holders of common stock will be entitled to share pro rata all assets remaining after payment of liabilities and liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights or rights to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued in this offering will be fully paid and non-assessable. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of holders of preferred stock that the board of directors may designate and issue in the future. As of September 17, 1999, there were 8,380,674 shares of common stock reserved for issuance upon the exercise of options and warrants. On that date, there were outstanding stock options to purchase an aggregate of 3,518,509 shares of common stock and warrants to purchase an aggregate of 2,481,890 shares of common stock. Preferred Stock Upon the closing of this offering, our articles of organization will authorize our board of directors, without any action by our stockholders, to issue up to 4,500,000 shares of undesignated, or "blank check," preferred stock in one or more classes or series. The board also has the authority to fix the designations, powers, preferences, privileges and relative, participating, optional or special rights and the qualifications, limitations or restrictions of any preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. The board of directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of common stock. Our board could quickly issue preferred stock with terms that could delay or prevent a change in control of our company or make removal of our management more difficult. Additionally, the issuance of preferred stock may decrease the market price of the common stock. We have no plans to issue any preferred stock. Warrants As of September 17, 1999, there were warrants outstanding to purchase a total of 2,481,890 shares at a weighted average exercise price of $1.68 per share. These warrants expire on various dates from December 21, 2000 to July 30, 2007. 51 Registration Rights After this offering, the holders of shares of common stock and warrants to purchase shares of common stock, or their permitted transferees, will be entitled to certain rights with respect to the registration of those shares under the Securities Act. These registration rights are contained in four agreements, one with certain of our stockholders (currently covering shares and warrants to purchase shares) and three separate agreements with three of our lenders (in the aggregate covering shares and warrants to purchase shares). As described below, the agreement with our stockholders provides for both demand registration rights and piggyback registration rights while the agreements with our lenders only provide for piggyback registration rights. Demand Registration Rights. At any time after six months following the closing of this offering, the holders of at least 40% of the registrable securities under the agreement with our stockholders may require, on two occasions, that we use our diligent best efforts to register some or all of those registrable securities under the Securities Act at our expense. In addition, the holders of at least 20% of the registrable securities under the agreement with our stockholders may require that we use our diligent best efforts to register some or all of those registrable securities under the Securities Act on Form S-2 or S-3 or similar short-form registration, as long as we are eligible to use a short-form registration and the value of the securities to be registered is reasonably anticipated to exceed $1,000,000. Only the first two short-form registrations will be at our expense. Inclusion of any holders' registrable securities in any registration is subject to limitations and conditions. Piggyback Registration Rights. If we propose to register any of our securities under the Securities Act for our own account or for the account of any of our stockholders, holders of registrable securities under each of the four agreements granting registration rights are entitled, subject to limitations and conditions, to receive notice of that registration and to include registrable securities in that registration at our expense. One of the limitations is the ability of any underwriter of any of those offerings to reduce the number of shares proposed to be registered in view of market conditions. We intend to file, promptly after the effective date of this offering, a registration statement on Form S-8 to register up to approximately shares of common stock reserved for issuance under our stock plans. The registration statement will become effective automatically upon filing. After the registration statement has been filed, shares issued under the stock plans may be sold in the open market, subject, in some cases, to the Rule 144 limitations applicable to our affiliates and the lock-up agreements. For more information, see "Shares Eligible for Future Sale." Anti-takeover Provisions of Massachusetts Law and Our Articles or Organization and By-Laws Provisions of Massachusetts law and our articles or organization and by-laws may discourage takeover attempts not previously approved by our board of directors, including takeovers that some stockholders may deem to be in their best interest. These provisions may inhibit temporary fluctuations in the market price of our common stock that might otherwise result from actual or rumored takeover attempts. These provisions could also delay or frustrate the removal of incumbent directors or the assumption of control by stockholders, even if it would be beneficial to our stockholders. These provisions could also discourage or make more difficult a merger, tender offer or proxy contest, even if it would be beneficial to stockholders, and could depress the market price of our common stock. Our board of directors believes that these provisions are appropriate to protect the interests of our stockholders. Our board of directors has no present plans to adopt any other measures or devices which may have an anti-takeover effect. Classified Board of Directors. Our articles of organization provide for a board of directors that is divided into three classes. The first class of directors will hold office until the first annual meeting of stockholders following this offering, the second class of directors will hold office until the second annual meeting of stockholders following this offering, and the third class of directors will hold office until the third annual meeting of stockholders following this offering. After each annual meeting, the directors elected at that meeting will serve a three-year term. Stockholders may remove our directors only for cause. 52 Meetings of Stockholders. Our by-laws provide that annual meetings of stockholders will be held at the date, time and place, either within or outside the Commonwealth of Massachusetts, as the board of directors may determine. A special meeting of the stockholders may be called only by our President, our board of directors, or the holders of at least 30% of our outstanding voting stock. The provision permitting only stockholders holding at least 30% of the outstanding voting stock to call a special meeting may be amended only by stockholders holding 75% of the outstanding voting stock. Amendment of By-Laws. Our articles of organization and by-laws provide that the by-laws may be amended or repealed by the board of directors or by the stockholders. An amendment by stockholders requires the affirmative vote of the holders of at least 75% of the outstanding capital stock entitled to vote generally at an election of directors. This system of electing directors, the ability of stockholders to remove directors only for cause and the inability of stockholders holding less than 30% of the outstanding voting stock to call a special meeting may discourage someone from making a tender offer or otherwise attempting to obtain control of our company and may maintain the incumbency of the board of directors. Massachusetts Statutory Business Combination Provision. We will be subject to the provisions of Chapter 110F of the Massachusetts General Laws, an anti- takeover law, after this offering has been completed. In general, this statute prohibits a Massachusetts corporation with more than 200 stockholders of record from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless: . before that date, the board of directors approved either the business combination or the transaction that resulted in the stockholder's becoming an interested stockholder, . the interested stockholder acquires 90% of the outstanding voting stock of the corporation (excluding shares held by affiliates of the corporation) at the time the stockholder becomes an interested stockholder, or . the business combination is approved by both the board of directors and holders of two-thirds of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). A "business combination" includes a merger, consolidation, stock or asset sales, and other specified transactions involving the corporation or any direct or indirect majority-owned subsidiary of the corporation resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is: . a person who, alone or together with affiliates and associates, owns five percent or more of the corporation's voting stock, or 15% or more in the case of persons eligible to file a Schedule 13G under the Securities Exchange Act, . an affiliate or associate of the corporation who at any time within the three-year period preceding the date of the transaction owned five percent or more of the corporation's voting stock, or 15% or more in the case of persons eligible to file a Schedule 13G under the Securities Exchange Act, or . the affiliates and associates of any such affiliate or associate of the corporation. A person is not an "interested stockholder" if its ownership of shares in excess of the five percent or fifteen percent limitation is the result of action taken solely by us, but the person will become an "interested stockholder" if the person thereafter acquires additional shares of voting stock, except as a result of further corporate action not caused, directly or indirectly, by the person. We may at any time elect not to be governed by Chapter 110F by amending our articles of organization or by-laws by a vote of a majority of the stockholders entitled to vote. Such an amendment would not be effective for 12 months and would not apply to a business combination with any person who became an interested stockholder before the adoption of the amendment. In addition, Massachusetts General Laws Chapter 110D, entitled "Regulation of Control Share Acquisitions," provides, in general, that any stockholder of a Massachusetts corporation with more than 200 stockholders of record who acquires voting stock of the corporation in a "control share acquisition" may not vote the shares so acquired (or shares acquired within 90 days before or after the "control share acquisition") unless a majority of the other stockholders of the corporation entitled to vote so authorize. In general, a 53 "control share acquisition" includes the acquisition by any person of beneficial ownership of shares which, when added to all other shares beneficially owned by the person, would entitle the person to vote: . between 20% and 33 1/3%, . between 33 1/3% and 50%, or . more than 50% of the outstanding voting stock of the corporation. A "control share acquisition" generally does not include, among other transactions, the acquisition of shares directly from the issuing corporation. In addition, Chapter 110D permits a corporation to provide in its articles of organization or by-laws that the corporation may redeem, for fair value, all of the shares acquired in a control share acquisition if the interested stockholder does not deliver a control share acquisition statement or if the interested stockholder delivers a control share acquisition statement but the stockholders of the corporation do not authorize voting rights for those shares. Massachusetts General Laws Chapter 156B, Section 50A, requires that publicly-held Massachusetts corporations that have not "opted out" of Section 50A have a classified board of directors consisting of three classes as nearly equal in size as possible. Section 50A also provides that directors who are classified may be removed by the stockholders only for cause. Our articles of organization reflect the requirements of Section 50A. Limitations on Liability and Indemnification Our articles of organization limit the liability of our directors to the extent permitted by Massachusetts law. No director will be personally liable to us or our stockholders for monetary damages resulting from his or her conduct as a director except liability for: . breach of the director's duty of loyalty . acts or omissions not in good faith or which involved intentional misconduct or knowing violations of law . unlawful distributions and loans to insiders . transactions from which the director personally received a benefit in money, property or services to which the director was not legally entitled Our by-laws provide that we will indemnify any person made a party to a proceeding because he or she was or is a director, officer, employee or other agent of ours and that we may advance or reimburse reasonable expenses incurred by him or her before the final disposition of the proceeding if he or she undertakes to repay those expenses if he or she is adjudicated to be not entitled to indemnification. In addition, we have the right, before a final adjudication, to compromise and settle a proceeding and pay expenses, if a compromise and settlement of a proceeding is in our best interests. To the extent our by-laws provide for indemnification of directors for liabilities arising under the Securities Act, those provisions are, in the opinion of the SEC, against public policy as expressed in the Securities Act and are therefore unenforceable. We maintain a liability insurance policy, which may insure our directors and officers against liability they may incur for serving in their capacities as directors and officers. We believe that the limitation of liability provisions in our articles or organization, the indemnification provisions in our by-laws and our liability insurance policy will facilitate our ability to continue to attract and retain qualified individuals to serve as directors and officers. Transfer Agent and Registrar The transfer agent and registrar for the common stock is Registrar and Transfer Company. The Nasdaq Stock Market's National Market Listing We will apply for inclusion of our common stock on The Nasdaq Stock Market's National Market under the symbol "TLXS." 54 SHARES ELIGIBLE FOR FUTURE SALE Before this offering, there has been no public market for our common stock. The market price of our common stock could drop if our existing stockholders sell large numbers of shares of our common stock in the public market or if investors perceive that such sales could occur. These factors could also make it more difficult to raise funds through future offerings of common stock. After this offering, there will be outstanding shares of common stock, or shares if the underwriters exercise their over-allotment option in full, assuming no exercise of outstanding options or warrants. Of these shares, the shares sold in this offering, or shares if the underwriters exercise their over-allotment option in full, will be freely tradable without restriction under the Securities Act except for any shares purchased by our "affiliates" as defined in Rule 144 under the Securities Act. The remaining 22,453,741 shares are "restricted securities" within the meaning of Rule 144. The restricted securities may not be sold unless they are registered under the Securities Act or are sold pursuant to an exemption from registration, such as the exemption provided by Rule 144. Our executive officers, directors and certain other securityholders have entered into lock-up agreements in which they have agreed that, for a period of 180 days after the date of this prospectus, they will not offer, sell, contract to sell, pledge or otherwise dispose of any shares of our common stock, or any securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose their intention to make any such offer, sale, contract, pledge or disposal, without the prior written consent of Credit Suisse First Boston Corporation. In addition, we have agreed in the underwriting agreement that, for a period of 180 days after the date of this prospectus and with limited exceptions, we will not offer, sell, contract to sell, pledge or otherwise dispose of any shares of our common stock, or any securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose our intention to make any such offer, sale, contract, pledge or disposal, without the prior written consent of Credit Suisse First Boston Corporation. We have similarly agreed that, with limited exceptions, we will not file a registration statement with the SEC or publicly disclose our intention to do so. Credit Suisse First Boston Corporation may, at any time and without notice, waive any of the terms of these lock-up agreements. Subject to these lock-up agreements, our outstanding shares of common stock will be available for sale in the public market as follows:
Percent of Number Total of Shares Shares Outstanding Date of Availability for Sale ------ ----------- ---------------------------------------------------------- , 1999 (date of this prospectus) to , 2000 (90 days after the date of this prospectus) , 2000 (90 days after the date of this prospectus) to , 2000 (180 days after the date of this prospectus), in some cases subject to Rule 144 , 2000 (180 days after the date of this prospectus), in some cases subject to Rule 144 At various times after , 2000
In addition, as of June 30, 1999, there were outstanding options to purchase 2,850,651 shares of common stock and warrants to purchase 2,237,445 shares of common stock. Of these options and warrants, will be subject to lock-up agreements. After the expiration of the lock-up agreements, of these options and warrants will be vested and exercisable, assuming no prior exercise, cancellation or expiration. 55 Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, any person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of: . 1% of the then-outstanding shares of common stock, which will equal approximately shares immediately after this offering . the average weekly trading volume in the common stock during the four calendar weeks immediately preceding the date on which the seller files a notice of the sale on Form 144 with the SEC Sales under Rule 144 are also subject to requirements relating to notice, manner of sale and the availability of current public information about us. Rule 144(k). A person (or persons whose shares are aggregated) who has not been our affiliate at any time during the three months immediately preceding a sale, and who has beneficially owned the shares for at least two years, would be entitled to sell the shares under Rule 144(k) without regard to the volume limitations, notice requirements and other conditions of Rule 144. Rule 701. In general, under Rule 701 as currently in effect, each of our directors, officers, employees, consultants or advisors who purchased shares from us before the date of this prospectus in connection with a compensatory stock plan or other written compensatory agreement will be eligible to sell those shares in the public market 90 days after the date of this prospectus in reliance on Rule 144, but without complying with all of the restrictions of Rule 144, such as the holding period. In addition, Rule 701 will apply to shares of common stock we issue upon exercise of the options we granted before the effective date of this offering. As soon as practicable after this offering, we intend to file a registration statement under the Securities Act to register approximately shares of common stock available for issuance pursuant to our stock plans. The registration statement will become effective upon filing. Shares issued pursuant to our stock plans after the effective date of the registration statement will be available for sale in the open market subject in some cases to the lock-up agreements and, for affiliates, subject to the conditions and restrictions of Rule 144. For a description of the registration rights of our securityholders, see "Description of Capital Stock--Registration Rights." 56 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 1999, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Banc of America Securities LLC and CIBC World Markets Corp. are acting as representatives, the following respective numbers of shares of common stock:
Number Underwriter of Shares ----------- --------- Credit Suisse First Boston Corporation............................. Banc of America Securities LLC..................................... CIBC World Markets Corp............................................ --- Total............................................................ ===
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on the sales to other broker/dealers. After the initial public offering, the public offering price, concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay.
Per Share Total ----------------------------- ----------------------------- Without With Without With Over-allotment Over-allotment Over-allotment Over-allotment -------------- -------------- -------------- -------------- Underwriting Discounts and Commissions paid by us............. $ $ $ $ Expenses payable by us.. $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered. Certain employees of CIBC World Markets Corp., including the research analyst that will cover us, own redeemable preferred stock that will convert into shares of common stock upon completion of this offering. We and our executive officers, directors and certain other securityholders have agreed not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or, in our case, file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of common stock or securities convertible into or exchangeable or exercisable for any common stock, or publicly disclose the intention to make any such offer, sale, contract, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, with exceptions for outstanding stock options and warrants. The underwriters have reserved for sale, at the initial public offering price, up to shares of common stock for business partners, employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in this offering. The number of shares available for sale to 57 the general public in this offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments which the underwriters may be required to make in that respect. We will apply to list our common stock on The Nasdaq Stock Market's National Market under the symbol "TLXS." Before this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiation between us and the representatives. The principal factors considered in determining the public offering price included: . the information in this prospectus and otherwise available to the representatives . the history of and the prospects for the industry in which we compete . the ability of our management . the prospects for our future earnings . the present state of our development and our current financial condition . the general condition of the securities markets at the time of this offering . the recent market prices of, and the demand for, publicly-traded common stock of generally comparable companies The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. . Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. . Syndicate covering transactions involve purchases of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq Stock Market's National Market or otherwise and, if commenced, may be discontinued at any time. NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of the common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. 58 Representations of Purchasers Each purchaser of common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom such purchase confirmation is received that (1) the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under these securities laws, (2) where required by law, that the purchaser is purchasing as principal and not as agent, and (3) the purchaser has reviewed the text above under "Resale Restrictions." Rights of Action of Ontario Purchasers The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. Enforcement of Legal Rights All of the issuer's directors and officers as well as the experts named herein may be located outside Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or these persons. All or a substantial portion of the assets of the issuer and these persons may be located outside Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or these persons in Canada or to enforce a judgment obtained in Canadian courts against the issuer or these persons outside Canada. Notice to British Columbia Residents A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that the purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by the purchaser pursuant to this offering. This report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. Taxation and Eligibility for Investment Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and with respect to the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. LEGAL MATTERS Certain legal matters will be passed upon for us by Mirick, O'Connell, DeMallie & Lougee, LLP, Worcester, Massachusetts. Partners and associates in the firm own an aggregate of 38,500 shares of common stock and have options to purchase an additional 27,250 shares of common stock. Certain legal matters will be passed upon for the underwriters by Foley, Hoag & Eliot LLP, Boston, Massachusetts. EXPERTS PricewaterhouseCoopers LLP, independent accountants, have audited the financial statements of Millitech Corporation as of December 31, 1997 and 1998, and for each of the three years in the period ended December 31, 1998 which are included in this prospectus and registration statement. Our financial statements are included in this prospectus in reliance on the report of PricewaterhouseCoopers LLP, given on their authority as experts in auditing and accounting. 59 WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1. This prospectus, which forms a part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits. References in this prospectus to any contract or other document are not necessarily complete and, if we filed the contract or document as an exhibit to the registration statement, you should refer to the exhibit for more information. You may review a copy of the registration statement, including exhibits and schedules filed with it, at the SEC's public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies of the materials from the Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as our company, that file electronically with the SEC. We intend to furnish our stockholders with annual reports containing financial statements audited by independent certified public accountants and will make available quarterly reports containing unaudited summary financial information for each of the first three quarters of each fiscal year. 60 INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants.......................................... F-2 Balance Sheets............................................................. F-3 Statements of Operations and Comprehensive Loss............................ F-4 Statements of Changes in Stockholders' Deficit............................. F-5 Statements of Cash Flows................................................... F-6 Notes to Financial Statements.............................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Millitech Corporation In our opinion, the accompanying balance sheets and the related statements of operations and comprehensive loss, of changes in stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of Millitech Corporation (the "Company") at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Millitech Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Springfield, Massachusetts March 5, 1999, except for Note 2 as to which the date is August 24, 1999 F-2 MILLITECH CORPORATION BALANCE SHEETS (in thousands, except share data)
December 31, Pro Forma ------------------ June 30, June 30, 1997 1998 1999 1999 -------- -------- ----------- ----------- (unaudited) (unaudited) Assets Current assets Cash and cash equivalents........ $ 10,294 $ 2,635 $ 405 $ 405 Accounts receivable, less allowance for doubtful accounts ($210 in 1997 and $368 in 1998)........................... 2,744 3,013 955 955 Contracts in process............. 85 139 -- -- Inventories...................... 3,162 3,093 2,613 2,613 Net assets to be disposed of..... -- -- 1,399 1,399 Other current assets............. 96 97 253 253 -------- -------- -------- -------- Total current assets........... 16,381 8,977 5,625 5,625 Property, plant and equipment, net............................. 3,430 5,922 4,933 4,933 Patents and intangible assets, net of accumulated amortization.................... 121 -- -- -- Other assets..................... 127 56 92 92 -------- -------- -------- -------- Total assets................... $ 20,059 $ 14,955 $ 10,650 $ 10,650 ======== ======== ======== ======== Liabilities, Redeemable Preferred Stock and Stockholders' (Deficit) Equity Current liabilities Notes payable.................... $ 1,500 $ -- $ 1,000 $ 1,000 Accounts payable................. 2,268 2,209 1,572 1,572 Customer prepayments............. 1,028 204 186 186 Accrued expenses................. 1,968 2,060 1,768 1,768 Income taxes payable............. 53 41 50 50 Current maturities of long-term debt............................ 508 379 675 675 Current maturities of capital lease obligations............... 617 813 795 795 -------- -------- -------- -------- Total current liabilities...... 7,942 5,706 6,046 6,046 Long-term debt..................... 729 350 1,246 1,246 Capital lease obligations.......... 961 697 440 440 -------- -------- -------- -------- Total liabilities.............. 9,632 6,753 7,732 7,732 -------- -------- -------- -------- Commitments and contingencies Redeemable Preferred Stock Redeemable preferred stock, Class A, $.01 par value; $3.25 redemption value; authorized 3,090,323 shares (3,270,000 in 1997); issued and outstanding 3,045,696 shares................ 9,899 9,899 9,899 -- Redeemable preferred stock, Class B, $.01 par value; $3.25 redemption value; authorized 789,677 shares (1,250,000 in 1997); issued and outstanding 789,677 shares.................. 2,566 2,566 2,566 -- Redeemable preferred stock, Class C, $.01 par value; authorized 0 shares (400,000 in 1997); none issued ......................... -- -- -- -- Redeemable preferred stock, Class D, $.01 par value; $1.80 redemption value; authorized 7,200,000 shares; issued and outstanding 7,200,000 shares.... 12,960 12,960 12,960 -- Redeemable preferred stock, Class E, $.01 par value; $2.25 redemption value; authorized 8,000,000 shares in 1999 and 4,000,000 shares in 1998; issued and outstanding 3,274,841 shares.......................... -- 7,368 7,368 -- -------- -------- -------- -------- 25,425 32,793 32,793 -- Stockholders' (Deficit) Equity Preferred stock, $.01 par value; 7,500,000 shares authorized in 1999; none issued............... -- -- -- -- Common stock, $.01 par value; authorized 36,000,000 shares in 1999, 25,000,000 shares in 1998 and 20,000,000 shares in 1997; issued and outstanding 1,000,360 shares in 1999, 987,920 shares in 1998 and 983,394 shares in 1997............................ 10 10 10 153 Additional paid-in capital....... 733 669 763 33,413 Accumulated deficit.............. (15,741) (25,270) (30,648) (30,648) -------- -------- -------- -------- Total stockholders' (deficit) equity........................ (14,998) (24,591) (29,875) 2,918 -------- -------- -------- -------- Total liabilities, redeemable preferred stock and stockholders' (deficit) equity........................ $ 20,059 $ 14,955 $ 10,650 $ 10,650 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-3 MILLITECH CORPORATION STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share data)
Six months ended June Year ended December 31, 30, -------------------------- ----------------------- 1996 1997 1998 1998 1999 ------- ------- -------- ----------- ----------- (unaudited) (unaudited) Sales..................... $ 201 $ 1,733 $ 2,386 $ 1,037 $ 2,762 Cost of sales............. 147 2,328 7,200 1,788 2,779 ------- ------- -------- ------- ------- Gross margin (loss)....... 54 (595) (4,814) (751) (17) Operating expenses Research and development, net..................... 433 3,724 4,630 2,717 1,801 Selling and marketing.... 353 667 1,006 470 482 General and administrative.......... 1,097 1,740 2,722 1,393 1,416 ------- ------- -------- ------- ------- Total operating expenses................ 1,883 6,131 8,358 4,580 3,699 ------- ------- -------- ------- ------- Operating loss............ (1,829) (6,726) (13,172) (5,331) (3,716) ------- ------- -------- ------- ------- Other income (expense) Interest expense......... (423) (683) (473) (259) (154) Income from contract cancellation............ -- -- 997 -- -- Interest income.......... 13 40 233 184 25 Other.................... -- 17 -- -- -- ------- ------- -------- ------- ------- Total other income (expense)............... (410) (626) 757 (75) (129) ------- ------- -------- ------- ------- Loss from continuing operations before income taxes.................... (2,239) (7,352) (12,415) (5,406) (3,845) Income tax benefit........ -- (640) (1,162) (655) -- ------- ------- -------- ------- ------- Loss from continuing operations............... (2,239) (6,712) (11,253) (4,751) (3,845) ------- ------- -------- ------- ------- Discontinued operations: Income (loss) from operations of MMWP segment, net of taxes of $328, $904, $1,162, $655 (unaudited) and $0 (unaudited) for the years ended December 31, 1996, 1997, and 1998 and for the six months ended June 30, 1998 and 1999, respectively............ (530) 1,342 1,724 971 367 Loss on disposition of MMWP segment, including provision of $300 (unaudited) for operating losses during the phase-out period, net of $0 (unaudited) for taxes............... -- -- -- -- (1,900) ------- ------- -------- ------- ------- Income (loss) from discontinued operations.. (530) 1,342 1,724 971 (1,533) ------- ------- -------- ------- ------- Net loss and comprehensive loss..................... $(2,769) $(5,370) $ (9,529) $(3,780) $(5,378) ======= ======= ======== ======= ======= Basic and diluted earnings (loss) per share from: Continuing operations.... $ (2.07) $ (7.08) $ (11.44) $ (4.83) $ (3.87) ======= ======= ======== ======= ======= Discontinued operations.. $ (0.49) $ 1.42 $ 1.75 $ .99 $ (1.54) ======= ======= ======== ======= ======= Net loss................. $ (2.56) $ (5.66) $ (9.68) $ (3.85) $ (5.42) ======= ======= ======== ======= ======= Shares used in computing basic and diluted earnings (loss) per share.................... 1,080 948 984 983 993 ======= ======= ======== ======= =======
The accompanying notes are an integral part of these financial statements. F-4 MILLITECH CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (in thousands, except share data)
Common Stock Additional ----------------- Paid-in Accumulated Shares Amount Capital Deficit Total --------- ------ ---------- ----------- -------- Balances, December 31, 1995...................... 1,092,860 $ 11 $ 898 $ (7,602) $ (6,693) Exercise of common stock options................... 11,500 -- 5 5 Treasury stock acquired and retired................... (206,666) (2) (101) (103) Net loss................... (2,769) (2,769) --------- ---- ----- -------- -------- Balances, December 31, 1996...................... 897,694 9 802 (10,371) (9,560) Exercise of common stock options................... 85,700 1 42 43 Other...................... (111) (111) Net loss................... (5,370) (5,370) --------- ---- ----- -------- -------- Balances, December 31, 1997...................... 983,394 10 733 (15,741) (14,998) Exercise of common stock options................... 4,526 -- 2 2 Other...................... (66) (66) Net loss................... (9,529) (9,529) --------- ---- ----- -------- -------- Balances, December 31, 1998...................... 987,920 10 669 (25,270) (24,591) Exercise of common stock options................... 12,440 -- 6 6 Other...................... 88 88 Net loss................... (5,378) (5,378) --------- ---- ----- -------- -------- Balances, June 30, 1999 (unaudited)............... 1,000,360 $ 10 $ 763 $(30,648) $(29,875) ========= ==== ===== ======== ========
The accompanying notes are an integral part of these financial statements. F-5 MILLITECH CORPORATION STATEMENTS OF CASH FLOWS (in thousands)
Six months ended June Year ended December 31, 30, ------------------------- ----------------------- 1996 1997 1998 1998 1999 ------- ------- ------- ----------- ----------- (Unaudited) (Unaudited) Cash flows from operating activities Net loss................... $(2,769) $(5,370) $(9,529) $(3,780) $(5,378) Adjustments to reconcile net loss to net cash utilized by operating activities: Depreciation and amortization.............. 1,176 1,563 2,076 888 1,162 Loss on disposition of MMWP segment................... -- -- -- -- 1,900 Non-cash compensation expense................... -- -- -- -- 88 Gain on sale of property and equipment............. (241) -- -- -- -- Deferred income taxes...... 322 277 -- -- -- Changes in assets and liabilities Accounts receivable....... 1,240 (161) (269) 93 625 Contracts in process...... (68) 449 (54) (159) (11) Inventories............... (866) 220 69 (1,922) (1,273) Other current assets...... 41 31 (1) (214) (156) Accounts payable and accrued expenses......... (927) 1,911 32 333 (264) Customer prepayments...... 427 601 (824) 57 17 Income taxes payable...... (134) 53 (13) (3) 9 ------- ------- ------- ------- ------- Net cash utilized by operating activities..... (1,799) (426) (8,513) (4,707) (3,281) ------- ------- ------- ------- ------- Cash flows from investing activities Additions to property and equipment................. (556) (778) (3,706) (2,574) (708) Proceeds from sale of property and equipment.... 642 -- -- -- -- Reduction (addition) to other assets.............. (58) (39) 20 3 (39) ------- ------- ------- ------- ------- Net cash provided (utilized) by investing activities............... 28 (817) (3,686) (2,571) (747) ------- ------- ------- ------- ------- Cash flows from financing activities Proceeds from note payable................... 2,000 1,000 -- -- 1,000 Net (repayment) borrowing under line of credit...... 1,500 500 (1,500) (300) -- Proceeds from long-term debt...................... -- -- -- -- 1,416 Repayments of long-term debt and capital lease obligations............... (1,415) (994) (1,264) (648) (624) Issuance of common stock upon exercise of options.. 6 43 2 -- 6 Issuance of redeemable preferred stock........... -- 9,917 7,368 -- -- Stock issuance costs....... -- (111) (66) -- -- Redemption of preferred stock..................... (3) -- -- -- -- Treasury stock acquired and retired................... (103) -- -- -- -- Addition to other assets... (72) (31) -- -- -- ------- ------- ------- ------- ------- Net cash provided (utilized) by financing activities............... 1,913 10,324 4,540 (948) 1,798 ------- ------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents.. 142 9,081 (7,659) (8,226) (2,230) Cash and cash equivalents at beginning of period........ 1,071 1,213 10,294 10,294 2,635 ------- ------- ------- ------- ------- Cash and cash equivalents at end of period.............. $ 1,213 $10,294 $ 2,635 $ 2,068 $ 405 ======= ======= ======= ======= ======= Supplemental disclosure of cash flow information Cash paid (received) during the period for Income taxes paid (net of cash refunds received).... $ 167 $ (62) $ -- $ -- $ -- Interest paid.............. 423 615 240 121 149 Non-cash investing and financing activities: Equipment acquired under capital lease agreements.. 130 1,781 689 689 125 Conversion of notes and accrued interest to preferred stock........... -- 3,043 -- -- --
The accompanying notes are an integral part of these financial statements. F-6 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies We develop and supply broadband point-to-multipoint wireless access equipment used by network service providers to deliver integrated voice, video and data services to business and residential customers. We sell our products primarily to network system integrators that include our products in broadband wireless systems sold to network service providers. We commenced operations in 1982 and have derived the significant majority of our sales from our millimeter-wave products business segment. In August 1999, we adopted a plan to focus all of our resources on our broadband point-to- multipoint wireless access business segment and to dispose of the millimeter- wave products segment. As a result, we have presented the operations of the millimeter-wave products segment as a discontinued operation in our financial statements (see Note 2). The following is a summary of significant accounting policies: Unaudited Interim Financial Data The financial information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited. In the opinion of management, such interim financial information includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for any future period. Unaudited Pro Forma Balance Sheet The outstanding shares of the Company's preferred stock Series A, B, D and E automatically convert to common stock upon a public offering resulting in gross proceeds of at least $15,000,000 and with an offering price of $9.75, $9.75, $9.75, and $4.50 per share, respectively. These conversions have been reflected in the unaudited pro forma balance sheet as of June 30, 1999. The pro forma balance sheet excludes the 6,666,667 shares of Series E stock issued in September 1999 (see Note 19). Cash and Cash Equivalents The Company considers highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Revenue Recognition Sales under short-term contracts and for stock items are recognized when deliveries are made. Sales under cost-reimbursement contracts are recorded as costs are incurred and include estimated earned fees in the proportion that costs incurred to date bear to total estimated costs. Sales under certain fixed-price and fixed-price incentive contracts are recorded utilizing the percentage of completion method, wherein costs and estimated gross margin are recorded as the work is performed. Income is accrued based upon the percentage that costs incurred to date bear to estimated total costs after giving effect to the most recent estimates of costs and funding at completion. Fees under certain contracts may be increased or decreased in accordance with cost or performance incentive provisions which measure actual performance against established targets or specific criteria. Incentive fee awards or penalties are included in sales or cost of sales at the time the amounts can be reasonably determined. F-7 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) As some contracts extend over one or more years, revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which the facts which require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss on such contract is accrued. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade accounts receivable. The Company places its cash investments with high-quality financial institutions. The Company extends credit to its customers based on an evaluation of the customer's financial condition and history and generally does not require collateral. The Company has historically incurred minimal credit losses. Approximately 24% and 27% of accounts receivable at December 31, 1997 and 1998 are due from customers who each comprise more than 10% of the total outstanding accounts receivable. At June 30, 1999, all accounts receivable were due from four customers, each comprising more than 10% of the total outstanding accounts receivable relating to the Company's continuing operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Comprehensive Income Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. For the years ended December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1998 and 1999, comprehensive loss equaled net loss. Research and Development The Company incurs research and development costs in the exploration of commercially viable applications of its millimeter-wave and microwave technology. The Company also incurs research and development costs under customer-funded contracts. Costs of approximately $1,640,000 and $1,727,000 are recorded net of the associated customer funding of $67,000 and $986,000 in the years ended December 31, 1997 and 1998, respectively. Costs of approximately $277,000 (unaudited) are shown net of the associated customer funding of $314,000 (unaudited) for the six months ended June 30, 1999. There were no such contracts in the year ended December 31, 1996 or the six months ended June 30, 1998. Significant terms of customer-funded research and development arrangements include granting the customer a non-exclusive, royalty-free right and license to use and distribute the product and its related sales and technical literature that is developed by the Company under the agreement. Inventories Inventories are stated at the lower of cost (average cost method) or market. During 1998, the Company recorded a related reserve of approximately $1,068,000 to adjust such inventory to its net realizable value. F-8 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets as follows:
Asset Life ----- ------------- Machinery and equipment........................................ 5 to 7 years Furniture and fixtures......................................... 7 to 10 years Leasehold improvements......................................... 5 to 10 years Equipment under capital leases................................. 5 to 7 years
Leasehold improvements and equipment under capital leases are amortized over the lesser of the life of the lease or the useful lives of the improvements or equipment. When assets are sold or retired, the related cost and accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in income. Patents and Intangible Assets Patents and intangible assets are recorded at cost and are amortized using the straight-line method over 10 years. In accordance with FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company reviews long-lived assets and certain identifiable intangibles for impairment at each reporting date, and whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recorded charges of $125,000 and $76,664 for the years ended December 31, 1997 and 1998, respectively, as a result of its decision to reduce the carrying value of certain patents held by the Company. This charge is included as a component of general and administrative expenses. Income Taxes Deferred tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense (benefit) is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. An income tax benefit is recorded in the Company's continuing operations to the extent that the loss from continuing operations offsets income from discontinued operations. F-9 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) Earnings Per Share Earnings per share has been computed by dividing the loss from continuing operations, income (loss) from discontinued operations and net loss by the weighted average common shares outstanding. No effect has been given to the exercise of common stock options, stock warrants, convertible notes, and redeemable preferred stock, since such effect would be antidilutive on continuing operations for all reporting periods. Pro forma basic and diluted loss per share have been computed assuming the conversion of all outstanding shares of redeemable preferred stock into common shares, as if the shares had converted immediately upon their issuance. The following table presents the calculation of historical and pro forma per share amounts (in thousands, except per share data):
Six months ended Year ended December 31, June 30, -------------------------- ----------------------- 1996 1997 1998 1998 1999 ------- ------- -------- ----------- ----------- (unaudited) (unaudited) Historical: Loss from continuing operations.............. $(2,239) $(6,712) $(11,253) $(4,751) $(3,845) ======= ======= ======== ======= ======= Weighted average shares of common stock outstanding............. 1,080 948 984 983 993 ======= ======= ======== ======= ======= Basic and diluted loss per share from continuing operations... $ (2.07) $ (7.08) $ (11.44) $ (4.83) $ (3.87) ======= ======= ======== ======= ======= Income (loss) from discontinued operations.............. $ (530) $ 1,342 $ 1,724 $ 971 $(1,533) ======= ======= ======== ======= ======= Weighted average shares of common stock outstanding............. 1,080 948 984 983 993 ======= ======= ======== ======= ======= Basic and diluted income (loss) per share from discontinued operations.............. $ (0.49) $ 1.42 $ 1.75 $ .99 $ (1.54) ======= ======= ======== ======= ======= Net loss................. $(2,769) $(5,370) $ (9,529) $(3,780) $(5,378) ======= ======= ======== ======= ======= Weighted average shares of common stock outstanding............. 1,080 948 984 983 993 ======= ======= ======== ======= ======= Basic and diluted net loss per share.......... $ (2.56) $ (5.66) $ (9.68) $ (3.85) $ (5.42) ======= ======= ======== ======= ======= Pro Forma (Unaudited): Weighted average shares of common stock outstanding............. 984 993 Pro forma adjustment to reflect weighted average effect of assumed conversion of outstanding redeemable preferred stock into common stock............ 11,654 14,310 -------- ------- Weighted average shares used to compute pro forma basic and diluted loss per share.......... 12,638 15,303 ======== ======= Pro forma basic and diluted loss per share from: Continuing operations.............. $ (0.89) $ (0.25) ======== ======= Discontinued operations............. $ 0.14 $ (0.10) ======== ======= Net loss................ $ (0.75) $ (0.35) ======== =======
Derivative Instruments In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments and hedging activities. The statement requires recognition of all derivatives at fair value F-10 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) in the financial statements. FASB Statement No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133, defers implementation of Statement No. 133 until fiscal years beginning after June 15, 2000. The Company has reviewed Statement No. 133 and believes that, upon implementation, the standard will not have a significant effect on its financial statements. Reclassification Certain 1996 and 1997 amounts have been reclassified to conform to the current year's presentation. 2. Discontinued Operations In August 1999, the Board of Directors voted and authorized management to dispose of the Company's millimeter-wave products (MMWP) business segment. This segment consists of the development and manufacture of millimeter-wave components and assemblies, including antennas and quasi-optical products, multiplexer products, and passive waveguide products. Accordingly, the Company has restated its historical financial statements to present the MMWP segment's operating results as a discontinued operation. The results of the MMWP operations, including provisions for termination costs, employee benefits, losses during the phase-out period of $300,000 and an estimated loss on disposal of $1,600,000 resulting from the write-down of inventory and equipment, have been segregated from continuing operations and reported as a separate line item in the statement of operations and comprehensive loss. The assets and liabilities of the MMWP segment at June 30, 1999, consisting primarily of accounts receivable, inventories, equipment, accounts payable and accrued expenses, have been segregated as net assets to be disposed of in the amount of $1,399,000 (unaudited) in the accompanying balance sheet. Sales for the MMWP segment were $13,467,000, $14,686,000, $12,211,000, $6,357,000 (unaudited) and $4,689,000 (unaudited) for the years ended December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1998 and 1999, respectively. 3. Contracts in Process Contracts in process consist of the following (in thousands):
December 31, ------------------ June 30, 1997 1998 1999 -------- -------- ----------- (unaudited) Costs and estimated profit or loss on uncompleted contracts.................... $ 10,618 $ 13,488 $-- Less billings to date..................... (10,533) (13,349) -- -------- -------- ---- $ 85 $ 139 $-- ======== ======== ====
Unbilled amounts are recorded on a percentage of completion method and are recoverable upon shipment of the product, presentation of billings, or completion of the contract. F-11 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) 4. Inventories Inventories consist of the following (in thousands):
December 31, ------------- June 30, 1997 1998 1999 ------ ------ ----------- (unaudited) Work in process.................................... $ 997 $ 918 $1,311 Parts and subassemblies............................ 2,165 2,175 1,302 ------ ------ ------ $3,162 $3,093 $2,613 ====== ====== ======
5. Property, Plant and Equipment Property, plant and equipment consist of the following (in thousands):
December 31, ----------------- June 30, 1997 1998 1999 ------- -------- ----------- (unaudited) Machinery and equipment..................... $ 7,841 $ 10,962 $ 8,430 Furniture and fixtures...................... 622 740 675 Leasehold improvements...................... 1,508 1,980 1,711 Equipment under capital leases.............. 2,785 3,469 2,748 ------- -------- ------- 12,756 17,151 13,564 Less accumulated depreciation and amortization............................... (9,326) (11,229) (8,631) ------- -------- ------- $ 3,430 $ 5,922 $ 4,933 ======= ======== =======
The net book value of all equipment under capital leases was approximately $1,581, $1,487 and $1,134 (unaudited) at December 31, 1997 and 1998, and June 30, 1999, respectively. Depreciation expense for the years ended December 31, 1996, 1997 and 1998 was $1,101, $1,393 and $1,903, respectively. Depreciation expense for the six months ended June 30, 1998 and 1999 was $838 (unaudited) and $1,159 (unaudited), respectively. 6. Accrued Expenses Accrued expenses consist of the following (in thousands):
December 31, ------------- June 30, 1997 1998 1999 ------ ------ ----------- (unaudited) Accrued payroll, commissions and related expenses....................................... $ 909 $1,002 $ 583 Accrued warranty expense........................ 342 492 555 Accrued contract costs.......................... 647 334 210 Other accrued expenses.......................... 70 232 120 Accrued loss on disposition of MMWP segment..... -- -- 300 ------ ------ ------ $1,968 $2,060 $1,768 ====== ====== ======
F-12 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) 7. Notes Payable Notes payable consisted of a collateralized line of credit of $1,500,000 at December 31, 1997. Collateral for the line of credit consisted of all assets of the Company. The maximum amount that could be borrowed under this agreement was limited to 80% of bank-approved domestic accounts receivable plus 75% of bank-approved international accounts receivable. Interest accrued at the rate of prime plus 1%. (Prime was 8.5% at December 31, 1997.) The line of credit expired on October 31, 1998 and was not renewed by the Company. In April 1999, the Company received $1,000,000 (unaudited) in proceeds from subordinated promissory notes as bridge financing. The notes bear interest at 9 3/4% and are payable at the earlier of December 31, 1999 or the sale of equity securities of the Company of at least $5,000,000. The note holders received warrants for the purchase of 200,000 shares (unaudited) of the Company's common stock at an exercise price of $.50 per share. 8. Long-Term Debt Long-term debt consists of the following (in thousands):
December 31, ------------ June 30, 1997 1998 1999 ------ ---- ----------- (unaudited) Uncollateralized subordinated note, due December 2000, quarterly principal payments of $87,500 with interest at 10% (see Note 13)............... $1,138 $700 $ 525 Uncollateralized subordinated note, due June 2003, monthly principal payments of $8,333 with interest at 10% (see Note 13).................... 99 29 400 Collateralized equipment notes, due April 2003, monthly principal and interest payments of $24,695, with interest at 7.8%................... -- -- 996 ------ ---- ------ 1,237 729 1,921 Less current portion.............................. (508) (379) (675) ------ ---- ------ $ 729 $350 $1,246 ====== ==== ======
The maturities of long-term debt outstanding are as follows (in thousands):
December 31, June 30, 1998 1999 ------------ ----------- (unaudited) 1999................................................ $379 $ 675 2000................................................ 350 520 2001................................................ -- 365 2002................................................ -- 361 ---- ------ $729 $1,921 ==== ======
During 1997, the Company issued subordinated convertible notes totaling $1,000,000. In conjunction with these notes, the Company issued a total of 600,000 common stock warrants. In 1997, the $1,000,000 subordinated convertible notes and $2,000,000 subordinated convertible notes issued previously, together with accrued interest of $43,000, were converted into 1,690,656 shares of Class D redeemable preferred stock (see Notes 12 and 13). The subordinated note due June 2003 and the line of credit (Note 7) contain debt covenant requirements related to financial ratios, including a quick ratio, debt-to-equity ratio and debt service coverage. The Company F-13 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) was in default of certain of these covenants as of and for the years ended December 31, 1997 and 1998. The lenders of the line of credit have waived such defaults as of and for the year ended December 31, 1997. The line of credit expired and was not renewed in 1998. The lenders of the subordinated note have waived such default as of and for the year ended December 31, 1998 and through the year ending December 31, 1999. In May 1999, the Company entered into a senior loan and security agreement which provides for the issuance of up to $2,000,000 in promissory notes. As of June 30, 1999, $996,000 (unaudited) in notes were outstanding against this agreement. The notes are collateralized by machinery, equipment, intangible and other assets of the Company. The notes require an additional interest compensation payment at the end of the term of the notes. The payment, at the option of the Company, is either 12.5% of the original principal of the note, or six months of payments in the amount of 2.43% of the original principal of the note. In conjunction with these notes, the Company issued 44,445 (unaudited) Class E preferred stock warrants which expire in May 2006 (see Note 13). In June 1999, the Company paid the balance of its uncollateralized subordinated note due June 1999 and issued a new uncollateralized subordinated note due June 2003 to the same lender totaling $400,000 (unaudited). The previous note due June 1999 required monthly payments of $5,833 with interest at 10%. In conjunction with the new note due June 2003, the Company issued 40,000 (unaudited) common stock warrants that expire July 2007 (see Note 13). The Company also extended the duration of the lender's outstanding Class A preferred stock warrants to June 2003. 9. Leases The Company leases its operating facility and certain equipment under operating and capital leases which extend through 2003. Certain leases include renewal options. Future minimum annual lease payments under these lease agreements at December 31, 1998 are as follows (in thousands):
Operating Capital Year ending Leases Leases ----------- --------- ------- 1999...................................................... $ 659 $ 864 2000...................................................... 242 585 2001...................................................... 149 340 2002...................................................... 91 123 2003...................................................... 60 -- ------ ------ Future minimum lease payments............................. $1,201 1,912 ====== Less amount representing interest......................... (402) ------ Present value of net minimum lease payments............... 1,510 Less current portion...................................... (813) ------ Long-term portion......................................... $ 697 ======
The Company has a ten-year operating lease for its primary operating facility. The building lease requires the Company to pay utilities, insurance, maintenance costs and real estate taxes. The building is leased from a preferred stockholder. In addition, the Company leases equipment under various leases for periods ranging from one to five years. Some of these leases contain options to purchase the equipment at the termination of the lease at a price equal to fair market value. F-14 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) Total rental expense charged to operations under operating leases was approximately $439,000, $521,000, $624,000, $317,000 (unaudited) and $270,000 (unaudited) for the years ended December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1998 and 1999, respectively. 10. Incentive Compensation Plan The Company maintains an incentive compensation plan. All payouts are at the Board of Directors' discretion. No compensation expense was recognized under this plan for the years ended December 31, 1996, 1997 and 1998 or for the six months ended June 30, 1998 and 1999. 11. Income Taxes The provision for income taxes consists of the following (in thousands):
December 31, ------------------- 1996 1997 1998 ---- ----- ------- Continuing operations: Current tax expense (benefit): Federal................. $-- $ 3 $ -- State................... -- (16) -- ---- ----- ------- -- (13) -- ---- ----- ------- Deferred tax expense (benefit): Federal................. -- (529) (981) State................... -- (98) (181) ---- ----- ------- -- (627) (1,162) ---- ----- ------- Income tax benefit related to continuing operations............... -- (640) (1,162) ---- ----- ------- Discontinued operations: Current tax expense: Federal................. $-- $ 763 $ 981 State................... 6 141 181 ---- ----- ------- 6 904 1,162 ---- ----- ------- Deferred tax expense: Federal................. 304 -- -- State................... 18 -- -- ---- ----- ------- 322 -- -- ---- ----- ------- Income tax expense related to discontinued operations............... 328 904 1,162 ---- ----- ------- Total income tax expense................ $328 $ 264 $ -- ==== ===== =======
F-15 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) The provision for income taxes differs from the amount computed utilizing the federal statutory rate of 34% as follows:
Year ended December 31, --------------------- 1996 1997 1998 ----- ----- ----- Federal statutory rate.. (34.0)% (34.0)% (34.0)% State taxes, net of federal effect......... (6.2) (4.3) (7.6) Other................... (0.6) 7.6 (2.2) Change in valuation allowance.............. 54.3 35.9 43.8 ----- ----- ----- 13.5% 5.2% 0.0% ===== ===== =====
The tax effects of temporary differences that give rise to deferred tax assets (liabilities) at December 31, 1997 and 1998 are as follows (in thousands):
1997 1998 ------------------ ------------------- Current Noncurrent Current Noncurrent ------- ---------- ------- ---------- Inventory reserves................... $ 263 $ -- $ 1,134 $ -- Vacation liability................... 130 -- 173 -- Warranty............................. 75 -- 198 -- Allowance for reserve accounts....... 84 -- 148 -- Accrued contract costs............... 157 -- 121 -- Other................................ 117 (38) 253 (85) Investment........................... -- -- -- (173) Depreciation......................... -- 110 -- 138 Tax credit carryovers................ -- 226 -- 383 Net operating loss carryforwards..... -- 4,223 -- 7,231 ----- ------- ------- ------- Gross deferred tax benefit........... 826 4,521 2,027 7,494 Valuation allowance.................. (826) (4,521) (2,027) (7,494) ----- ------- ------- ------- $ -- $ -- $ -- $ -- ===== ======= ======= =======
At December 31, 1998, the Company has approximately $18,996 ($11,563 in 1997) of net operating loss carryforwards and $288 ($200 in 1997) of investment and research and development tax credit carryforwards available for federal income tax purposes. There are approximately $14,584 of net operating losses ($6,999 in 1997) and approximately $96 in investment and research and development tax credit carryforwards available in 1998 ($12 in 1997) for state tax purposes. Expiration of these carryforwards commenced in 1998 and will continue through 2013. It is possible that the net operating loss carryforward amounts that may be used in a single year may be limited. 12. Preferred Stock The Company has issued and outstanding Class A, B, D and E preferred stock. Each of the classes has redemption rights, a liquidation preference, conversion rights, and dividend rights: . Each Class A, B, D and E share may be converted at the option of the holder into a share of common stock at a price of $3.25, $3.25, $1.80 and $2.25, respectively. Conversion would occur automatically upon a public offering resulting in gross proceeds of at least $15,000,000 and with an offering price F-16 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) of at least $9.75, $9.75, $9.75 and $4.50 per share for the Class A, B, D, and E shares, respectively. Each Class D and E share would automatically be converted into common stock upon the conversion of 90% or more of the authorized stock of the class. . The Class A, B, D and E shares have a liquidation preference in the amount of $3.25, $3.25, $1.80 and $2.25, respectively, plus all declared and unpaid dividends. . The holders of Class A, B, D and E shares are entitled to receive, when and as declared by the Board of Directors, non-cumulative annual cash dividends of $.26, $.26, $.144 and $.18 per share, respectively. No dividends have been declared by the Board of Directors. . Certain of the classes of preferred stock have liquidation rights, voting rights and cash dividend rights in preference to the other preferred stock. During 1997, the stockholders authorized 400,000 shares of preferred stock to be known as Class C preferred stock. The Class C shares are entitled to one vote per share at any stockholders' meeting. During 1998, the stockholders reduced the authorized shares of Class C to zero and at December 31, 1998, there were no Class C preferred shares outstanding. During 1997, the Company issued 7,200,000 shares of Class D preferred stock at $1.80 per share for an aggregate of $12,960,000. As part of the Class D preferred stock issue, the holders of the Company's subordinated convertible notes agreed to convert the principal amount of $3,000,000 and accrued interest of $43,000 into 1,690,656 shares of Class D preferred stock (see Note 8). The balance of the proceeds, equal to $9,917,000, was received in cash. During 1998, the Company issued 3,274,841 shares of Class E preferred stock at $2.25 per share for an aggregate of $7,368,000. The Company shall offer to redeem the Class A and Class B preferred shares at the rate of 20% per year at $3.25 per share, plus an amount equal to all declared and unpaid dividends. All Class A and Class B redemptions can be waived at the option of two-thirds of the respective Class A or Class B preferred stockholders. As part of the agreement in 1998 to issue Class E preferred stock, the Class A and Class B preferred stockholders elected to postpone their redemption rights until 2003. On October 21, 2003 and on the first and second anniversaries thereof, the Company shall offer to redeem from each Class D and Class E preferred holder, a maximum of one-third, two-thirds and one hundred percent, respectively, of the total number of shares held by each stockholder at a price equal to the greater of $1.80 and $2.25, respectively, plus all declared and unpaid dividends, or the fair market value as determined by the Board of Directors. The Class D preferred stockholders agreed to postpone their redemption from 2002 to 2003, as part of the 1998 Class E preferred stock issuance. F-17 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) The aggregate amounts of potential required future redemptions as of December 31, 1998 are as follows (in thousands):
Class A Class B Class D Class E ------------- ------------- -------------- ------------- Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------- ------ ------ 1999............... -- $ -- -- $ -- -- $ -- -- $ -- 2000............... -- -- -- -- -- -- -- -- 2001............... -- -- -- -- -- -- -- -- 2002............... -- -- -- -- -- -- -- -- 2003............... 609 1,980 158 513 2,400 4,320 1,092 2,456 Thereafter......... 2,437 7,919 632 2,053 4,800 8,640 2,183 4,912 ----- ------ --- ------ ----- ------- ----- ------ 3,046 $9,899 790 $2,566 7,200 $12,960 3,275 $7,368 ===== ====== === ====== ===== ======= ===== ======
13. Stock Warrants The Company has issued stock warrants for its preferred and common stock as follows:
Class A Class E Preferred Stock Preferred Stock Common Stock ------------------- --------------- ------------------- Exercise Exercise Number Price Exercise Number of Price Per of Per Number of Price Per Shares Share Shares Share Shares Share --------- --------- ------ -------- --------- --------- Exercisable at December 31, 1995............... 28,000 $3.25 -- -- 125,000 $0.50 Granted................. -- -- -- -- 1,200,000 0.50 ------ ----- ------ ----- --------- ----- Exercisable at December 31, 1996............... 28,000 3.25 -- -- 1,325,000 0.50 Granted................. -- -- -- -- 600,000 0.50 ------ ----- ------ ----- --------- ----- Exercisable at December 31, 1997............... 28,000 3.25 -- -- 1,925,000 0.50 Granted................. -- -- -- -- -- -- ------ ----- ------ ----- --------- ----- Exercisable at December 31, 1998............... 28,000 3.25 -- -- 1,925,000 0.50 Granted................. -- -- 44,445 $2.25 240,000 0.50 ------ ----- ------ ----- --------- ----- Exercisable at June 30, 1999 (unaudited)....... 28,000 $3.25 44,445 $2.25 2,165,000 $0.50 ====== ===== ====== ===== ========= =====
F-18 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) The Company issued 1,200,000, 600,000, and 40,000 (unaudited) common stock warrants during 1996, 1997 and the six months ended June 30, 1999 in conjunction with subordinated convertible debt of $2,000,000 and $1,000,000 and a subordinated note of $400,000, respectively (see Note 8). In addition, 200,000 common stock warrants were issued during the six months ended June 30, 1999 in conjunction with the bridge financing (see Note 7). The outstanding common stock warrants have an exercise price of $.50 and expire as follows:
Expiration Number of Warrants Date ------------------ -------------- 125,000....................................................... December 2000 1,200,000..................................................... September 2006 840,000....................................................... July 2007
The outstanding Class A preferred stock warrants have an exercise price of $3.25 and expire in June 2003 (See Note 8). The outstanding Class E preferred stock warrants have an exercise price of $2.25 and expire in May 2006 (see Note 8). 14. Stock Options The Company has stock option plans that provide for the granting of options to certain employees, directors and consultants. The plans permit the granting of options to purchase a maximum of 5,740,000 shares of common stock at prices and require that the options be exercisable at such prices and at such times as determined by the Board of Directors, not to exceed ten years from date of issuance. As of December 31, 1998, 2,405,955 options are available for issuance under these plans. However, the Class D preferred stockholders' agreement limits the number of additional options that may be issued without the approval of the Class D stockholders. As of December 31, 1998, under this agreement, approximately 881,000 of the total 2,405,955 options available may be granted by the Board of Directors without approval by the Class D stockholders. The stock options for employees generally have a vesting requirement of four years whereby 20% of the options granted vest at the time of issuance and the remainder vest at a rate of 20% per year on the anniversary date of the issuance. F-19 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) All outstanding options have an exercise price of $.50 per share. The aggregate stock option transactions for these plans are as follows:
Number of Shares --------- Balance, December 31, 1995........................................ 983,300 Granted......................................................... 375,000 Exercised....................................................... (11,500) Canceled or expired............................................. (366,900) --------- Balance, December 31, 1996........................................ 979,900 Granted......................................................... 410,000 Exercised....................................................... (85,700) --------- Balance, December 31, 1997 (745,700 exercisable).................. 1,304,200 Granted......................................................... 1,880,773 Exercised....................................................... (4,526) Canceled or expired............................................. (705,728) --------- Balance, December 31, 1998 (1,323,070 exercisable)................ 2,474,719 Granted......................................................... 249,362 Exercised....................................................... (12,440) Canceled or expired............................................. (130,990) --------- Balance, June 30, 1999 (1,571,991 exercisable)(unaudited)......... 2,580,651 =========
The weighted average contractual life of options outstanding at December 31, 1998 is 6.8 years. Additionally, the Company has options outstanding at December 31, 1998 to a former shareholder/employee to purchase 270,000 shares of the Company's common stock for $.50 per share. This option was granted in 1996 under the terms of a sales agreement (see Note 18). The Company granted options to non-employees during the six months ended June 30, 1999 and accordingly recognized $88,000 (unaudited) in non-cash compensation expense. The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock-based compensation plans. Had compensation cost for the Company's stock option plans been determined in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, the Company's pro forma net loss and net loss per share would have been as follows:
Year ended December 31, ------------------------- 1996 1997 1998 ------- ------- ------- (in thousands, except per share data) Net loss: As reported..................................... $(2,769) $(5,370) $(9,529) Pro forma....................................... (2,795) (5,412) (9,662) Net loss per share: As reported..................................... (2.56) (5.66) (9.68) Pro forma....................................... (2.59) (5.71) (9.82)
The above pro forma effects may not be representative of the effects for future years, as option grants typically vest over several years and additional options are generally granted each year. F-20 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) The fair value of each option grant has been estimated on the date of grant using the minimum value pricing model with the following weighted average assumptions:
1996 1997 1998 ------- ------- ------- Risk-free interest rate........................... 6.84% 6.47% 5.58% Expected life..................................... 8 years 8 years 8 years Volatility........................................ 0% 0% 0% Dividend yield.................................... -- -- --
The weighted average fair value of those options granted in 1996, 1997 and 1998 was $0.21, $0.20 and $0.18, respectively. 15. Common and Preferred Stock Reserved During 1998, the stockholders authorized an additional 5,000,000 shares of common stock. As a result of the outstanding preferred stock, outstanding stock warrants, stock option plans and restricted stock purchase agreement, the Company has reserved 18,700,073 shares of common stock at December 31, 1997 and 22,263,841 shares at December 31, 1998, and 28,000 shares of Class A preferred stock at December 31, 1997 and 1998. During the six months ended June 30, 1999, the stockholders voted to authorize 7,500,000 (unaudited) shares of preferred stock, $.01 par value to increase the authorized shares of the Series E preferred stock to 8,000,000 (unaudited) and to increase the authorized shares of common stock to 36,000,000 (unaudited). 16. Segment Information During 1998, the Company adopted the provisions of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. FASB Statement No. 131 establishes standards for disclosures about operating segments, products and services, geographic areas and major customers. Prior to the Company's decision to discontinue its millimeter-wave products (MMWP) business segment (see Note 2), the Company developed and manufactured products in two business segments, the MMWP and broadband wireless access (BWA) segments. As a result of this decision, the Company now operates in only the BWA segment. Products of the BWA segment include hub and customer premises equipment. The BWA segment's sales by country are (in thousands):
Year ended Six months ended December 31, June 30, ------------------ ----------------------- 1996 1997 1998 1998 1999 ---- ------ ------ ----------- ----------- (unaudited) (unaudited) United States..................... $173 $ 225 $1,153 $ 209 $ 823 Canada............................ 1 -- 713 415 1,936 Other countries................... 27 1,508 520 413 3 ---- ------ ------ ------ ------ $201 $1,733 $2,386 $1,037 $2,762 ==== ====== ====== ====== ======
The Company's research and production facilities and accompanying long-lived assets are located in the United States. F-21 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) Sales to individual customers in excess of 10% of total BWA segment revenues are presented in the following table (in thousands):
Year ended Six months ended December 31, June 30, ------------------ ----------------------- 1996 1997 1998 1998 1999 ---- ------ ------ ----------- ----------- (unaudited) (unaudited) Individual customers in excess of 10% of revenues: Customer A.................... $ 20 $ -- $ -- $ -- $ -- Customer B.................... 95 -- -- -- -- Customer C.................... 59 -- -- -- -- Customer D.................... 27 674 -- -- -- Customer E.................... -- 584 -- -- -- Customer F.................... -- -- 296 296 -- Customer G.................... -- -- 614 -- 604 Customer H.................... -- -- 713 415 1,935 ---- ------ ------ ------ ------ 201 1,258 1,623 711 2,539 Other customers................ -- 475 763 326 223 ---- ------ ------ ------ ------ Total sales.................... $201 $1,733 $2,386 $1,037 $2,762 ==== ====== ====== ====== ======
17. Employee Savings and Profit-Sharing Plan The Company sponsors an employee savings and profit-sharing plan for all employees. Full-time employees become eligible for participation after one-half year of service. The Company provides a 50% matching of employee contributions, up to a maximum of $2,000 ($1,750 in 1997). An additional contribution is determined at the discretion of the Board of Directors. The Company's contributions to this plan amounted to approximately $132,000, $147,000 and $191,000 for the years ended December 31, 1996, 1997 and 1998 and $121,000 (unaudited) and $149,000 (unaudited) for the six months ended June 30, 1998 and 1999, respectively. 18. Related-Party Transactions The Company had sales to a preferred stockholder of approximately $728,000, $1,028,000 and $953,000 during 1996, 1997 and 1998, and $555,000 (unaudited) and $702,000 (unaudited) for the six months ended June 30, 1998 and 1999, respectively. Included in accounts receivable at December 31, 1997 and 1998 are approximately $378,000 and $160,000 due from these sales. These transactions comprise subcontracts associated with the preferred stockholder's contracts with the U.S. Government, and are contracted in accordance with federal contracting guidelines. The sales and related accounts receivable from this customer are included in discontinued operations. The Company holds a promissory note receivable of $250,000 as the result of a 1996 license and sales agreement with a limited liability company established and partly owned by a former stockholder/employee. The Company also owns a 19.9% interest in the company. At December 31, 1997 and 1998, the Company has reserved for the entire amount due on the note receivable of approximately $213,000 and $200,000, respectively, and has no value assigned to its 19.9% interest in the limited liability company. The Company has instituted legal action to collect the amounts due plus damages. F-22 MILLITECH CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) 19. Subsequent Events (unaudited) Bridge Financing In July 1999, the Company received an aggregate of $1,000,000 in proceeds from subordinated promissory notes issued to certain preferred stockholders, common stockholders, officers and directors. The notes bear interest at 9.75% and are to be paid in full on the earlier of December 31, 1999 or the sale of the Company's equity securities having an aggregate sales price of at least $5,000,000. Holders of the subordinated promissory notes also received warrants to purchase an aggregate of 200,000 shares of the Company's common stock at $.50 per share. The warrants expire in July 2007. Revolving Line of Credit In August 1999, the Company entered into a revolving line of credit agreement with a bank. The agreement provides for an initial borrowing of up to $1,000,000, which is increased by $500,000 upon the Company's raising an additional $3,000,000 in stockholders' equity and increased by $500,000 upon receipt of a machinery and equipment appraisal, for a total amount available of $2,000,000. Interest is payable on the outstanding balance of the line at prime plus 1%. The line is collateralized by all assets of the Company and expires on August 19, 2000. The agreement requires the Company to comply with certain covenants, including net income and tangible net worth. In connection with the revolving line of credit agreement, the bank received a warrant to purchase 44,445 shares of the Company's Series E preferred stock at $2.25 per share. The warrant expires in August 2006. Series E Preferred Stock In September 1999, the Company sold 6,666,667 shares of its Series E preferred stock for $15,000,000, prior to issuance expenses. Of the total proceeds, approximately $2,000,000 will be used to retire the $2,000,000 in subordinated promissory notes from the bridge financing and approximately $13,000,000 will be used for general corporate purposes. The terms of the additional Series E shares issued are the same as the Series E shares previously issued (see Note 12). F-23 [Logo of Telaxis Communications Corporation] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth the expenses (other than the underwriting compensation expected to be incurred) in connection with the offering described in this Registration Statement. All of the amounts (except the SEC Registration Fee, the NASD Filing Fee and The Nasdaq Stock Market's National Market Listing Fee) are estimates. SEC Registration Fee................................................... $20,141 NASD Filing Fee........................................................ 7,745 The Nasdaq Stock Market's National Market Listing Fee.................. * Blue Sky Fees and Expenses............................................. 7,500 Printing and Engraving Costs........................................... * Legal Fees and Expenses................................................ * Accounting Fees and Expenses........................................... * Transfer Agent and Registrar Fees and Expenses......................... * Miscellaneous.......................................................... * ------- Total................................................................ $ * =======
Item 14. Indemnification of Directors and Officers. Section 67 of Chapter 156B of the Massachusetts General Laws, or the Massachusetts Business Corporation Law (the "MBCL"), provides that the indemnification of directors, officers, employees and other agents of a corporation, and persons who serve at its request as directors, officers, employees or other agents of another organization, or who serve at its request in any capacity with respect to any employee benefit plan, may be provided by it to whatever extent shall be specified in or authorized by (i) the articles of organization or (ii) a by-law adopted by the stockholders or (iii) a vote adopted by the holders of a majority of the shares of stock entitled to vote on the election of directors. Except as the articles of organization or by-laws otherwise require, indemnification of any such persons who are not directors of the corporation may be provided by it to the extent authorized by the directors. Such indemnification may include payment by the corporation of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the person indemnified to repay such payment if he shall be adjudicated not to be entitled to indemnification, which undertaking may be accepted without reference to the financial ability of such person to make repayment. Any such indemnification may be provided although the person to be indemnified is no longer an officer, director, employee or agent of the corporation or of such other organization or no longer serves with respect to any such employee benefit plan. Section 67 further provides that no indemnification shall be provided for any person with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation or, to the extent that such matter relates to service with respect to any employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. The Company's by-laws provide that the Company shall indemnify each person who is, or shall have been, a director, officer, employee or agent of the Company, or who is serving or shall have served, at the request of the Company, as a director or officer of another organization or in any capacity with respect to any employee benefit plan of the Company, against all liabilities and expenses (including judgments, fines, penalties, amounts paid or to be paid in settlement and reasonable attorney's fees) imposed upon or incurred by any such person in connection with or arising out of claims made, or any action, suit or proceeding threatened or brought against him or in which he may be involved by reason of any action taken omitted by him as a director, officer, employee or agent, or as a result of any service with respect to any such employee benefit plan. II-1 Section 13(b)(1 1/2) of Chapter 156B of the MBCL permits a corporation to include in its articles of organization a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (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 61 or 62 of the MBCL (relating to unlawful payment of dividends, unlawful stock purchase and redemption and loans to insiders) or (iv) for any transaction from which the director derived an improper personal benefit. Article VI of the Company's Articles of Organization provides that the Company's directors shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, expect in the circumstances set forth in the MBCL. Section 67 of the MBCL also affords a Massachusetts corporation the power to obtain insurance on behalf of its directors and officers against liabilities incurred by them in those capacities. The Company currently maintains a directors and officers liability insurance policy. The Underwriting Agreement filed as Exhibit 1.1 provides that the Underwriters named therein will indemnify and hold harmless the Company and each director, officer or controlling person of the Company from and against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"), and the Underwriting Agreement provides that such Underwriters will contribute to certain liabilities of such persons under the Securities Act. Item 15. Recent Sales of Unregistered Securities. The Company has issued or sold the following unregistered securities within the past three years: . an aggregate of 6,666,667 shares of Class E preferred stock at $2.25 per share in September 1999 to 47 accredited investors; . a warrant to purchase 44,445 shares of Class E preferred stock at $2.25 per share in August 1999 to a commercial lender; . warrants to purchase an aggregate of 200,000 shares of common stock at $.50 per share in July 1999 to 12 accredited investors; . a warrant to purchase 40,000 shares of common stock at $.50 per share in June 1999 to one accredited investor; . a warrant to acquire 44,445 shares of Class E preferred stock at $2.25 per share in May 1999 to a lease financing company; . warrants to purchase an aggregate of 200,000 shares of common stock at $.50 per share in April 1999 to 14 accredited investors; . an aggregate of 3,274,841 shares of Class E preferred stock at $2.25 per share in October, November and December 1998 to 32 accredited investors; . an aggregate of 7,200,000 shares of Class D preferred stock at $1.80 per share in November and December 1997 to 38 accredited investors; . warrants to acquire an aggregate of 1,800,000 shares of common stock at $.50 per share in September 1996 and July 1997 to 23 accredited investors; . stock options to purchase an aggregate of 2,504,635 shares of common stock at an exercise price of $.50 between October 1, 1996 and September 2, 1999 to a total of 193 consultants, employees and directors under the Company's 1996 and 1997 stock plans; . stock options to purchase an aggregate of 780,225 shares of common stock at an exercise price of $1.25 between July 14, 1999 and September 2, 1999 to a total of 12 consultants, employees and directors under the Company's 1997 stock plan; II-2 . stock options to purchase an aggregate of 354,629 shares of common stock at an exercise price of $2.25 between August 24, 1999 and September 13, 1999 to a total of 191 consultants, employees and directors under the Company's 1997 stock plan; . 225,000 shares of restricted common stock at $1.25 per share under our 1997 Stock Plan to one employee in September 1999; and . an aggregate of 289,966 shares at prices ranging from $0.50 to $1.25 to our employees, directors and consultants upon the exercise of options held by those individuals and issued under one or more of our stock plans. Each of the sales described above were completed without registration under the Securities Act in reliance upon one or more of the following exemptions: . Section 4(2) of the Securities Act or Rule 506 of Regulation D promulgated under the Securities Act for transactions not involving a public offering; or . Rule 701 promulgated under the Securities Act with respect to certain of the options and shares of common stock issued to the Company's employees, directors and consultants. None of the sales of the securities issued by the Company have involved the use of an underwriter, and no commissions were paid in connection with the sale of any of the securities issued by the Company. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits
Exhibit Number Description ------- ----------- 1.1 Form of Underwriting Agreement.* 3.1 Restated Articles of Organization of the Company.* 3.2 By-laws of the Company, as amended. 4.1 Form of certificate evidencing ownership of Common Stock of the Company.* 5.1 Opinion of Mirick, O'Connell, DeMallie & Lougee, llp.* 10.1 1986 Stock Plan of the Company. 10.2 1987 Stock Plan of the Company. 10.3 1988 Stock Plan of the Company. 10.4 1996 Stock Plan of the Company. 10.5 1997 Stock Plan of the Company. 10.6 1999 Stock Plan of the Company. 10.7 Employment Agreement by and between the Company and John L. Youngblood dated January 25, 1994. 10.8 Reseller Agreement by and between the Company and Newbridge Networks Corporation dated August 7, 1998.* 10.9 Professional Services Agreement by and between the Company and Newbridge Networks Corporation dated August 7, 1998.* 10.10 Revised Purchase Order by and between the Company and Motorola dated September 20, 1999.* 10.11 Memorandum of Understanding by and between the Company and Hughes Network Systems Limited dated August 12, 1998.*
II-3
Exhibit Number Description ------- ----------- 10.12 Memorandum of Understanding by and between the Company and California Amplifier, Inc. dated March 11, 1999. 10.13 Lease by and between the Company and Edward J. O'Leary-Raymond M. Vincunas Partnership dated January 16, 1990. 10.14 Lease by and between the Company and Lloyd C. Green and Mildred E. Green dated June 30, 1998. 10.15 Revolving Line of Credit Agreement by and between the Company and Boston Federal Savings Bank dated August 20, 1999. 10.16 Fourth Amended and Restated Registration Rights Agreement dated September 17, 1999. 10.17 Registration Rights Agreement by and between the Company and Boston Federal Savings Bank dated August 20, 1999. 10.18 Registration Rights Agreement by and between the Company and Phoenix Leasing Incorporated dated May 19, 1999. 10.19 Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated June 1988.* 10.20 First Amendment to the Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated December 28, 1988.* 10.21 Second Amendment to the Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated June 17, 1999.* 10.22 Senior Loan and Security Agreement by and between the Company and Phoenix Leasing Corporation dated May 19, 1999.* 10.23 Subordinated Note and Warrant Purchase Agreement by and between the Company and Massachusetts Capital Resource Company dated December 7, 1992.* 10.24 Subordinated Note Purchase Agreement by and between the Company and Massachusetts Capital Resource Company dated August 15, 1994.* 23.1 Consent of PricewaterhouseCoopers llp. 23.2 Consent of Mirick, O'Connell, DeMallie & Lougee, LLP (incorporated in the Opinion filed as Exhibit 5.1 above).* 24.1 Power of Attorney (included on the signature page of this Registration Statement). 27.1 Financial Data Schedule.
- --------------------- * To be filed by amendment. (b) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts All other financial statement schedules have been omitted because they are not required, not applicable, or the information to be included in the financial statement schedules is included in the Financial Statements or the notes thereto. II-4 Item 17. Undertakings. 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 provisions described in Item 14, 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, 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 on 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 is 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. The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on September 27, 1999. Millitech Corporation By: /s/ John L. Youngblood ---------------------------------- John L. Youngblood President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that MILLITECH CORPORATION, a corporation organized under the laws of the Commonwealth of Massachusetts (the "Corporation"), and the undersigned officers and directors of the Corporation, individually and in their respective capacities indicated below, hereby make, constitute and appoint John L. Youngblood and Dennis C. Stempel its and their true and lawful attorneys, their separate or joint signatures sufficient to bind, with power of substitution, to execute, deliver and file in its or their behalf, and in each person's respective capacity or capacities as shown below, with the Securities and Exchange Commission (or any other governmental authority) a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, any amendments to and any and all documents in support of or supplemental to said registration statement by the Corporation, and any additional registration statements filed pursuant to Rule 462(b); and the Corporation and each said person hereby grant to said attorneys full power and authority to do and perform each and every act and thing whatsoever as any one of said attorneys may deem necessary or advisable to carry out the full intent of this Power of Attorney to the same extent and with the same effect as the Corporation or the undersigned officers and directors of the Corporation might or could do personally in its or their capacity or capacities as aforesaid; and the Corporation of each of said persons hereby ratify, confirm and approve all acts and things that any one of said attorneys may do or cause to be done by virtue of this Power of Attorney and its signature or their signatures as the same may be signed by any one of said attorneys to said registration statement and any and all documents in support of or supplemental to said Registration Statement and any and all amendments thereto. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ John L. Youngblood President, Chief Executive September 27, 1999 ______________________________________ Officer and Director John L. Youngblood /s/ Dennis C. Stempel Vice President, Chief September 27, 1999 ______________________________________ Financial Officer, Dennis C. Stempel Treasurer, and Principal Accounting Officer /s/ Albert E. Paladino Director September 27, 1999 ______________________________________ Albert E. Paladino
II-6
Signature Title Date --------- ----- ---- /s/ Allan M. Doyle, Jr. Director September 27, 1999 ______________________________________ Allan M. Doyle, Jr. /s/ Robert C. Fleming Director September 27, 1999 ______________________________________ Robert C. Fleming /s/ James W. Fordyce Director September 27, 1999 ______________________________________ James W. Fordyce /s/ David A. Norbury Director September 27, 1999 ______________________________________ David A. Norbury /s/ Matthew S. Robison Director September 27, 1999 ______________________________________ Matthew S. Robison
II-7 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Millitech Corporation: In connection with our audits of the financial statements of Millitech Corporation as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998 which financial statements are included in the Prospectus, we have also audited the financial statement schedule listed in Item 16(b) herein. 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 financial statements. /s/ PricewaterhouseCoopers LLP Springfield, Massachusetts March 5, 1999, except for Note 2 as to which the date is August 24, 1999 S-1 Item 16(b) Schedule II MILLITECH CORPORATION VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1996, 1997 and 1998 (in thousands)
Column C Column A Column B Additions Column D Column E - ------------------------ ---------- --------------------- ---------- ---------- Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period ----------- ---------- ---------- ---------- ---------- ---------- 1996 Inventory reserve....... $1,858 $ (22) $ (82) $1,754 Allowance for doubtful accounts............... 100 162 (1) 261 Warranty reserve........ 342 191 (191) 342 ------ ------ --- ----- ------ $2,300 $ 331 $(274) $2,357 ====== ====== === ===== ====== 1997 Inventory reserve....... $1,754 $ 877 $(650) $1,981 Allowance for doubtful accounts............... 261 (51) -- 210 Warranty reserve........ 342 229 (229) 342 ------ ------ --- ----- ------ $2,357 $1,055 $(879) $2,533 ====== ====== === ===== ====== 1998 Inventory reserve....... $1,981 $2,236 $ (45) $4,172 Allowance for doubtful accounts............... 210 176 (18) 368 Warranty reserve........ 342 284 (134) 492 ------ ------ --- ----- ------ $2,533 $2,696 $(197) $5,032 ====== ====== === ===== ======
S-2 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 1.1 Form of Underwriting Agreement.* 3.1 Restated Articles of Organization of the Company.* 3.2 By-laws of the Company, as amended. 4.1 Form of certificate evidencing ownership of Common Stock of the Company.* 5.1 Opinion of Mirick, O'Connell, DeMallie & Lougee, LLP.* 10.1 1986 Stock Plan of the Company. 10.2 1987 Stock Plan of the Company. 10.3 1988 Stock Plan of the Company. 10.4 1996 Stock Plan of the Company. 10.5 1997 Stock Plan of the Company. 10.6 1999 Stock Plan of the Company. 10.7 Employment Agreement by and between the Company and John L. Youngblood dated January 25, 1994. 10.8 Reseller Agreement by and between the Company and Newbridge Networks Corporation dated August 7, 1998.* 10.9 Professional Services Agreement by and between the Company and Newbridge Networks Corporation dated August 7, 1998.* 10.10 Revised Purchase Order by and between the Company and Motorola dated September 20, 1999.* 10.11 Memorandum of Understanding by and between the Company and Hughes Network Systems Limited dated August 12, 1998.* 10.12 Memorandum of Understanding by and between the Company and California Amplifier, Inc. dated March 11, 1999.* 10.13 Lease by and between the Company and Edward J. O'Leary-Raymond M. Vincunas Partnership dated January 16, 1990. 10.14 Lease by and between the Company and Lloyd C. Green and Mildred E. Green dated June 30, 1998. 10.15 Revolving Line of Credit Agreement by and between the Company and Boston Federal Savings Bank dated August 20, 1999. 10.16 Fourth Amended and Restated Registration Rights Agreement dated September 17, 1999. 10.17 Registration Rights Agreement by and between the Company and Boston Federal Savings Bank dated August 20, 1999. 10.18 Registration Rights Agreement by and between the Company and Phoenix Leasing Incorporated dated May 19, 1999. 10.19 Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated June 1988.*. 10.20 First Amendment to the Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated December 28, 1988.* 10.21 Second Amendment to the Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated June 17, 1999.*
EXHIBIT INDEX
Exhibit Number Description ------- ----------- 10.22 Senior Loan and Security Agreement by and between the Company and Phoenix Leasing Corporation dated May 19, 1999.* 10.23 Subordinated Note and Warrant Purchase Agreement by and between the Company and Massachusetts Capital Resource Company dated December 7, 1992.* 10.24 Subordinated Note Purchase Agreement by and between the Company and Massachusetts Capital Resource Company dated August 15, 1994.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Mirick, O'Connell, DeMallie & Lougee, LLP (incorporated in the Opinion filed as Exhibit 5.1 above).* 24.1 Power of Attorney (included on the signature page of this Registration Statement). 27.1 Financial Data Schedule.
- --------------------- * To be filed by amendment. EX-3.2 2 BY-LAWS OF THE COMPANY, AS AMENDED EXHIBIT 3.2 As amended March 21, 1984 As amended February 18, 1987 As amended June 9, 1992 As amended November 18, 1997 BY-LAWS ------- MILLITECH CORPORATION ARTICLE I ----------- STOCKHOLDERS -------------- 1. Place of Meetings. All meetings of stockholders shall be held within ----------------- Massachusetts unless the Articles of Organization permit the holding of stockholder meetings outside Massachusetts, in which event such meetings may be held either within or without Massachusetts. Meetings of stockholders shall be held at the principal office of the corporation unless a different place is fixed by the Directors or the President and stated in the notice of the meeting. 2. Annual Meetings. The annual meeting of stockholders shall be held on the --------------- last Monday in April in each year (or if that be a legal holiday in the place where the meeting is to be held, on the next succeeding full business day) at ten o'clock a.m., unless a different hour and date (which date shall be within six months after the end of the fiscal year of the corporation) is fixed by the Directors or the President and stated in the notice of the meeting. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization or by these By-Laws, may be specified by the Directors or the President. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu thereof and any action taken at such meeting shall have the same effect as if taken at the annual meeting. 3. Special Meetings. Special meetings of stockholders may be called by the ---------------- President or by the Directors. Upon written application of one or more stockholders who are entitled to vote and who hold at least ten percent (10%) of the capital stock entitled to vote at the meeting, special meetings shall be called by the Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer. 4. Notice of Meetings. A written notice of every meeting of stockholders, ------------------ stating the place, date and hour thereof and the purposes for which the meeting is to be held, shall be given by the Clerk or other person calling the meeting at least seven (7) days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, by the Articles of Organization or by these By-Laws, is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it postage prepaid and addressed to him at his address as it appears upon the books of the corporation. Whenever any notice is required to be given to a stockholder by law, by the Articles of Organization or by these By-Laws, no such notice need be given if a written waiver of notice, executed before or after the meeting by the stockholder or his attorney thereunto duly authorized, is filed with the records of the meeting. 5. Quorum. Unless the Articles of Organization otherwise provide, a ------ majority in interest of all stock issued, outstanding and entitled to vote on any matter shall constitute a quorum with respect to that matter; except that if two or more classes of stock are outstanding and entitled to vote as separate classes, then in the case of each such class a quorum shall consist of a majority in interest of the stock of that class issued, outstanding and entitled to vote. 6. Adjournments. Any meeting of stockholders may be adjourned to any ------------ other time and to any other place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting, although less than a quorum, or by any officer entitled to preside or to act as Clerk of such meeting, if no stockholder is present. It shall not be necessary to notify any stockholder of any adjournment. Any business which could have been transacted at any meeting of the stockholders as originally called may be transacted at any adjournment thereof. 7. Voting and Proxies. Each stockholder shall have one vote for each ------------------ share of stock entitled to vote held by him of record according to the records of the corporation, and a proportionate vote for a fractional share so held by him, unless otherwise provided by the Articles of Organization. Stockholders may vote either in person or by written proxy dated not more than six (6) months before the meeting named therein. Proxies shall be filed with the Clerk of the meeting or of any adjournment thereof before being voted. Except as otherwise limited therein, proxies shall entitle the persons named therein to vote at any adjournment of such meeting but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless, at or prior to exercise of the proxy, the corporation receives a specific written notice to the contrary from any one of them. A proxy purported to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise. 8. Action at Meeting. When a quorum is present, the holders of a majority ----------------- of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class the -2- holders of a majority of the stock of that class present or represented and voting on a matter), except where a larger vote is required by law, by the Articles of Organization or by these By-Laws, shall decide any matter to be voted on by the stockholders. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. The corporation shall not directly or indirectly vote any share of its stock. 9. Inspectors of Election. The Board of Directors, in advance of any ---------------------- meeting of stockholders, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at the meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. No director or officer of the corporation shall be eligible to act as an inspector of an election of directors of such corporation. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all Stockholders. On request of the person presiding at the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 10. Action Without Meeting. Any action to be taken by stockholders may be ---------------------- taken without a meeting if all stockholders entitled to vote on the matter consent to the action by a writing filed with the records of the meetings of stockholders. Such consent shall be treated for all purposes as a vote at a meeting. ARTICLE II ---------- DIRECTORS --------- 1. Powers. The business of the corporation shall be managed by a Board of ------ Directors who may exercise all the powers of the -3- corporation except as otherwise provided by law, by the Articles of Organization, or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. 2. Election. A Board of Directors consisting of seven (7) persons shall be -------- elected by the stockholders at the annual meeting or any special meeting in lieu thereof. 3. Vacancies. Any vacancy in the Board of Directors, including a vacancy --------- resulting from the enlargement of the Board, unless and until filled by the stockholders, may be filled by the Directors. 4. Enlargement of the Board. The number of the Board of Directors may be ------------------------ increased and one or more additional Directors elected at any special meeting of the stockholders. 5. Tenure. Except as otherwise provided by law, by the Articles of ------ Organization, or by these By-Laws, Directors shall hold office until the next annual meeting of stockholders and thereafter until their successors are chosen and qualified. Any Director may resign by delivering his written resignation to the corporation at its principal office or to the President, Clerk or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 6. Removal. A Director may be removed from office (a) with or without cause ------- by vote of a majority of the stockholders entitled to vote in the election of Directors, provided that the Directors of a class elected by a particular class of stockholders may be removed only by the vote of the holders of a majority of the shares of such class, or (b) for cause by vote of a majority of the Directors then in office. A Director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him. 7. Meetings. Regular meetings of the Directors may be held without call or -------- notice at such places, within or without Massachusetts, and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice at the same place as the annual meeting of stockholders or the special meeting held in lieu thereof, following such meeting of stockholders. Special meetings of the Directors may be held at any time and place, within or without Massachusetts, designated in a call by the President, Treasurer or two or more Directors. -4- 8. Notice of Special Meetings. Notice of all special meetings of the -------------------------- Directors shall be given to each Director by the Secretary, or if there be no Secretary by the Clerk or Assistant Clerk, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone or by telegram sent to his business or home address at least fory- eight (48) hours in advance of the meeting, or by written notice mailed to his business or home address at least seventy-two (72) hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a Directors' meeting need not specify the purposes of the meeting. 9. Quorum. At any meeting of the Directors, a majority of the Directors ------ then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time without further notice. 10. Action at Meeting. At any meeting of the Directors at which a quorum ----------------- is present, the vote of a majority of those present, unless a different vote is specified by law, by the Articles of Organization or by these By-Laws, shall be sufficient to take any action. 11. Meeting by Conference. Members of the Board or any committee designated --------------------- thereby may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. 12. Action by Consent. Any action by the Directors may be taken without a ----------------- meeting if a written consent thereto is signed by all the Directors and filed with the records of the Directors' meetings. Such consent shall be treated as a vote of the Directors for all purposes. 13. Committees. The Directors may, by vote of a majority of the Directors ---------- then in office, elect from their number an executive committee or other committees and may by like vote delegate thereto some or all of their powers except those which by law, the Articles of Organization or these By-Laws, they are prohibited from delegating. Except as the Directors may otherwise determine, any such committee may make rules for the conduct of its business but, unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the Directors. -5- ARTICLE III ----------- OFFICERS -------- 1. Enumeration. The officers of the corporation shall consist of a Chief ----------- Executive Officer, a President, a Treasurer, a Clerk and such other officers, including a Chairman of the Board, one or more Vice Presidents, Assistant Treasurers, Assistant Clerks and Secretary as the Directors may determine. 2. Election. The Chief Executive Officer, President, Treasurer and Clerk -------- shall be elected annually by the Directors at their first meeting following the annual meeting of stockholders. Other officers may be appointed by the Directors at such meeting or at any other meeting. 3. Qualification. The President shall be a Director. No officer need be a ------------- stockholder. Any two or more offices may be held by the same person, provided that the President and Clerk shall not be the same person. The Clerk shall be a resident of Massachusetts unless the corporation has a resident agent appointed for the purpose of service of process. Any officer may be required by the Directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the Directors may determine. 4. Tenure. Except as otherwise provided by law, by the Articles of ------ Organization or by these By-Laws, the President, Treasurer and Clerk shall hold office until the first meeting of the Directors following the annual meeting of stockholders and thereafter until their successors are chosen and qualified; and all other officers shall hold office until the first meeting of the Directors following the annual meeting of stockholders unless a different term is specified in the vote choosing or appointing them. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President, Clerk or Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 5. Removal. The Directors may remove any officer with or without cause by ------- a vote of a majority of the entire number of Directors then in office, provided that an officer may be removed for cause only after reasonable notice and opportunity to be heard by the Board of Directors prior to action thereon. 6. Chairman of the Board. If the Directors appoint a Chairman of the --------------------- Board, he shall, when present, preside at all meetings of the Directors and shall have such other powers and duties as are usually vested in the office of Chairman of the Board or as may be vested in him by the Board of Directors. -6- 7. Chief Executive Officer. The Chief Executive Officer of the Corporation ----------------------- shall, subject to the direction of the Directors, have general supervision and control of its business. 8. President. The President, unless designated as the Chief Executive --------- Officer of the Corporation, shall be the Chief Operating Officer of the Corporation and shall, subject to the direction of the Directors and the Chief Executive Officer, have general supervision and control of its business. Unless otherwise provided by the Directors, the President shall preside, when present, at all meetings of stockholders and of the Directors (except as provided in Section 6 of this Article III). 9. Vice President. The Vice President or, if there shall be more than one, -------------- the Vice Presidents in the order determined by the Directors shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties, and shall have such other powers, as the Directors may from time to time prescribe. 10. Treasurer and Assistant Treasurers. The Treasurer shall, subject to the ---------------------------------- direction of the Directors, have general charge of the financial affairs of the corporation and shall cause to be kept accurate books of account. He shall have custody of all funds, securities and valuable documents of the corporation, except as the Directors may otherwise provide. The Assistant Treasurer or, if there shall be more than one, the Assistant Treasurers in the order determined by the Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and shall have such other powers as the Directors may from time to time prescribe. 11. Clerk and Assistant Clerks. The Clerk shall keep a record of the -------------------------- meetings of stockholders. Unless a transfer agent is appointed, the Clerk shall keep or cause to be kept in Massachusetts at the principal office of the corporation or at his office the stock and transfer records of the corporation in which are contained the names of all stockholders and the record address and the amount of stock held by each. If there is no Secretary or Assistant Secretary, the Clerk shall keep a record of the meetings of the Directors. The Assistant Clerk, or if there shall be more than one, the Assistant Clerks in the order determined by the Directors shall, in the absence or disability of the Clerk, perform the duties and exercise the powers of the Clerk and shall perform such other duties, and shall have such other powers, as the Directors may from time to time prescribe. -7- 12. Secretary and Assistant Secretaries. If a Secretary is appointed, he ----------------------------------- shall attend all meetings of the Directors and shall keep a record of the meetings of the Directors. He shall, when required, notify the Directors of their meetings and shall have such other powers, and shall perform such other duties, as the Directors may from time to time prescribe. The Assistant Secretary or, if there shall be more than one, the Assistant Secretaries in the order determined by the Directors shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties, and shall have such other powers, as the Directors may from time to time prescribe. 13. Other Powers and Duties. Each officer shall, subject to these By-Laws, ----------------------- have in addition to the duties and powers specifically set forth in these By-Laws such duties and powers as are customarily incident to his office and such duties and powers as the Directors may from time to time designate. ARTICLE IV ---------- CAPITAL STOCK ------------- 1. Certificates of Stock. Each stockholder shall be entitled to a --------------------- certificate of the capital stock of the corporation in such form as may be prescribed from time to time by the Directors. The certificate shall be signed by the President or a Vice President, and by the Treasurer or an Assistant Treasurer, but when a certificate is countersigned by a transfer agent or a registrar, other than a Director, officer or employee of the corporation, such signatures may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer pursuant to the Articles of Organization, the By-Laws or any agreement to which the corporation is a party, shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restrictions and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued, or a statement of the existence of such preferences, -8- powers, qualifications and rights, and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. 2. Transfers. Subject to the restrictions, if any, stated or noted on the --------- stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor, properly endorsed, or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed and with such proof of the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Articles of Organization or by these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws. It shall be the duty of each stockholder to notify the corporation of his post office address and of his taxpayer identification number. 3. Record Date. The Directors may fix in advance a time not more than sixty ----------- (60) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the making of any distribution to stockholders, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting, and any adjournment thereof, or the right to receive such dividend or distribution, or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. Without fixing such record date, the Directors may for any of such purposes close the transfer books for all or any part of such period. 4. Replacement of Certificates. In case of the alleged loss or destruction --------------------------- or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof upon such terms as the Directors may prescribe, including the presentation of reasonable evidence of such loss, destruction or mutilation, and the giving of such indemnity as the Directors may require, for the protection of the corporation or any transfer agent or registrar. -9- 5. Issue of Capital Stock. Unless otherwise voted by the stockholders, the ---------------------- whole or any part of any unissued balance of the authorized capital stock of the corporation, or the whole or any part of the capital stock of the corporation held in its treasury, may be issued or disposed of by vote of the Directors in such manner, for such consideration, and on such terms as the Directors may determine. ARTICLE V --------- MISCELLANEOUS PROVISIONS ------------------------ 1. Fiscal Year. Except as from time to time otherwise determined by the ----------- Directors, the fiscal year of the corporation shall end on December 31. 2. Seal. The seal of the corporation shall, subject to alteration by the ---- Directors, bear its name, the word "Massachusetts" and the year of its incorporation. 3. Execution of Instruments. All deeds, leases, transfers, contracts, ------------------------ bonds, notes and other obligations authorized to be executed by an officer of the corporation in its behalf shall be signed by the President or the Treasurer, except as the Directors may generally or in particular cases otherwise determine. 4. Voting of Securities. Except as the Directors may otherwise designate, -------------------- the President or Treasurer may waive notice of and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. 5. Corporate Records. The original or attested copies of the Articles of ----------------- Organization, By-Laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records which shall contain the names of all stockholders and the record address and the amount of stock held by each shall be kept in Massachusetts at the principal office of the corporation or at an office of its transfer agent or of the Clerk. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to the inspection of any stockholder for any proper purpose, but not to secure a list of stockholders for the purpose of selling said list or copies thereof, or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation. -10- 6. Evidence of Authority. A certificate by the Clerk or Secretary or --------------------- Assistant Clerk or Assistant Secretary, or a temporary Clerk or temporary Secretary, as to any action taken by the stockholders, Directors, Executive Committee or any officer or representative of the corporation shall, as to all persons who rely thereon in good faith, be conclusive evidence of such action. 7. Articles of Organization. All references in these By-Laws to the ------------------------ Articles of Organization shall be deemed to refer to the Articles of Organization of the corporation as amended and in effect from time to time. 8. Transactions With Interested Parties. In the absence of fraud, no ------------------------------------ contract or other transaction between this corporation and any other corporation or any firm, association, partnership or person shall be affected or invalidated by the fact that any Director or officer of this corporation is pecuniarily or otherwise interested in, or is a Director, member or officer of, such other corporation or of such firm, association or partnership, or is a party to or is pecuniarily or otherwise interested in such contract or other transaction, or is in any way connected with any person or persons, firm, association, partnership or corporation pecuniarily or otherwise interested therein; provided that the fact that he individually or as a Director, member or officer of such corporation, firm, association or partnership is such a party or is so interested shall be disclosed to or shall have been known by the Board of Directors or a majority of such members thereof as shall be present at a meeting of the Board of Directors at which action upon any such contract or transaction shall be taken; any Director may be counted in determining the existence of a quorum and may vote at any meeting of the Board of Directors of this corporation for the purpose of authorizing any such contract or transaction with like force and effect as if he were not so interested, or were not a Director, member or officer of such other corporation, firm, association or partnership, provided that any vote with respect to such contract or transaction must be adopted by a majority of the Directors then in office who have no interest in such contract or transaction. 9. Indemnification. Each person at any time a Director, officer, employee --------------- or agent of the corporation and any person who serves at its request as a director, officer, employee or other agent of another organization, or who serves at its request in any capacity with respect to any employee benefit plan, including each former Director, officer, employee or agent who was such before, on or after the date of the adoption of this By-Law shall, to the extent permitted by law and without prejudice to any other rights he might have, be entitled to be reimbursed by the corporation for, and indemnified by the corporation against, all judgments, fines, penalties, costs and expenses reasonably incurred by him in connection with or arising out of any claims made, or any action, suit or proceeding threatened or brought against him or in which he may be involved as a party or otherwise by reason of any action -11- alleged to have been taken or omitted by him as a Director, officer, employee or agent, or in any capacity with respect to any employee benefit plan, whether or not he continues to be a Director, officer, employee or agent, or to serve in any capacity with respect to any employee benefit plan, at the time of incurring such costs and expenses, including amounts paid or incurred by him in connection with reasonable settlements (other than amounts paid to the corporation itself) of any claim, action, suit or proceeding. Any rights to reimbursement and indemnification granted under this section to any such Director, officer, employee or agent shall extend to his heirs, executors and administrators. No such reimbursement or indemnification shall be provided for any person with respect to any matter as to which he shall have been adjudicated in any proceedings not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation, or to the extent that such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. Reimbursement or indemnification hereunder may, in the discretion of the Board of Directors, include payments by the corporation of costs and expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding upon receipt of an undertaking by the person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification hereunder, which undertaking may be accepted without reference to the financial ability of such person to make repayment. Nothing herein contained is intended to, or shall, prevent a settlement by the corporation prior to final adjudication of any claim, including claims for reimbursement or indemnification under this By-Law, against the corporation when such settlement appears to be in the interest of the corporation. Each such person shall, by reason of his continuing such service or accepting such election or employment, have the right to be reimbursed and indemnified by the corporation, as above set forth with the same force and effect as if the corporation, to induce him to continue so to serve or to accept such election or employment, specifically agreed in writing to reimburse and indemnify him in accordance with the foregoing provisions of this section. No Director or officer of the corporation shall be liable to anyone for making any determination as to the existence or absence of liability of the corporation hereunder or for making or refusing to make any payment hereunder in reliance upon advice of counsel. 10. Amendments. These By-Laws may be amended or repealed new by-laws ---------- adopted either (a) by the stockholders at any regular or special meeting of the stockholders by the affirmative vote of the holders of at least a majority in interest of the capital stock then outstanding and then entitled to vote, provided that notice of the proposed amendment or repeal and adoption stating the change or the substance thereof shall have been given in the notice of such meeting or in the waiver of notice with respect to such meeting, or (b) by vote of a majority of the Board of Directors then in office, provided that (i) the Board of Directors -12- may not amend or repeal any provision of these By-Laws which by law, by the Articles of Organization or by these By-Laws requires action by the stockholders, (ii) not later than the time of giving notice of the meeting of stockholders next following the amendment or repeal of these By-Laws and adoption of new by-laws by the Board of Directors, notice thereof stating the change or the substance of such change shall be given to all stockholders entitled to vote on amending these By-Laws, and (iii) any amendment or repeal of these By-Laws by the Board of Directors and any by-law adopted by the Board of Directors may be amended or repealed by the stockholders. -13- EX-10.1 3 1986 STOCK PLAN OF THE COMPANY Exhibit 10.1 INCENTIVE STOCK OPTION PLAN OF 1986 ----------------------------------- ARTICLE I. Purposes - -------------------- This Incentive Stock Option Plan of 1986 is designed to enable Millitech Corporation and its Affiliates to continue to be able, by granting options to purchase stock in the Corporation to employees of the Corporation and its Affiliates, to attract and retain persons of ability as key employees (including officers and directors who are employees) and to motivate such employees to exert their best efforts on behalf of the Corporation and its Affiliates. ARTICLE II. Definitions - ------------------------ "Plan" means the Millitech Corporation Incentive Stock Option Plan of 1986. "Corporation" means Millitech Corporation, a Massachusetts corporation. "Affiliate" means any corporation which owns fifty percent (50%) of the voting power of the Corporation or any other corporation (other than the Corporation) in an unbroken chain of beginning with the Corporation if each of the corporations other than the last if such chain owns stock possessing at least fifty percent (50%) of the voting power in one of the other corporations in such chain. "Board" means the Board of Directors of the Corporation. "Eligible Employee" means any person employed by the Corporation or any of its Affiliates who satisfies all of the requirements of Article IV. "Committee" means the Employee's Stock Option Committee established to administer the Plan as provided in Article III. "Stock" means shares of common stock of the Corporation ($.01 par value) and such other stock as shall be substituted therefor as provided in Section F of Article VIII hereof. "Agreement" means the incentive stock option agreement executed between the Corporation and a Grantee as provided in Article VIII. "Fair Market Value" means the amount a ready buyer would pay a willing seller for Stock at a given time and is to be determined by the Board from time to time on the basis of: (1) recent sales of Stock, if any, and (2) such facts and opinions as the Board shall deem relevant. "Grantee" means an "Eligible Emloyee" to whom an option has been granted. "Disability" shall mean "Permanent and Total Disability" as defined in Section 105(d)(4) of the Internal Revenue Code, as amended. "Option Period" means the maximum period of time within which a stock option may be exercised. "Date of Grant" means the date on which the granting of an option is authorized by the Board or such later date as may be specified by the Board in such authorization. "Ten Percent Shareholder-Employee" means an Eligible Employee who owns immediately before the option is granted, more than ten percent (10%) of the combined voting power, of the Corporation or its Affiliates. ARTICLE III. Administration - ---------------------------- The Committee shall administer the Plan and shall consist of the Compensation Committee of the Board. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the Committee shall be deemed acts of the Committee. The Committee is authorized to adopt such rules and regulations as are not inconsistent with the Plan and to take such action in the administration of the Plan as it shall deem proper. ARTICLE IV. Eligibility - ------------------------ Key employees of the Corporation or any of its Affiliates (including officers or directors who are employees) who in the opinion of the Committee are important to the operation and financial success of the business of the Corporation or of any of its affiliates shall be eligible to be granted options to purchase Stock under the Plan. Subject to the provisions of the Plan, the Board, upon the recommendation of the Committee, shall, from time to time, select from such Eligible Employees those to whom options shall be granted and determine the number of shares to be subject to each option. ARTICLE V. Stock - ----------------- Options may be granted pursuant to the Plan to purchase a total of 200,000 shares of Stock (subject to adjustment as provided in Section F of Article VIII) subject to such options may be authorized and unissued Stock or Stock held in the treasury of the Corporation. If an option expires or terminates without being exercised, the remaining shares of Stock covered thereby shall remain available for the grant of additional options under the Plan. 2 ARTICLE VI. Duration - --------------------- Options may be granted as provided in this Plan at such time or times as may be determined by the Board upon recommendation of the Committee but any such grants must be within ten (10) years from the date this Plan is approved by the shareholders of the Corporation or adopted by the Board, whichever-first occurs. Any options outstanding at the expiration of such ten (10) year period may be exercised within the periods prescribed in Article VIII. ARTICLE VII - ----------- A. The maximum value of Stock for which any Eligible Employee may be granted options in any calendar year under the Plan shall not exceed $100,000.00. B. If $100,000 exceeds the aggregate fair market value (determined as of the Date of Grant) of the Stock for which an Eligible Employee was granted options in any calendar year after 1980 (under all incentive stock option plans of the Corporation or its Affiliates) one-half (i) of such excess shall be unused limit carryover to each of the three (3) succeeding calendar years. The amount of the unused limit carryover for any calendar year which may be taken into account in any succeeding calendar year shall be the amount of such carryover reduced by the amount of the carryover which was used in prior calendar years. For purposes of calculating the amount of any unused limit carryover set forth above, the amount of options granted during any calendar year shall be treated as first using up the $100,000 limitation for the calendar year in which the option was granted and then shall be treated as using up any unused limit carryovers to such year in order of the calendar years in which the carryover arose. ARTICLE VIII. Stock Option Agreement - ------------------------------------- Each option granted under the plan shall be evidenced by an incentive stock option agreement between the Corporation and the Grantee of the option containing provisions determined by the Committee and approved by the Board, but shall be subject to the following terms and conditions. A. Option Price ------------ The option price of each option shall be not less than the Fair Market Value of the Stock on the Date of Grant of such option, except that the option price of each option granted to a Ten Percent Shareholder-Employee shill be not less than 110% of the Fair Market Value of the Stock on the Date of Grant of such option. B. Option Period ------ Options granted pursuant to the Plan are not exercisable until they become vested. Vested options are exercisable within such period or periods subject to the vesting schedule 3 below), not to exceed ten (10) years from its Date of Grant, as shall be set forth in the incentive stock option agreement ("Option Period"). Twenty percent (20%) of the total number of shares granted in an option shall become vested in each year on the anniversary date of the Date of Grant, beginning on the first anniversary of the Date of Grant. As long as a Grantee remains an employee of the Corporation, forty percent (40%), sixty percent (60%), eighty percent (80%) and one hundred percent (100%) of the total number of shares granted in an option become vested and exercisable on the second, third, fourth and fifth anniversaries, respectively, of the Date of Grant. Notwithstanding the foregoing, however, any option granted to a Ten Percent Shareholder-Employee shall not be exercisable more than five (5) years from the Date of Grant. C. Limitations on Exercise ----------------------- (1) The option shall cease to vest and all rights to exercise the option shall terminate on the date that the Grantee for any reason shall cease to be an employee of the Corporation or of any of its Affiliates ("Termination Date"), except as provided in the following subparagraphs: (a) If the Grantee ceases to be employed by the Corporation or any of its Affiliates for any reason other than death, Disability, voluntary Resignation or discharge for cause, that percentage of the option that is vested on the Termination Date may be exercised by the Grantee within three (3) months after such cessation of employment and within the Option Period. (b) If the Grantee shall die within the Option Period while employed by the Corporation or any of its Affiliates, or within the Option Period and within three (3) months after the Grantee ceases to be employed by the Corporation or any of its Affiliates for any reason other than discharge for cause or voluntary resignation, that percentage of the option that is vested on the Termination Date may be exercised within the option Period but not later then one (1) year after the date of the Grantee's death by his legal representative or representatives or by the person or persons entitled to do so under his last will and testament, or, if the Grantee shall fail to make testamentary disposition of such action or shall die intestate, by the person or persons entitled to receive said option under the applicable intestacy laws. (c) If the Grantee shall cease to be employed by the Corporation or any of its Affiliates by reason of his Disability, that percentage of the option that is vested on the Termination Date may be exercised by the Grantee within the Option Period but not later than one (1) year after the date he ceases to be employed by the Corporation. (d) An option may not be exercised as provided in subparagraphs (a), (b) and (c) above for more shares (subject to adjustment as provided in Section F of this Article VIII) after the Termination Date than the Grantee was entitled to purchase before the Termination Date. (2) No option under the Plan shall be exercisable while there is outstanding (within the meaning of Section 422A(c)(7) of the Internal Revenue Code or any amendments 4 thereto) any incentive stock option previously granted to the Grantee to purchase Stock in the Corporation or any of its Affiliates or any corporation which is a predecessor corporation of the Corporation or any Affiliate. (3) The Committee shall require each Grantee to enter into an Employee Stock Purchase Agreement with the Corporation with respect to the Stock purchased by the Grantee pursuant to any option granted hereunder at the time of the exercise of such option. D. Payment ------- The option price of Stock purchased upon any exercise of an option granted hereunder shall be paid in full either in cash or by surrendering stock of the Corporation owned by the Grantee equal in value to the exercise price upon exercise of the option. The proceeds of a cash sale of Stock subject to the options are to be added to the general funds of the Corporation and used for its corporate purposes. E. Non-Transferabililty -------------------- Options shall not be transferable by the Grantee except by will or by laws of descent and distribution and shall be exercisable during the Grantee's lifetime only by him. F. Adjustment ---------- In the event a dividend is declared upon the Stock payable in Stock, then the shares of Stock then subject to each option (and the number of shares reserved for issuance pursuant thereto) shall be increased proportionately without any change in the aggregate purchase price therefor. In the event the outstanding Stock shall be changed into or exchanged for a different number or class of shares of stock of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each such share of Stock then subject to each option (and for each share reserved for issuance pursuant thereto) the number and class of shares of Stock into which each outstanding share of Stock shall be so changed or exchanged, all without any change in the aggregate purchase price for the shares then subject to such option. ARTICLE IX. Amendment and Discontinuance - ----------------------------------------- The Board may at any time terminate this Plan or make such changes in it and additions to it as the Board shall deem advisable; provided, however, that except as provided in Section F of Article VIII hereof, the Board may not without further approval by the holders of a majority of the shares of Stock of the Corporation then outstanding and entitled to vote, increase the maximum number of shares as to which options may be granted under this Plan or reduce the minimum option price or extend the period during which options may be granted or exercised or change the class of employees eligible to receive options under this Plan. No termination or 5 amendment of this Plan may, without the written consent of the holder of an option then existing, terminate this option or materially and adversely affect his rights under the option. ARTICLE X. Stock Ownership - --------------------------- A Grantee shall be entitled to the privilege of stock ownership only as to such shares of Stock as are issued and delivered to him upon exercise of his option. ARTICLE XI. Requirements of Law - -------------------------------- The granting of options and issuance of shares of Stock upon the exercise of an option shall be subject to compliance with all of the applicable requirements of law with respect to the issuance and sale of such shares. ARTICLE XII. Effective Date - ---------------------------- This Plan shall become effective on February 21, 1986 provided that it shall have been approved by the stockholders within twelve (12) months. 6 EX-10.2 4 1987 STOCK PLAN OF THE COMPANY Exhibit 10.2 MILLITECH CORPORATION 1987 STOCK PLAN --------------- 1. Purposes. This 1987 Stock Plan is designed to enable MILLITECH CORPORATION, -------- a Massachusetts corporation with its principal place of business located in South Deerfield, Massachusetts (the "Company") and its Affiliates to continue to be able to attract and retain persons of ability as key employees, officers, directors and consultants and to motivate such persons to exert their best efforts on behalf of the Company and its Affiliates by providing them with awards of stock in the Company and/or opportunities to purchase stock in the Company, all in the manner provided herein. 2. Definitions. ----------- "Affiliate" means any corporation which owns fifty percent (50%) of the voting power of the Company or any other corporation (other than the Company) in an unbroken chain of corporation beginning with the Corporation if each of the corporations other than the last in such chain owns stock possessing at least fifty percent (50%) of the voting power in one of the other corporations in such chain. "Award" means Common Stock awarded hereunder to Eligible Recipients. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee established to administer the Plan as provided in Section 3(a). "Common Stock" means shares of common stock of the Company ($.01 par value) and such other stock as shall be substituted therefor as provided in Section 14. "Company" shall have the meaning set forth in Section 1 hereof. "Date of Grant" means the date on which the Committee authorizes the granting of a Stock Right or such later date as may be specified by the Committee at the time of such authorization; provided, however, that with respect to Stock Rights granted pursuant to Section 3(d) such term shall mean the date on which the granting of such Stock Right is authorized by the Board or by the committee established pursuant to Section 3(d) to whom the Board has delegated such authority. "Disability" shall mean "Permanent and Total Disability" as defined in Section 22(e)(3) of the Code. "Disqualifying Disposition" shall have the meaning set forth in Section 21. "Eligible Recipient" means a person who satisfies the eligibility requirements of Section 4 applicable to the Stock Right proposed to be granted to him. "Grantee" means an Eligible Recipient to whom a Stock Right has been granted under this Plan. "ISO" means an Option which qualifies as an incentive stock option under Section 422A(b) of the Code. "Non-Qualified Option" means an Option which does not qualify as an ISO. "Option" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to this Plan. "Optionee" means an Eligible Recipient to whom an Option has been granted under this Plan. "Plan" means the MILLITECH CORPORATION 1987 Stock Plan. "Purchase" means an opportunity to make a direct purchase of Common Stock granted to an Eligible Recipient pursuant to this Plan. "Stock Option Agreement" means the agreement executed between the Corporation and a Grantee pursuant to Section 13. "Stock Rights" collectively refers to Options, Awards and Purchases. 3. Administration of the Plan. -------------------------- (a) The Committee shall administer the Plan and shall consist of the Board or of not less than three members of the Board who shall be appointed by and serve at the pleasure of the Board. No member of the Committee, while a member, shall be eligible to participate in the Plan except as provided in Section 3(c) hereof. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee, if so appointed, shall have the authority to (i) determine the employees of the Company and its Affiliates (from among the class of employees eligible under Section 4 to receive ISOs) to whom ISOs may be granted and to determine (from among the class of individuals and entities eligible under Section 4 to receive Non-Qualified Options and Awards and to make Purchases) to whom Non-Qualified options, Awards and authorizations to make Purchases may be granted; (ii) determine the time or times at which Options or Awards may be granted or Purchases made; (iii) determine the option price of shares subject to each Option and the purchase price of shares subject to each Purchase; (iv) determine whether each option granted shall be an ISO or a Non- Qualified option; (v) determine (subject to Section 8) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) determine whether restrictions such as repurchase options are to be imposed 2 on shares subject to Options, Awards and Purchases and the nature of such restrictions, if any; and (vii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee decides to grant a Non- Qualified option, it shall take whatever actions it deems necessary, under Section 422A of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. (b) The Committee may select one of its members as its chairman, and shall hold meetings at such time and places as it may determine. A majority of the Committee shall constitute a quorum. The acts of a majority of the members of the Committee present at any meeting at which a quorum is present or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. All references in this Plan to the Committee shall mean the Board if no Committee has been appointed. 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, or remove all members of the Committee and thereafter directly administer the Plan. (c) Stock Rights may be granted to members of the Committee if such grants have been approved by a majority vote of the members of the Board not then serving on the Committee. All grants of Stock Rights to members of the Committee shall in all other respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights under the Plan may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act upon the granting to himself of Stock Rights, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to him of Stock Rights. (d) Notwithstanding any other provision of this Section 3, in the event the Company registers any class of any equity security pursuant to section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grants of Options to directors made at any time from the effective date of such registration until six months after the termination of such registration shall be made only by the Board; provided, however, that if a majority of the Board is Eligible to participate in the Plan or in any other stock option or other stock plan of the Company or any Affiliate, or has been so eligible at any time within the preceding year, any grant to directors of Options must be made by, or only in accordance with the recommendation of, a committee consisting of three or more persons, who may but need not be directors or employees of the Company, appointed by the Board but having full authority to act in the matter, none of whom is eligible to participate in this Plan or any other stock option or other stock plan of the Company or any Affiliate, or has been eligible at any time within the 3 preceding year. The requirements imposed by the preceding sentence shall also apply with respect to grants to officers who are not also directors. Once appointed, such committee shall continue to serve until otherwise directed by the Board. 4. Eligibility Requirements. ISOs may be granted to any employee of the ------------------------ Company or any Affiliate. Those officers and directors of the Company or any Affiliate who are not employees may not be granted ISOs under the Plan. Non- Qualified Options, Awards and authorizations to make Purchases may be granted to any director (whether or not an employee), officer, employee or consultant of the Company or any Affiliate. The Committee may take into consideration a candidate's individual circumstances in determining whether to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a purchase. The granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from, participation in any other grant of Stock Rights. 5. Stock. The aggregate number of shares of Common Stock which may be issued ----- pursuant to the Plan is 400,000, subject to adjustment as provided in Section 14. The Committee may grant ISOs and Non-Qualified Options and may authorize Purchases and Awards with respect to such shares in such combinations and for such amount of shares as it shall desire, provided that the number of shares issuable upon exercise of such Options and Purchases and upon grant of such Awards does not exceed such number, as adjusted. Stock subject to Options, Awards and Purchases may be authorized but unissued shares of Common Stock or Common Stock held in the treasury of the Company. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested shares issued pursuant to Awards or Purchases, the unpurchased shares subject to such Options and any unvested shares so reacquired by the Company shall again be available for grants of Stock Rights under the Plan. 6. Granting of Stock Rights. The Committee is authorized to grant Stock Rights ------------------------ under the Plan at such time or times as it may determine, provided that the Committee shall not grant Stock Rights under the Plan after February 16, 1997. The Committee shall have the right, with the consent of the Optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to Article 17. 7. Minimum Option Price; ISO Limitations. ------------------------------------- A. The exercise price specified in the Stock option Agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the Date of Grant. In the case of an ISO to be granted to an Eligible Recipient owning stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Affiliate, the exercise price specified in the Stock Option Agreement relating to such ISO shall not be less than 110 percent of the fair market value per share of Common Stock on the Date of Grant. 4 B. In no event shall the aggregate fair market value (determined at the time an ISO is granted) of Common Stock for which ISOs granted to any Eligible Recipient are exercisable for the first time by such Eligible Recipient during any calendar year (under all stock option plans of the Company and any Affiliate) exceed $100,000. C. If on the Date of Grant the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the Date of Grant and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the NASDAQ National Market System, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market System. However, if the Common Stock is not publicly traded on the Date of Grant, "fair market value" shall be deemed to be the fair value of the Common Stock on the Date of Grant as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private Transactions negotiated at arm's length. 8. Option Duration. Subject to earlier termination as provided in Sections 10 --------------- and 11, each Option shall expire on the date specified by the Committee, but, not more than (i) ten years and one day from the Date of Grant in the case of Non-Qualified Options, (ii) ten years from the Date of Grant in the case of ISOs generally, and (iii) five years from the Date of Grant in the case of ISOs granted to an employee owning stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Affiliate. Subject to earlier termination as provided in elections 10 and 11, the term of each ISO shall be the term set forth in the Stock Option Agreement granting such ISO, unless any part of such ISO is converted into a Non-Qualified option pursuant to Section 17 and pursuant to such conversion the Committee elects to extend the exercise period applicable to such part. 9. Exercise of Option. Subject to the provisions of Sections 10 through 13, ------------------ each Option granted under the Plan shall be exercisable as follows: A. The Option shall either be fully exercisable on the Date of Grant or shall become exercisable thereafter in such installments as the Committee may specify. B. Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable, provided that no partial exercise of such Option or installment within 5 any year shall be for less than 100 whole shares of Common Stock as constituted on the Date of Grant (or the remaining shares of Common Stock purchasable under the option if less than 100 shares). D. The Committee shall have the right to accelerate the date of exercise of any installment of any Option; provided that the Committee shall not accelerate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph Section 17) if such acceleration would violate the annual vesting limitation contained in Section 422A(b)(7) of the Code, as described in Section 7(B). 10. Termination of Employment. If the Grantee of an ISO ceases to be employed ------------------------- by the Company and all Affiliates other than by reason of death or disability, no further installments of such Grantee's ISOs shall become exercisable, and the Grantee's ISOs shall terminate after the passage of 90 days from the date of termination of his or her employment, but in no event later than on their specified expiration dates, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified option; pursuant to Section 17. Leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Affiliate to continue the employment of the employee after the approved period of absence. Employment shall also be considered as continuing uninterrupted during any other bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such Grantee's right to reemployment is guaranteed by statute. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and its Affiliates, so long as the optionee continues to be an employee of the Company or any Affiliate. Nothing in the Plan shall be deemed to give any Grantee of any Stock Right the right to be retained in employment or other service by the Company or any Affiliate for any period of time. 11. Death; Disability. If the Grantee of an ISO ceases to be employed by the ----------------- Company and all Affiliates by reason of his death, any ISO previously granted hereunder to such Grantee may be exercised, to the extent of the number of shares with respect to which the Grantee could have exercised it on the date of his or her death, by the Grantee's estate, personal representative or any beneficiary who has acquired the ISO by will or by the laws of descent and distribution, at any time prior to the earlier of the ISO's specified expiration date or 365 days from the date of the Grantee's death. If the Grantee of an ISO ceases to be employed by the Company and all Affiliates by reason of his Disability, the Grantee shall have the right to exercise any ISO held by him on the date of termination of employment, to the extent of the number of shares with respect to which the Grantee could have exercised it on that date, at any time prior to the earlier of the ISO's specified expiration date or 365 days from the date of the termination of the Grantee employment. 6 12. Assignability. No Stock Right shall be assignable or transferable by the ------------- Grantee thereof except by will or by the laws of descent and distribution, and during the lifetime of the Grantee each Stock Right shall be exercisable only by him. 13. Terms and Conditions of Options. Each option granted under the Plan shall ------------------------------- be evidenced by a Stock Option Agreement in such form as the Committee may from time to time approve. Each Stock Option Agreement shall conform to the terms and conditions set forth in Sections 7 through 12 hereof and may contain such other provisions (which may vary as between Grantees) as the Committee deems advisable, including restrictions applicable to shares of Common Stock issuable upon exercise of Options, provided such provisions are not inconsistent with the terms of this Plan. The Committee may, in its discretion, make some or all of the Non-Qualified Options granted under this Plan subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver Stock Option Agreements. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of each Stock Option Agreement entered into pursuant to this Plan. 14. Adjustments. Upon the happening of any of the following described events, ----------- a Grantee's rights with respect to Stock Rights granted hereunder and with respect to Common Stock acquired pursuant to exercise of a Stock Right granted hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in any written agreement between the Grantee and the Company relating to such Stock Right. A. In the event shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a merger, consolidation, reorganization, split-up, liquidation, combination, recapitalization or the like of the Company, the shares of Common Stock shall be exchanged for other securities of the Company or of another corporation, each Grantee of a Stock Right shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Common Stock or amount of other securities of the Company or such other corporation as were exchangeable for the number of shares of Common Stock which such Grantee would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange. B. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which at the time shall be subject to a Stock Right hereunder, each Grantee upon exercising a Stock Right shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which he is exercising his Stock Right and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as he would have received if he had been the holder of the shares as to which he is exercising his Stock Right at all times between the date of grant of such Stock Right and the date of its exercise. 7 C. If any person or entity owning restricted Common Stock obtained by exercise of a Stock Right made hereunder receives new or additional or different shares or securities in connection with a corporate transaction described in paragraph A above or a stock dividend described in paragraph B above as a result of owning such restricted Common Stock, such new or additional or different shares or Securities shall be subject to all of the conditions and restrictions applicable to the restricted Common Stock with respect to which such shares or securities were issued. D. Notwithstanding the foregoing, any adjustments made pursuant to paragraphs A or B with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 425 of the Code) or would cause any adverse tax consequences for the Grantees of such ISOs. if the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments. E. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. F. No fractional shares shall be issued under the Plan. Any fractional shares which, but for this paragraph F, would have been issued to a Grantee pursuant to a Stock Right shall be deemed to have been issued and immediately sold to the Company for their fair market value, and the Grantee shall receive from the Company cash in lieu of such fractional shares. G. Upon the happening of any of the events described in paragraphs A or B above, the class and the aggregate number of shares set forth in Section 5 hereof shall be appropriately adjusted to reflect the events described in such paragraphs. The Committee shall determine the specific adjustments to be made under this Section 14 and, subject to Section 3, its determination shall be conclusive. 15. Means of Exercising Stock Rights. A Stock Right (or any part or -------------------------------- installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Stock Right being exercised and specify the number of shares as to which such Stock Right is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, or (b) at the discretion of the Committee, through delivery of shares of Common Stock having fair market value equal as of the date of the exercise to the cash exercise price of the Stock Right, or (c) at the discretion of the Committee, by Delivery of the Grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the applicable Federal rate, as defined in (S)1274(d) of the Code, or (d) at the discretion of the Committee, by any combination of (a), (b) and (c) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by 8 means of the methods set forth in clauses (b), (c), or (d) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of a Stock Right shall not have the rights of a shareholder with respect to the shares covered by his Stock Right until the date of issuance of a stock certificate to him for such shares. Except as expressly provided above in Section 14 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 16. Term and Amendment of Plan. -------------------------- A. This plan was adopted by the Board and approved by the holders of a majority of the outstanding shares of Common Stock and Preferred Stock of the Company on February 17, 1987. The Plan shall expire on February 16, 1997 (except as to Options outstanding on that date). Stock Rights may be granted under the Plan prior to the date of stockholder approval of the Plan. B. The Board may terminate or amend the Plan in any respect at any time, except that the Board may not (a) increase the total number of shares that may be issued under the Plan (except by adjustment pursuant to Section 14); (b) modify the provisions of Section 4 regarding eligibility for grants of ISOs; (c) modify the provisions of Section 7(A) regarding the exercise price (except by adjustment pursuant to Section 14); or (d) extend the expiration date of the Plan without obtaining the approval of the Company's Stockholders within 12 months before or after any such amendment. Except as provided in the last sentence of paragraph A of this section, in no event may action of the Board or Stockholders alter or impair the rights of a Grantee, without his consent, under any Stock Right previously granted to him. 17. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The ------------------------------------------------------------------ Committee, at the written request of any Optionee, may in its discretion take such actions as may be necessary to convert such Optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Optionee is an employee of the Company or any Affiliate at the time of such conversion. Such action may include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such Options. At the time of such conversion, the Committee (with the consent of the Optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in this Plan shall be deemed to give any Optionee the right to have such Optionee's ISOs converted into Non- Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the Optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination. 9 18. Application of Funds. The proceeds received by the Company from the sale -------------------- of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 19. Governmental Regulation. The Company's obligation to sell and deliver ----------------------- shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. 20. Withholding of Additional Income Taxes. Upon the exercise of a Non- -------------------------------------- Qualified Option, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition or the vesting of restricted Common Stock acquired on the exercise of a Stock Right hereunder, the Company, in accordance with Section 3402(a) of the Code, may require such Grantee to pay additional withholding taxes in respect of the amount that is considered compensation includable in the Grantee's gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for less than its fair market value, or (iv) the vesting of restricted Common Stock acquired by exercising a Stock Right on the Grantee's payment of such additional withholding taxes. 21. Notice to Company of Disqualifying Disposition. Each Stock Option ---------------------------------------------- Agreement entered into between the Company and the Grantee of an ISO granted under this Plan shall provide that the Grantee agrees to notify the Company in writing immediately after the Grantee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of such ISO. A Disqualifying Disposition is any disposition (including any sale) by the Grantee of an ISO of Common Stock acquired pursuant to the exercise of such ISO before the later of (a) two years after the Date of Grant of such ISO or (b) one year after the date the Grantee acquired such Common Stock by exercising the ISO, provided, however, that the foregoing rules shall not apply to dispositions of such Common Stock after the death of such Grantee by his or her legal representative, devisees or heirs. 22. Governing Law; Construction. The validity and construct of the Plan and --------------------------- Stock Option Agreements entered into hereunder shall be governed by the laws of the Commonwealth of Massachusetts. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. 10 EX-10.3 5 1988 STOCK PLAN OF THE COMPANY Exhibit 10.3 MILLITECH CORPORATION 1988 STOCK PLAN --------------- 1. Purposes. This 1988 Stock Plan is designed to enable MILLITECH CORPORATION, a -------- Massachusetts corporation with its principal place of business located in South Deerfield, Massachusetts (the "Company") and its Affiliates to continue to be able to attract and retain persons of ability as key employees, officers, directors and consultants and to motivate such persons to exert their best efforts on behalf of the Company and its Affiliates by providing them with awards of stock in the Company and/or opportunities to purchase stock in the Company, all in the manner provided herein. 2. Definitions. ----------- "Affiliate" means any corporation which owns fifty percent (50%) of the voting power of the Company or any other corporation (other than the Company) in an unbroken chain of corporation beginning with the Corporation if each of the corporations other than the last in such chain owns stock possessing at least fifty percent (50%) of the voting power in one of the other corporations in such chain. "Award" means Common Stock awarded hereunder to Eligible Recipients. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee established to administer the Plan as provided in Section 3(a). "Common Stock" means shares of common stock of the Company ($.01 par value) and such other stock as shall be substituted therefor as provided in Section 14. "Company" shall have the meaning set forth in Section 1 hereof. "Date of Grant" means the date on which the Committee authorizes the granting of a Stock Right or such later date as may be specified by the Committee at the time of such authorization; provided, however, that with respect to Stock Rights granted pursuant to Section 3(d) such term shall mean the date on which the granting of such Stock Right is authorized by the Board or by the committee established pursuant to Section 3(d) to whom the Board has delegated such authority. "Disability" shall mean "Permanent and Total Disability" as defined in Section 22(e)(3) of the Code. "Disqualifying Disposition" shall have the meaning set forth in Section 21. "Eligible Recipient" means a person who satisfies the eligibility requirements of Section 4 applicable to the Stock Right proposed to be granted to him. "Grantee" means an Eligible Recipient to whom a Stock Right has been granted under this Plan. "ISO" means an Option which qualifies as an incentive stock option under Section 422(b) of the Code. "Non-Qualified Option" means an Option which does not qualify as an ISO. "Option" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to this Plan. "Optionee" means an Eligible Recipient to whom an Option has been granted under this Plan. "Plan" means the MILLITECH CORPORATION 1988 Stock Plan. "Purchase" means an opportunity to make a direct purchase of Common Stock granted to an Eligible Recipient pursuant to this Plan. "Stock Option Agreement" means the agreement executed between the Corporation and a Grantee pursuant to Section 13. "Stock Rights" collectively refers to Options, Awards and Purchases. 3. Administration of the Plan. -------------------------- (a) The Committee shall administer the Plan and shall consist of the Board or of not less than three members of the Board who shall be appointed by and serve at the pleasure of the Board. No member of the Committee, while a member, shall be eligible to participate in the Plan except as provided in Section 3(c) hereof. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee, if so appointed, shall have the authority to (i) determine the employees of the Company and its Affiliates (from among the class of employees eligible under Section 4 to receive ISOs) to whom ISOs may be granted and to determine (from among the class of individuals and entities eligible under Section 4 to receive Non-Qualified Options and Awards and to make Purchases) to whom Non-Qualified options, Awards and authorizations to make Purchases may be granted; (ii) determine the time or times at which Options or Awards may be granted or Purchases made; (iii) determine the option price of shares subject to each Option and the purchase price of shares subject to each Purchase; (iv) determine whether each option granted shall be an ISO or a Non- Qualified option; (v) determine (subject to Section 8) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) determine whether restrictions such as repurchase options are to be imposed 2 on shares subject to Options, Awards and Purchases and the nature of such restrictions, if any; and (vii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee decides to grant a Non- Qualified option, it shall take whatever actions it deems necessary, under Section 422A of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. (b) The Committee may select one of its members as its chairman, and shall hold meetings at such time and places as it may determine. A majority of the Committee shall constitute a quorum. The acts of a majority of the members of the Committee present at any meeting at which a quorum is present or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. All references in this Plan to the Committee shall mean the Board if no Committee has been appointed. 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, or remove all members of the Committee and thereafter directly administer the Plan. (c) Stock Rights may be granted to members of the Committee if such grants have been approved by a majority vote of the members of the Board not then serving on the Committee. All grants of Stock Rights to members of the Committee shall in all other respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights under the Plan may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act upon the granting to himself of Stock Rights, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to him of Stock Rights. (d) Notwithstanding any other provision of this Section 3, in the event the Company registers any class of any equity security pursuant to section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grants of Options to directors made at any time from the effective date of such registration until six months after the termination of such registration shall be made only by the Board; provided, however, that if a majority of the Board is Eligible to participate in the Plan or in any other stock option or other stock plan of the Company or any Affiliate, or has been so eligible at any time within the preceding year, any grant to directors of Options must be made by, or only in accordance with the recommendation of, a committee consisting of three or more persons, who may but need not be directors or employees of the Company, appointed by the Board but having full authority to act in the matter, none of whom is eligible to participate in this Plan or any other stock option or other stock plan of the Company or any Affiliate, or has been eligible at any time within the 3 preceding year. The requirements imposed by the preceding sentence shall also apply with respect to grants to officers who are not also directors. Once appointed, such committee shall continue to serve until otherwise directed by the Board. 4. Eligibility Requirements. ISOs may be granted to any employee of the Company ------------------------ or any Affiliate. Those officers and directors of the Company or any Affiliate who are not employees may not be granted ISOs under the Plan. Non-Qualified Options, Awards and authorizations to make Purchases may be granted to any director (whether or not an employee), officer, employee or consultant of the Company or any Affiliate. The Committee may take into consideration a candidate's individual circumstances in determining whether to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a purchase. The granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from, participation in any other grant of Stock Rights. 5. Stock. The aggregate number of shares of Common Stock which may be issued ----- pursuant to the Plan is 400,000, subject to adjustment as provided in Section 14. The Committee may grant ISOs and Non-Qualified Options and may authorize Purchases and Awards with respect to such shares in such combinations and for such amount of shares as it shall desire, provided that the number of shares issuable upon exercise of such Options and Purchases and upon grant of such Awards does not exceed such number, as adjusted. Stock subject to Options, Awards and Purchases may be authorized but unissued shares of Common Stock or Common Stock held in the treasury of the Company. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested shares issued pursuant to Awards or Purchases, the unpurchased shares subject to such Options and any unvested shares so reacquired by the Company shall again be available for grants of Stock Rights under the Plan. 6. Granting of Stock Rights. The Committee is authorized to grant Stock Rights ------------------------ under the Plan at such time or times as it may determine, provided that the Committee shall not grant Stock Rights under the Plan after February 16, 1997. The Committee shall have the right, with the consent of the Optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to Article 17. 7. Minimum Option Price; ISO Limitations. ------------------------------------- A. The exercise price specified in the Stock option Agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the Date of Grant. In the case of an ISO to be granted to an Eligible Recipient owning stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Affiliate, the exercise price specified in the Stock Option Agreement relating to such ISO shall not be less than 110 percent of the fair market value per share of Common Stock on the Date of Grant. 4 B. In no event shall the aggregate fair market value (determined at the time an ISO is granted) of Common Stock for which ISOs granted to any Eligible Recipient are exercisable for the first time by such Eligible Recipient during any calendar year (under all stock option plans of the Company and any Affiliate) exceed $100,000. C. If on the Date of Grant the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the Date of Grant and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the NASDAQ National Market System, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market System. However, if the Common Stock is not publicly traded on the Date of Grant, "fair market value" shall be deemed to be the fair value of the Common Stock on the Date of Grant as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private Transactions negotiated at arm's length. 8. Option Duration. Subject to earlier termination as provided in Sections 10 --------------- and 11, each Option shall expire on the date specified by the Committee, but, not more than (i) ten years and one day from the Date of Grant in the case of Non-Qualified Options, (ii) ten years from the Date of Grant in the case of ISOs generally, and (iii) five years from the Date of Grant in the case of ISOs granted to an employee owning stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Affiliate. Subject to earlier termination as provided in sections 10 and 11, the term of each ISO shall be the term set forth in the Stock Option Agreement granting such ISO, unless any part of such ISO is converted into a Non-Qualified option pursuant to Section 17 and pursuant to such conversion the Committee elects to extend the exercise period applicable to such part. 9. Exercise of Option. Subject to the provisions of Sections 10 through 13, ------------------ each Option granted under the Plan shall be exercisable as follows: A. The Option shall either be fully exercisable on the Date of Grant or shall become exercisable thereafter in such installments as the Committee may specify. B. Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable, provided that no partial exercise of such Option or installment within 5 any year shall be for less than 100 whole shares of Common Stock as constituted on the Date of Grant (or the remaining shares of Common Stock purchasable under the option if less than 100 shares). D. The Committee shall have the right to accelerate the date of exericse of any installment of any Option; provided that the Committee shall not accelerate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph Section 17) if such acceleration would violate the annual vesting limitation contained in Section 422(b)(7) of the Code, as described in Section 7(B). 10. Termination of Employment. If the Grantee of an ISO ceases to be employed by ------------------------- the Company and all Affiliates other than by reason of death or disability, no further installments of such Grantee's ISOs shall become exercisable, and the Grantee's ISOs shall terminate after the passage of 90 days from the date of termination of his or her employment, but in no event later than on their specified expiration dates, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified option; pursuant to Section 17. Leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Affiliate to continue the employment of the employee after the approved period of absence. Employment shall also be considered as continuing uninterrupted during any other bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such Grantee's right to reemployment is guaranteed by statute. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and its Affiliates, so long as the optionee continues to be an employee of the Company or any Affiliate. Nothing in the Plan shall be deemed to give any Grantee of any Stock Right the right to be retained in employment or other service by the Company or any Affiliate for any period of time. 11. Death; Disability. If the Grantee of an ISO ceases to be employed by the ----------------- Company and all Affiliates by reason of his death, any ISO previously granted hereunder to such Grantee may be exercised, to the extent of the number of shares with respect to which the Grantee could have exercised it on the date of his or her death, by the Grantee's estate, personal representative or any beneficiary who has acquired the ISO by will or by the laws of descent and distribution, at any time prior to the earlier of the ISO's specified expiration date or 365 days from the date of the Grantee's death. If the Grantee of an ISO ceases to be employed by the Company and all Affiliates by reason of his Disability, the Grantee shall have the right to exercise any ISO held by him on the date of termination of employment, to the extent of the number of shares with respect to which the Grantee could have exercised it on that date, at any time prior to the earlier of the ISO's specified expiration date or 365 days from the date of the termination of the Grantee employment. 6 12. Assignability. No Stock Right shall be assignable or transferable by the ------------- Grantee thereof except by will or by the laws of descent and distribution, and during the lifetime of the Grantee each Stock Right shall be exercisable only by him. 13. Terms and Conditions of Options. Each option granted under the Plan shall ------------------------------- be evidenced by a Stock Option Agreement in such form as the Committee may from time to time approve. Each Stock Option Agreement shall conform to the terms and conditions set forth in Sections 7 through 12 hereof and may contain such other provisions (which may vary as between Grantees) as the Committee deems advisable, including restrictions applicable to shares of Common Stock issuable upon exercise of Options, provided such provisions are not inconsistent with the terms of this Plan. The Committee may, in its discretion, make some or all of the Non-Qualified Options granted under this Plan subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver Stock Option Agreements. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of each Stock Option Agreement entered into pursuant to this Plan. 14. Adjustments. Upon the happening of any of the following described events, a ----------- Grantee's rights with respect to Stock Rights granted hereunder and with respect to Common Stock acquired pursuant to exercise of a Stock Right granted hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in any written agreement between the Grantee and the Company relating to such Stock Right. A. In the event shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a merger, consolidation, reorganization, split-up, liquidation, combination, recapitalization or the like of the Company, the shares of Common Stock shall be exchanged for other securities of the Company or of another corporation, each Grantee of a Stock Right shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Common Stock or amount of other securities of the Company or such other corporation as were exchangeable for the number of shares of Common Stock which such Grantee would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange; and B. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which at the time shall be subject to a Stock Right hereunder, each Grantee upon exercising a Stock Right shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which he is exercising his Stock Right and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as he would have received if he had been the holder of the shares as to which he is exercising his Stock Right at all times between the date of grant of such Stock Right and the date of its exercise. 7 C. If any person or entity owning restricted Common Stock obtained by exercise of a Stock Right made hereunder receives new or additional or different shares or securities in connection with a corporate transaction described in paragraph A above or a stock dividend described in paragraph B above as a result of owning such restricted Common Stock, such new or additional or different shares or Securities shall be subject to all of the conditions and restrictions applicable to the restricted Common Stock with respect to which such shares or securities were issued. D. Notwithstanding the foregoing, any adjustments made pursuant to paragraphs A or B with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 425 of the Code) or would cause any adverse tax consequences for the Grantees of such ISOs. if the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments. E. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. F. No fractional shares shall be issued under the Plan. Any fractional shares which, but for this paragraph F, would have been issued to a Grantee pursuant to a Stock Right shall be deemed to have been issued and immediately sold to the Company for their fair market value, and the Grantee shall receive from the Company cash in lieu of such fractional shares. G. Upon the happening of any of the events described in paragraphs A or B above, the class and the aggregate number of shares set forth in Section 5 hereof shall be appropriately adjusted to reflect the events described in such paragraphs. The Committee shall determine the specific adjustments to be made under this Section 14 and, subject to Section 3, its determination shall be conclusive. 15. Means of Exercising Stock Rights. A Stock Right (or any part or installment -------------------------------- thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Stock Right being exercised and specify the number of shares as to which such Stock Right is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, or (b) at the discretion of the Committee, through delivery of shares of Common Stock having fair market value equal as of the date of the exercise to the cash exercise price of the Stock Right, or (c) at the discretion of the Committee, by Delivery of the Grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (d) at the discretion of the Committee, by any combination of (a), (b) and (c) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by 8 means of the methods set forth in clauses (b), (c), or (d) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of a Stock Right shall not have the rights of a shareholder with respect to the shares covered by his Stock Right until the date of issuance of a stock certificate to him for such shares. Except as expressly provided above in Section 14 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 16. Term and Amendment of Plan. -------------------------- A. This plan was adopted by the Board and approved by the holders of a majority of the outstanding shares of Common Stock and Preferred Stock of the Company on March 9, 1988. The Plan shall expire on March 8, 1999 (except as to Options outstanding on that date). Stock Rights may be granted under the Plan prior to the date of stockholder approval of the Plan. B. The Board may terminate or amend the Plan in any respect at any time, except that the Board may not (a) increase the total number of shares that may be issued under the Plan (except by adjustment pursuant to Section 14); (b) modify the provisions of Section 4 regarding eligibility for grants of ISOs; (c) modify the provisions of Section 7(A) regarding the exercise price (except by adjustment pursuant to Section 14); or (d) extend the expiration date of the Plan without obtaining the approval of the Company's Stockholders within 12 months before or after any such amendment. Except as provided in the last sentence of paragraph A of this section, in no event may action of the Board or Stockholders alter or impair the rights of a Grantee, without his consent, under any Stock Right previously granted to him. 17. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The ------------------------------------------------------------------ Committee, at the written request of any Optionee, may in its discretion take such actions as may be necessary to convert such Optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Optionee is an employee of the Company or any Affiliate at the time of such conversion. Such action may include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such Options. At the time of such conversion, the Committee (with the consent of the Optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in this Plan shall be deemed to give any Optionee the right to have such Optionee's ISOs converted into Non- Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the Optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination. 9 18. Application of Funds. The proceeds received by the Company from the sale of -------------------- shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 19. Governmental Regulation. The Company's obligation to sell and deliver shares ----------------------- of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. 20. Withholding of Additional Income Taxes. Upon the exercise of a Non-Qualified -------------------------------------- Option, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition or the vesting of restricted Common Stock acquired on the exercise of a Stock Right hereunder, the Company, in accordance with Section 3402(a) of the Code, may require such Grantee to pay additional withholding taxes in respect of the amount that is considered compensation includable in the Grantee's gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for less than its fair market value, or (iv) the vesting of restricted Common Stock acquired by exercising a Stock Right on the Grantee's payment of such additional withholding taxes. 21. Notice to Company of Disqualifying Disposition. Each Stock Option Agreement ---------------------------------------------- entered into between the Company and the Grantee of an ISO granted under this Plan shall provide that the Grantee agrees to notify the Company in writing immediately after the Grantee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of such ISO. A Disqualifying Disposition is any disposition (including any sale) by the Grantee of an ISO of Common Stock acquired pursuant to the exercise of such ISO before the later of (a) two years after the Date of Grant of such ISO or (b) one year after the date the Grantee acquired such Common Stock by exercising the ISO, provided, however, that the foregoing rules shall not apply to dispositions of such Common Stock after the death of such Grantee by his or her legal representative, devisees or heirs. 22. Governing Law; Construction. The validity and construct on of the Plan and --------------------------- Stock Option Agreements entered into hereunder shall be governed by the laws of the Commonwealth of Massachusetts. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. 10 EX-10.4 6 1996 STOCK PLAN OF THE COMPANY EXHIBIT 10.4 MILLITECH CORPORATION 1996 STOCK PLAN --------------- 1. Purpose. This 1996 Stock Plan is designed to enable MILLITECH ------- CORPORATION and its Affiliates to attract and retain capable key employees, officers, directors and consultants and to motivate such persons to exert their best efforts on behalf of the Company by providing them with compensation in the manner provided in this Plan. 2. Definitions. ----------- "Act" means the Securities Exchange Act of 1934, as amended. "Award" means Common Stock awarded under this Plan. "Affiliate" means any parent corporation or subsidiary corporation of the Company as defined in Section 424 of the Code. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee established to administer this Plan as provided in Section 3 or, if no such committee is established, the Board. "Common Stock" means shares of common stock of the Company and such substitutions therefor as are determined by the Committee pursuant to Section 11 to be appropriate. "Company" means Millitech Corporation, a Massachusetts corporation. "Date of Grant" means the date on which the Committee authorizes the grant of a Stock Right, or such later date as may be specified by the Committee at the time of such authorization. "Disability" means a disability that entitles the Grantee to disability income benefits under the terms of any long-term disability plan maintained by the Company which covers the Grantee, or if no such plan exists or is applicable to the Grantee, the permanent and total disability of the Grantee within the meaning of Section 22(e)(3) of the Code. "Disqualifying Disposition" means any disposition (including any sale) by an Optionee of Common Stock acquired pursuant to the exercise of an ISO before the later of (a) two years after the Date of Grant of the ISO or (b) one year after the date the Optionee acquired such Common Stock by exercising the ISO. The foregoing rules do not apply to dispositions of Common Stock after the death of an Optionee by his or her legal representative, devisees or heirs. "Grantee" means a person to whom a Stock Right has been granted under this Plan. "ISO" means an Option which qualifies as an incentive stock option under Section 422(b) of the Code. "Non-Qualified Option" means an Option which does not qualify as an ISO. "Option" means a right to purchase Common Stock granted pursuant to this Plan. "Optionee" means a person to whom an Option has been granted under this Plan. "Plan" means the Millitech Corporation 1996 Stock Plan. "Purchase" means the right to make a direct purchase of Common Stock granted pursuant to this Plan. "Stock Appreciation Right" means a right granted under Section 7. "Stock Rights" collectively refers to Options, Awards, Purchases and Stock Appreciation Rights. 3. Administration of the Plan. -------------------------- (a) The Board may administer this Plan or may appoint a Committee to administer this Plan. Members of the Committee, while members, will be eligible to participate in this Plan only as provided in Section 3(d). The Committee will have the authority to (i) determine the employees and other persons to whom Stock Rights may be granted; (ii) determine when Options, Awards and Stock Appreciation Rights may be granted or Purchases made; (iii) determine the purchase price, if any, of Stock Rights and the shares underlying them; (iv) determine the other terms and provisions of each Stock Right (which may vary among Grantees in the Committee's discretion), including but not limited to the timing, vesting and duration of the exercise period and the nature and duration of transfer and/or forfeiture restrictions; (v) amend, modify, convert, or replace any Stock Right to the extent allowed by law, (vi) accelerate a Stock Right exercise date in whole or in part, subject only to the ISO acceleration provisions of Section 422(d) of the Code (if applicable); (vii) employ attorneys, consultants, 2 accountants or other persons upon whose advice the Committee may rely; and (viii) interpret this Plan and prescribe and rescind rules and regulations relating to it. All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding on all parties, unless otherwise determined by the Board. (b) No member of the Board or the Committee will be liable for any action or determination made in good faith with respect to this Plan or any Stock Right granted under it. Each member of the Committee will be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by such member or liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with this Plan unless arising out of such member's own fraud or bad faith. Such indemnification will be in addition to any rights of indemnification the members of the Committee may have as directors or otherwise under the by-laws of the Company, or any agreement, vote of stockholders or disinterested directors, or otherwise. (c) The Committee may select one of its members as its chair, and will hold meetings at its discretion. A majority of the Committee will constitute a quorum. The acts of a majority of the members of the Committee present at any meeting at which a quorum is present or acts reduced to or approved in writing by a majority of the members of the Committee will be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and appoint replacement members, fill vacancies however caused, and remove all members of the Committee and thereafter directly administer this Plan. (d) Stock Rights may be granted to members of the Committee pursuant to this Plan if such grants have been approved by a majority vote of the disinterested members of the Board. If the Company is or becomes registered under the Act, the Committee will be qualified as required by Rule 16b-3, as amended, and other applicable rules under or successors to Section 16(b) of the Act. 4. Stock. The aggregate number of shares of Common Stock which may be ----- issued under this Plan is Six Hundred Thousand (600,000), subject to adjustment as provided in Section 11. The Committee may grant Options and Stock Appreciation Rights and may authorize Purchases and Awards with respect to such shares in such combinations and for such amount of shares as it determines are appropriate, provided that the aggregate number of shares issuable upon exercise of such Options, Purchases and Stock Appreciation Rights and upon grant of such Awards does not exceed such number, as adjusted. Stock subject to Stock Rights may be authorized but unissued shares of Common Stock or Common Stock held in the treasury of the Company. If any Option expires or terminates for any reason without having been exercised in full or ceases for any reason to be exercisable in whole or in part, or if the Company reacquires any unvested shares issued pursuant to Stock Rights, then the unpurchased shares subject to such Option and any unvested shares so reacquired by the Company will again be available for grants of Stock Rights. 3 5. Granting of Stock Rights. The Committee is authorized to grant Stock ------------------------ Rights to such employees, consultants and officers and directors (whether or not an employee) of the Company or its Affiliates at such time or times as it may determine, all in the sole exercise of its discretion. Each Stock Right will be evidenced by a written agreement in such form as the Committee may from time to time approve. Each agreement for an ISO will require the Optionee to notify the Company in writing immediately after the Optionee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of the ISO. The Committee may from time to time confer authority on one or more of its own members and/or one or more officers of the Company to execute and deliver such agreements. The officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of each agreement entered into pursuant to this Plan. 6. Option Price and Term; ISO Limitations. -------------------------------------- (a) The exercise price for each ISO share will be at least equal to the fair market value per share on the Date of Grant. However, if the Optionee owns more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price must be at least one hundred ten percent (110%) of the fair market value per share on the Date of Grant, determined without regard to any restriction other than a restriction which, by its terms, will never lapse. The Committee may determine the exercise price of Non-Qualified Options in its sole discretion. (b) Each Option will expire on the date specified by the Committee. However, any ISOs granted to an employee owning more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate must expire not more than five years from the Date of Grant and all other ISOs must expire not more than ten years from the Date of Grant. (c) ISOs may be granted only to employees of the Company or an Affiliate. Non-Qualified Options may be granted to any director or officer (whether or not an employee), employee or consultant of the Company or an Affiliate. (d) To the extent that the aggregate fair market value (determined as of the Date of Grant) of Common Stock with respect to which ISOs (determined without regard to this paragraph) are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds $100,000, such ISOs will be treated as Non-Qualified Options. 4 (e) The fair market value of a share of Common Stock on the Date of Grant will be the mean between the highest and lowest quoted selling prices on such date on the securities market where the Common Stock of the Company is traded, or if there were no sales on the Date of Grant, on the next preceding date within a reasonable period (as determined in the sole discretion of the Committee) on which there were sales. In the event that there were no sales in such a market within a reasonable period or if the Common Stock is not publicly traded on the Date of Grant, the fair market value will be as determined in good faith by the Committee in its sole discretion after taking into consideration all factors which it deems appropriate including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. Stock Appreciation Rights. ------------------------- (a) The Committee will have the authority to grant Stock Appreciation Rights with or apart from the grant of Options under this Plan. Stock Appreciation Rights may be paid in cash or shares of Common Stock, or any combination of each, as the Committee may determine and will be subject to such terms and conditions as the Committee may specify. (b) Each Stock Appreciation Right granted with a specified Option will entitle the Grantee to receive the following amount if and when the specified Option becomes exercisable: unless the Committee determines otherwise, the amount to be received by the Grantee will equal the difference between (i) the fair market value of a share of Common Stock on the date of exercise of the Right and (ii) the exercise price of a share under the specified Option. (c) Each Stock Appreciation Right granted without reference to a specified Option will entitle the Grantee to receive, unless the Committee determines otherwise, the difference between (i) the fair market value of a share of Common Stock on the date of exercise of the Right and (ii) the fair market value of a share of Common Stock on the date the Right was granted. (d) Notwithstanding the foregoing, for those Grantees subject to Section 16(b) of the Act, any transaction involving the exercise of a Stock Appreciation Right will be structured to satisfy the requirements of Rule 16b-3. 8. Means of Exercising Stock Rights. A Stock Right (or any part thereof) -------------------------------- will be exercised by giving written notice to the Company at its principal office address identifying the Stock Right being exercised, specifying the portion of the Stock Right being exercised (including the number of shares, if any, for which Stock Right is being exercised), and accompanied by full payment of the purchase price (if any) either (a) in United States cash or cash equivalent or, at the discretion of the Committee, (b) in shares of Common Stock having a fair market value on the date of exercise equal to the exercise price of the Stock Right, (c) by delivery of the Grantee's promissory note, (d) by written notice to the Company to withhold from those shares of Common Stock that would otherwise be obtained on the exercise of such Stock Right the number of 5 shares having a fair market value on the date of exercise equal to the exercise price, or (e) by any combination of the foregoing. The holder of a Stock Right will not have the rights of a shareholder with respect to any shares covered by the Stock Right until the date of issuance of a stock certificate for such shares. Except as otherwise determined by the Committee, no adjustment will be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 9. Termination of Employment; Limitations on Exercise. -------------------------------------------------- (a) If a Grantee's employment with or service to the Company terminates other than by reason of death or Disability, (i) no further vesting of the Grantee's Options and Stock Appreciation Rights will occur subsequent to the date of termination, (ii) the Grantee's ISOs will terminate 90 days after the date of termination, or on their specified expiration dates, if earlier, (iii) the Grantee's Non-Qualified Stock Options and Stock Appreciation Rights will terminate one (1) year after the date of termination, or on their specified expiration dates, if earlier, and (iv) all other types of Stock Rights will be forfeited except to the extent otherwise provided by the Committee. Nothing in this Plan will be deemed to give any Grantee the right to continued employment with the Company. (b) If a Grantee's employment or other service to the Company is terminated due to the Grantee's death or Disability, any Options or Stock Appreciation Rights granted under this Plan to such Grantee may be exercised, up to that portion of the Option or Stock Appreciation Right which the Grantee could have exercised on the date of death or Disability, by the Grantee, or in the case of death, the Grantee's estate, personal representative or any beneficiary who has acquired the Options or Stock Appreciation Rights by will or by the laws of descent and distribution, at any time prior to the earlier of the specified expiration date of the Option or Stock Appreciation Right or one year after the Grantee's death or Disability. The Grantee's rights with respect to any other type of Stock Rights held by the Grantee at the time of death or Disability will be subject to such terms as the Committee shall determine. 10. Assignability. No Stock Right will be assignable or transferable by a ------------- Grantee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution. During the lifetime of the Grantee no Stock Right will be exercisable by or payable to anyone other than the Grantee or his legal representative. 11. Adjustments. Notwithstanding any other provision of this Plan, the ----------- Committee may at any time make or provide for such adjustments to this Plan, to the number and class of shares available under this Plan or to any outstanding Stock Rights, as it deems appropriate to prevent dilution or enlargement of rights, including adjustments in the event of distributions to holders of Common Stock of other than a normal cash dividend, and changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. In the 6 event of any general offer to holders of Common Stock relating to the acquisition of their shares, the Committee may make such adjustment as it deems equitable in respect of outstanding Stock Rights including, in the Committee's discretion, revision of outstanding Stock Rights, so that they may be exercisable for the consideration payable in the acquisition transaction. Any such determination by the Committee will be conclusive. 12. Amendment of Plan. The Board may terminate or amend this Plan in any ----------------- manner allowed by law at any time, provided that no amendment to this Plan will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then acquired under Rule 16b-3 of the Act, Sections 162(m) or 422 of the Code, the rules of any stock exchange or other applicable federal or state law. In no event may action of the Board or stockholders alter or impair the rights of a Grantee, without the Grantee's consent, under any Stock Right previously granted to such Grantee. Stock Rights may be granted prior to the date of stockholder approval of this Plan. 13. Application Of Funds. All proceeds received by the Company with -------------------- respect to Stock Rights will be used for general corporate purposes. 14. Governmental Regulation. The Company's obligation to sell and deliver ----------------------- shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares and the availability of a federal and appropriate state securities law exemptions. 15. Withholding of Additional Income Taxes. It will be a condition of the -------------------------------------- Company's obligation to issue Common Stock upon exercise of a Stock Right that the person exercising the Stock Right pay, or make provision satisfactory to the Company for the payment of, any taxes which the Company is obligated to collect with respect to the issue of Common Stock upon such exercise. 16. Governing Law. This Plan and any agreements entered into under this ------------- Plan will be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 17. Effective Date. This Plan is effective as of ____________________, -------------- 1996, the date of its adoption by the Company's Board of Directors and its approval by the Company's stockholders. Unless previously terminated, the Plan will terminate at midnight on ________________________, 2006 and no Stock Right may be granted after such date. 7 EX-10.5 7 1997 STOCK PLAN OF THE COMPANY EXHIBIT 10.5 MILLITECH CORPORATION 1997 STOCK PLAN --------------- 1. Purpose. This 1997 Stock Plan is designed to enable MILLITECH ------- CORPORATION and its Affiliates to attract and retain capable key employees, officers, directors and consultants and to motivate such persons to exert their best efforts on behalf of the Company by providing them with compensation in the manner provided in this Plan. 2. Definitions. ----------- "Act" means the Securities Exchange Act of 1934, as amended. "Award" means Common Stock awarded under this Plan. "Affiliate" means any parent corporation or subsidiary corporation of the Company as defined in Section 424 of the Code. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee established to administer this Plan as provided in Section 3 or, if no such committee is established, the Board. "Common Stock" means shares of common stock of the Company and such substitutions therefor as are determined by the Committee pursuant to Section 11 to be appropriate. "Company" means Millitech Corporation, a Massachusetts corporation. "Date of Grant" means the date on which the Committee authorizes the grant of a Stock Right, or such later date as may be specified by the Committee at the time of such authorization. "Disability" means a disability that entitles the Grantee to disability income benefits under the terms of any long-term disability plan maintained by the Company which covers the Grantee, or if no such plan exists or is applicable to the Grantee, the permanent and total disability of the Grantee within the meaning of Section 22(e)(3) of the Code. 1 "Disqualifying Disposition" means any disposition (including any sale) by an Optionee of Common Stock acquired pursuant to the exercise of an ISO before the later of (a) two years after the Date of Grant of the ISO or (b) one year after the date the Optionee acquired such Common Stock by exercising the ISO. The foregoing rules do not apply to dispositions of Common Stock after the death of an Optionee by his or her legal representative, devisees or heirs. "Grantee" means a person to whom a Stock Right has been granted under this Plan. "ISO" means an Option which qualifies as an incentive stock option under Section 422(b) of the Code. "Non-Qualified Option" means an Option which does not qualify as an ISO. "Option" means a right to purchase Common Stock granted pursuant to this Plan. "Optionee" means a person to whom an Option has been granted under this Plan. "Plan" means the Millitech Corporation 1997 Stock Plan. "Purchase" means the right to make a direct purchase of Common Stock granted pursuant to this Plan. "Stock Appreciation Right" means a right granted under Section 7. "Stock Rights" collectively refers to Options, Awards, Purchases and Stock Appreciation Rights. 3. Administration of the Plan. -------------------------- (a) The Board may administer this Plan or may appoint a Committee to administer this Plan. Members of the Committee, while members, will be eligible to participate in this Plan only as provided in Section 3(d). The Committee will have the authority to (i) determine the employees and other persons to whom Stock Rights may be granted; (ii) determine when Options, Awards and Stock Appreciation Rights may be granted or Purchases made; (iii) determine the purchase price, if any, of Stock Rights and the shares underlying them; (iv) determine the other terms and provisions of each Stock Right (which may vary among Grantees in the Committee's discretion), including but not limited to the timing, vesting and duration of the exercise period and the nature and duration of transfer and/or forfeiture restrictions; (v) amend, modify, convert, or replace any Stock Right to the extent allowed by law, (vi) accelerate a Stock Right exercise date in whole or in part, subject only to the ISO acceleration provisions of 2 Section 422(d) of the Code (if applicable); (vii) employ attorneys, consultants, accountants or other persons upon whose advice the Committee may rely; and (viii) interpret this Plan and prescribe and rescind rules and regulations relating to it. All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding on all parties, unless otherwise determined by the Board. (b) No member of the Board or the Committee will be liable for any action or determination made in good faith with respect to this Plan or any Stock Right granted under it. Each member of the Committee will be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by such member or liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with this Plan unless arising out of such member's own fraud or bad faith. Such indemnification will be in addition to any rights of indemnification the members of the Committee may have as directors or otherwise under the by-laws of the Company, or any agreement, vote of stockholders or disinterested directors, or otherwise. (c) The Committee may select one of its members as its chair, and will hold meetings at its discretion. A majority of the Committee will constitute a quorum. The acts of a majority of the members of the Committee present at any meeting at which a quorum is present or acts reduced to or approved in writing by a majority of the members of the Committee will be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and appoint replacement members, fill vacancies however caused, and remove all members of the Committee and thereafter directly administer this Plan. (d) Stock Rights may be granted to members of the Committee pursuant to this Plan if such grants have been approved by a majority vote of the disinterested members of the Board. If the Company is or becomes registered under the Act, the Committee will be qualified as required by Rule 16b-3, as amended, and other applicable rules under or successors to Section 16(b) of the Act. 4. Stock. The aggregate number of shares of Common Stock which may be ----- issued under this Plan is Three Million Seven Hundred Thousand (3,700,000), subject to adjustment as provided in Section 11. The Committee may grant Options and Stock Appreciation Rights and may authorize Purchases and Awards with respect to such shares in such combinations and for such amount of shares as it determines are appropriate, provided that the aggregate number of shares issuable upon exercise of such Options, Purchases and Stock Appreciation Rights and upon grant of such Awards does not exceed such number, as adjusted. Stock subject to Stock Rights may be authorized but unissued shares of Common Stock or Common Stock held in the treasury of the Company. If any Option expires or terminates for any reason without having been exercised in full or ceases for any reason to be exercisable in whole or in part, or if the Company reacquires any unvested shares issued pursuant to Stock Rights, then the unpurchased shares subject to such Option and any unvested shares so reacquired by the Company will again be available for grants of Stock Rights. 3 5. Granting of Stock Rights. The Committee is authorized to grant Stock ------------------------ Rights to such employees, consultants and officers and directors (whether or not an employee) of the Company or its Affiliates at such time or times as it may determine, all in the sole exercise of its discretion. Each Stock Right will be evidenced by a written agreement in such form as the Committee may from time to time approve. Each agreement for an ISO will require the Optionee to notify the Company in writing immediately after the Optionee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of the ISO. The Committee may from time to time confer authority on one or more of its own members and/or one or more officers of the Company to execute and deliver such agreements. The officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of each agreement entered into pursuant to this Plan. 6. Option Price and Term; ISO Limitations. -------------------------------------- (a) The exercise price for each ISO share will be at least equal to the fair market value per share on the Date of Grant. However, if the Optionee owns more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price must be at least one hundred ten percent (110%) of the fair market value per share on the Date of Grant, determined without regard to any restriction other than a restriction which, by its terms, will never lapse. The Committee may determine the exercise price of Non-Qualified Options in its sole discretion. (b) Each Option will expire on the date specified by the Committee. However, any ISOs granted to an employee owning more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate must expire not more than five years from the Date of Grant and all other ISOs must expire not more than ten years from the Date of Grant. (c) ISOs may be granted only to employees of the Company or an Affiliate. Non-Qualified Options may be granted to any director or officer (whether or not an employee), employee or consultant of the Company or an Affiliate. (d) To the extent that the aggregate fair market value (determined as of the Date of Grant) of Common Stock with respect to which ISOs (determined without regard to this paragraph) are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds $100,000, such ISOs will be treated as Non-Qualified Options. 4 (e) The fair market value of a share of Common Stock on the Date of Grant will be the mean between the highest and lowest quoted selling prices on such date on the securities market where the Common Stock of the Company is traded, or if there were no sales on the Date of Grant, on the next preceding date within a reasonable period (as determined in the sole discretion of the Committee) on which there were sales. In the event that there were no sales in such a market within a reasonable period or if the Common Stock is not publicly traded on the Date of Grant, the fair market value will be as determined in good faith by the Committee in its sole discretion after taking into consideration all factors which it deems appropriate including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. Stock Appreciation Rights. ------------------------- (a) The Committee will have the authority to grant Stock Appreciation Rights with or apart from the grant of Options under this Plan. Stock Appreciation Rights may be paid in cash or shares of Common Stock, or any combination of each, as the Committee may determine and will be subject to such terms and conditions as the Committee may specify. (b) Each Stock Appreciation Right granted with a specified Option will entitle the Grantee to receive the following amount if and when the specified Option becomes exercisable: unless the Committee determines otherwise, the amount to be received by the Grantee will equal the difference between (i) the fair market value of a share of Common Stock on the date of exercise of the Right and (ii) the exercise price of a share under the specified Option. (c) Each Stock Appreciation Right granted without reference to a specified Option will entitle the Grantee to receive, unless the Committee determines otherwise, the difference between (i) the fair market value of a share of Common Stock on the date of exercise of the Right and (ii) the fair market value of a share of Common Stock on the date the Right was granted. (d) Notwithstanding the foregoing, for those Grantees subject to Section 16(b) of the Act, any transaction involving the exercise of a Stock Appreciation Right will be structured to satisfy the requirements of Rule 16b-3. 8. Means of Exercising Stock Rights. A Stock Right (or any part thereof) -------------------------------- will be exercised by giving written notice to the Company at its principal office address identifying the Stock Right being exercised, specifying the portion of the Stock Right being exercised (including the number of shares, if any, for which Stock Right is being exercised), and accompanied by full payment of the purchase price (if any) either (a) in United States cash or cash equivalent or, at the discretion of the Committee, (b) in shares of Common Stock having a fair market value on the date of exercise equal to the exercise price of the Stock Right, (c) by delivery of the Grantee's promissory note, 5 (d) by written notice to the Company to withhold from those shares of Common Stock that would otherwise be obtained on the exercise of such Stock Right the number of shares having a fair market value on the date of exercise equal to the exercise price, or (e) by any combination of the foregoing. The holder of a Stock Right will not have the rights of a shareholder with respect to any shares covered by the Stock Right until the date of issuance of a stock certificate for such shares. Except as otherwise determined by the Committee, no adjustment will be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 9. Termination of Employment; Limitations on Exercise. -------------------------------------------------- (a) If a Grantee's employment with or service to the Company terminates other than by reason of death or Disability, (i) no further vesting of the Grantee's Options and Stock Appreciation Rights will occur subsequent to the date of termination, (ii) the Grantee's ISOs will terminate on the date three months after the date of termination, or on their specified expiration dates, if earlier, (iii) the Grantee's Non-Qualified Stock Options and Stock Appreciation Rights will terminate one (1) year after the date of termination, or on their specified expiration dates, if earlier, and (iv) all other types of Stock Rights will be forfeited except to the extent otherwise provided by the Committee. Nothing in this Plan will be deemed to give any Grantee the right to continued employment with the Company. (b) If a Grantee's employment or other service to the Company is terminated due to the Grantee's death or Disability, any Options or Stock Appreciation Rights granted under this Plan to such Grantee may be exercised, up to that portion of the Option or Stock Appreciation Right which the Grantee could have exercised on the date of death or Disability, by the Grantee, or in the case of death, the Grantee's estate, personal representative or any beneficiary who has acquired the Options or Stock Appreciation Rights by will or by the laws of descent and distribution, at any time prior to the earlier of the specified expiration date of the Option or Stock Appreciation Right or one year after the Grantee's death or Disability. The Grantee's rights with respect to any other type of Stock Rights held by the Grantee at the time of death or Disability will be subject to such terms as the Committee shall determine. 10. Assignability. No Stock Right will be assignable or transferable by a ------------- Grantee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution. During the lifetime of the Grantee no Stock Right will be exercisable by or payable to anyone other than the Grantee or his legal representative. 11. Adjustments. Notwithstanding any other provision of this Plan, the ----------- Committee may at any time make or provide for such adjustments to this Plan, to the number and class of shares available under this Plan or to any outstanding Stock Rights, as it deems appropriate to prevent dilution or enlargement of rights, including adjustments in the event of distributions to holders of Common Stock of other than a normal cash dividend, and changes in the outstanding Common Stock by reason of 6 stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. In the event of any general offer to holders of Common Stock relating to the acquisition of their shares, the Committee may make such adjustment as it deems equitable in respect of outstanding Stock Rights including, in the Committee's discretion, revision of outstanding Stock Rights, so that they may be exercisable for the consideration payable in the acquisition transaction. Any such determination by the Committee will be conclusive. 12. Amendment of Plan. The Board may terminate or amend this Plan in any ----------------- manner allowed by law at any time, provided that no amendment to this Plan will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then acquired under Rule 16b-3 of the Act, Sections 162(m) or 422 of the Code, the rules of any stock exchange or other applicable federal or state law. In no event may action of the Board or stockholders alter or impair the rights of a Grantee, without the Grantee's consent, under any Stock Right previously granted to such Grantee. Stock Rights may be granted prior to the date of stockholder approval of this Plan. 13. Application Of Funds. All proceeds received by the Company with -------------------- respect to Stock Rights will be used for general corporate purposes. 14. Governmental Regulation. The Company's obligation to sell and deliver ----------------------- shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares and the availability of a federal and appropriate state securities law exemptions. 15. Withholding of Additional Income Taxes. It will be a condition of the -------------------------------------- Company's obligation to issue Common Stock upon exercise of a Stock Right that the person exercising the Stock Right pay, or make provision satisfactory to the Company for the payment of, any taxes which the Company is obligated to collect with respect to the issue of Common Stock upon such exercise. 16. Governing Law. This Plan and any agreements entered into under this ------------- Plan will be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 17. Effective Date. This Plan is effective as of June 11, 1997, the date -------------- of its adoption by the Company's Board of Directors and its approval by the Company's stockholders. Unless previously terminated, the Plan will terminate at midnight on June 11, 2006 and no Stock Right may be granted after such date. 7 EX-10.6 8 1999 STOCK PLAN OF THE COMPANY Exhibit 10.6 MILLITECH CORPORATION 1999 STOCK PLAN --------------- 1. Purpose. This 1999 Stock Plan is designed to enable Millitech ------- Corporation and its Affiliates to attract and retain capable key employees, officers, directors and consultants and to motivate such persons to exert their best efforts on behalf of the Company by providing them with compensation in the manner provided in this Plan. 2. Definitions. ----------- "Act" means the Securities Exchange Act of 1934, as amended. "Award" means Common Stock awarded under this Plan. "Affiliate" means any parent corporation or subsidiary corporation of the Company as those terms are defined in Section 424 of the Code. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee established to administer this Plan as provided in Section 3 or, if no such committee is established, the Board. "Common Stock" means shares of common stock of the Company and such substitutions therefor as are determined by the Committee pursuant to Section 11 to be appropriate. "Company" means Millitech Corporation, a Massachusetts corporation. "Date of Grant" means the date on which the Committee authorizes the grant of a Stock Right, or such later date as may be specified by the Committee at the time of such authorization. "Disability" means a disability that entitles the Grantee to disability income benefits under the terms of any long-term disability plan maintained by the Company which covers the Grantee, or if no such plan exists or is applicable to the Grantee, the permanent and total disability of the Grantee within the meaning of Section 22(e)(3) of the Code. "Disqualifying Disposition" means any disposition (including any sale) by an Optionee of Common Stock acquired pursuant to the exercise of an ISO before the later of (a) two years after the Date of Grant of the ISO or (b) one year after the date the Optionee acquired such Common Stock by exercising the ISO. The foregoing rules do not apply to dispositions of Common Stock after the death of an Optionee by his or her estate or by a person who acquired the Common Stock or the right to exercise the ISO by bequest or inheritance or by reason of the death of the Optionee. "Grantee" means a person to whom a Stock Right has been granted under this Plan. "ISO" means an Option which qualifies as an incentive stock option under Section 422(b) of the Code. "Non-Qualified Option" means an Option which does not qualify as an ISO. "Option" means a right to purchase Common Stock granted pursuant to this Plan. "Optionee" means a person to whom an Option has been granted under this Plan. "Plan" means the Millitech Corporation 1999 Stock Plan. "Purchase" means the right to make a direct purchase of Common Stock granted pursuant to this Plan. "Stock Appreciation Right" means a right granted under Section 7. "Stock Rights" collectively refers to Options, Awards, Purchases and Stock Appreciation Rights. 3. Administration of the Plan. -------------------------- (a) The Board may administer this Plan or may appoint a Committee to administer this Plan. Members of the Committee, while members, will be eligible to participate in this Plan only as provided in Section 3(d). Subject to any limits or restrictions imposed by the Board from time to time (which limits or restrictions may be amended and/or removed by the Board at any time), the Committee will have the authority to (i) determine the employees and other persons to whom Stock Rights may be granted; (ii) determine when Options, Awards and Stock Appreciation Rights may be granted or Purchases made; (iii) determine the purchase price, if any, of Stock Rights and the shares underlying them; (iv) determine the other terms and provisions of each Stock Right (which may vary among Grantees in the Committee's discretion), including but not limited to the timing, vesting and duration of the exercise period and the nature and duration of transfer and/or forfeiture restrictions; (v) amend, modify, convert, or replace any Stock Right to the extent allowed by law, (vi) accelerate a Stock Right exercise date in whole or in part, subject only to the ISO acceleration provisions of Section 422(d) of the Code (if applicable); (vii) employ attorneys, consultants, accountants or other persons upon whose advice the Committee may rely; (viii) establish the maximum aggregate number of Stock Appreciation Rights which may be granted under this plan from time to time; and (ix) interpret this Plan and prescribe and rescind rules and regulations relating to it. All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding on all parties, unless otherwise determined by the Board. 2 (b) No member of the Board or the Committee will be liable for any action or determination made in good faith with respect to this Plan or any Stock Right granted under it. Each member of the Committee will be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by such member or liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with this Plan unless arising out of such member's own fraud or bad faith. Such indemnification will be in addition to any rights of indemnification the members of the Committee may have as directors or otherwise under the by-laws of the Company, or any agreement, vote of stockholders or disinterested directors, or otherwise. (c) The Committee may select one of its members as its chair, and will hold meetings at its discretion. A majority of the Committee will constitute a quorum. The acts of a majority of the members of the Committee present at any meeting at which a quorum is present or acts approved in writing by a majority of the members of the Committee will be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause) and appoint replacement members, fill vacancies however caused, and remove all members of the Committee and thereafter directly administer this Plan. (d) Stock Rights may be granted to members of the Committee pursuant to this Plan if such grants have been approved by a majority vote of the disinterested members of the Board. 4. Stock. The aggregate number of shares of Common Stock which may be ----- issued under this Plan is Three Million Five Hundred Thousand (3,500,000), subject to adjustment as provided in Section 11. The Committee may grant Options and Stock Appreciation Rights and may authorize Purchases and Awards with respect to such shares in such combinations and for such amount of shares as it determines are appropriate, provided that the aggregate number of shares issuable upon exercise of such Options, Purchases and Stock Appreciation Rights and upon grant of such Awards does not exceed such number, as adjusted. Stock subject to Stock Rights may be authorized but unissued shares of Common Stock or Common Stock held in the treasury of the Company. If any Stock Right expires or terminates for any reason without having been exercised in full or ceases for any reason to be exercisable in whole or in part, or if the Company reacquires any unvested shares issued pursuant to Stock Rights, then the unexercised shares subject to such Stock Right and any unvested shares so reacquired by the Company will again be available for grants of Stock Rights. 5. Granting of Stock Rights; Eligibility. The Committee is authorized to ------------------------------------- grant Stock Rights to such employees, consultants, officers and directors (whether or not an employee) of the Company or its Affiliates at such time or times as it may determine, all in its sole discretion. Each Stock Right will be evidenced by a written agreement in such form as the Committee may from time to time approve. Each agreement for an ISO will require the Optionee to notify the Company in writing immediately after the Optionee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of the ISO. 3 The Committee may from time to time confer authority on one or more of its own members and/or one or more officers of the Company to execute and deliver such agreements. The officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of each agreement entered into pursuant to this Plan. 6. Option Price and Term; ISO Limitations. -------------------------------------- (a) The exercise price for each ISO share will be at least equal to the fair market value per share on the Date of Grant. However, if the Optionee owns more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price must be at least one hundred ten percent (110%) of the fair market value per share on the Date of Grant, determined without regard to any restriction other than a restriction which, by its terms, will never lapse. The Committee may determine the exercise price of Non-Qualified Options in its sole discretion. (b) Each Option will expire on the date specified by the Committee. However, any ISOs granted to an employee owning more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate must expire not more than five years from the Date of Grant and all other ISOs must expire not more than ten years from the Date of Grant. (c) ISOs may be granted only to employees of the Company or an Affiliate. Non-Qualified Options may be granted to any director or officer (whether or not an employee), employee or consultant of the Company or an Affiliate. (d) To the extent that the aggregate fair market value (determined as of the Date of Grant) of Common Stock with respect to which ISOs (determined without regard to this paragraph) are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds $100,000, such ISOs will be treated as Non-Qualified Options. (e) The fair market value of a share of Common Stock on the Date of Grant will be the closing price on such date on the securities market where the Common Stock of the Company is traded, or if there were no sales on the Date of Grant, on the next preceding date within a reasonable period (as determined in the sole discretion of the Committee) on which there were sales. In the event that there were no sales in such a market within a reasonable period or if the Common Stock is not publicly traded on the Date of Grant, the fair market value will be as determined in good faith by the Committee in its sole discretion after taking into consideration all factors which it deems appropriate including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 4 7. Stock Appreciation Rights. ------------------------- (a) The Committee will have the authority to grant Stock Appreciation Rights with or apart from the grant of Options under this Plan. Stock Appreciation Rights may be paid in cash or shares of Common Stock, or any combination of each, as the Committee may determine and will be subject to such terms and conditions as the Committee may specify. (b) Each Stock Appreciation Right granted with a specified Option will entitle the Grantee to receive the following amount if and when the specified Option becomes exercisable: unless the Committee determines otherwise, the amount to be received by the Grantee will equal the difference between (i) the fair market value of a share of Common Stock on the date of exercise of the Right and (ii) the exercise price of a share under the specified Option. (c) Each Stock Appreciation Right granted without reference to a specified Option will entitle the Grantee to receive, unless the Committee determines otherwise, the difference between (i) the fair market value of a share of Common Stock on the date of exercise of the Right and (ii) the fair market value of a share of Common Stock on the date the Right was granted. (d) Notwithstanding the foregoing, for those Grantees subject to Section 16(b) of the Act, any transaction involving the exercise of a Stock Appreciation Right will be structured to satisfy the requirements of Rule 16b-3. 8. Means of Exercising Stock Rights. To exercise a Stock Right (or any -------------------------------- part thereof), a Grantee must give written notice to the Company at its principal office address identifying the Stock Right being exercised, specifying the portion of the Stock Right being exercised (including the number of shares, if any, for which Stock Right is being exercised), and accompanied by full payment of the purchase price (if any) either (a) in United States cash or cash equivalent or (b) at the discretion of the Committee, (i) in shares of Common Stock having a fair market value on the date of exercise equal to the exercise price of the Stock Right, (ii) by delivery of the Grantee's promissory note to the Company in an amount equal to the exercise price of the Stock Right, (iii) by written notice to the Company to withhold from those shares of Common Stock that would otherwise be obtained on the exercise of such Stock Right the number of shares having a fair market value on the date of exercise equal to the exercise price, (iv) in cash by a broker-dealer acceptable to the Company to whom the Grantee has submitted an irrevocable notice of exercise, or (v) by any combination of the foregoing. The holder of a Stock Right will not have the rights of a shareholder with respect to any shares covered by the Stock Right until the date of issuance of a stock certificate for such shares. Except as otherwise determined by the Committee, no adjustment will be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 9. Termination of Employment; Limitations on Exercise. Upon termination -------------------------------------------------- of a Grantee's employment with or service to the Company, (a) no further vesting of the Grantee's Options and Stock Appreciation Rights will occur subsequent to the date of termination, (b) the 5 Grantee's ISOs will terminate on the earlier of (i) their specified expiration dates, (ii) in the case of a termination due to the Grantee's death or Disability, one (1) year after the date of termination, or (iii) in the case of termination for any other reason, on the date three months after the date of termination, (c) the Grantee's Non-Qualified Stock Options and Stock Appreciation Rights will terminate one (1) year after the date of termination, or on their specified expiration dates, if earlier, and (d) all other types of Stock Rights will immediately terminate and cease to be exercisable except to the extent otherwise provided by the Committee. Nothing in this Plan will be deemed to give any Grantee the right to continued employment with the Company. 10. Assignability. No Stock Right will be assignable or transferable by a ------------- Grantee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution. During the lifetime of the Grantee no Stock Right will be exercisable by or payable to anyone other than the Grantee or his legal representative. 11. Adjustments. Notwithstanding any other provision of this Plan, the ----------- Committee may at any time make or provide for such adjustments to this Plan, to the number and class of shares available under this Plan or to any outstanding Stock Rights, as it deems appropriate to prevent dilution or enlargement of rights, including adjustments in the event of distributions to holders of Common Stock of other than a normal cash dividend, and changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. In the event of any general offer to holders of Common Stock relating to the acquisition of their shares, the Committee may make such adjustment as it deems equitable in respect of outstanding Stock Rights including, in the Committee's discretion, revision of outstanding Stock Rights so that they may be exercisable for the consideration payable in the acquisition transaction. Any such determination by the Committee will be conclusive. 12. Amendment of Plan. The Board may terminate or amend this Plan in any ----------------- manner allowed by law at any time, provided that no amendment to this Plan will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then required under Rule 16b-3 of the Act, Sections 162(m) or 422 of the Code, the rules of any stock exchange or other applicable federal or state law. In no event may action of the Board or stockholders adversely alter or impair the rights of a Grantee, without the Grantee's consent, under any Stock Right previously granted to such Grantee. Stock Rights may be granted prior to the date of stockholder approval of this Plan. 13. Application of Funds. All proceeds received by the Company with -------------------- respect to Stock Rights will be used for general corporate purposes. 14. Governmental Regulation. The Company's obligation to sell and deliver ----------------------- shares of Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares and the availability of a federal and appropriate state securities law exemptions. 6 15. Withholding of Additional Income Taxes. It will be a condition of the -------------------------------------- Company's obligation to issue Common Stock or make any payment upon exercise of a Stock Right that the person exercising the Stock Right pay, or make provision satisfactory to the Company for the payment of, any taxes which the Company is obligated to collect in connection with such issuance or payment. 16. Governing Law. This Plan and any agreements entered into under this ------------- Plan will be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 17. Effective Date. This Plan is effective as of September 13, 1999, the -------------- date of its adoption by the Board. Unless previously terminated, the Plan will terminate at midnight on September 12, 2009 and no Stock Right may be granted after such date. 7 EX-10.7 9 EMPLOYMENT AGREEMENT, JOHN L. YOUNGBLOOD Exhibit 10.7 EMPLOYMENT AGREEMENT -------------------- PARTIES ------- This Employment Agreement (this "Agreement") dated as of the 25th day of January, 1994, is entered into by and between MILLITECH CORPORATION, a Massachusetts corporation having its principal place of business at South Deerfield Research Park, P.O. Box 109, South Deerfield, Massachusetts 01373 (the "Company") and John L. Youngblood, an individual with an address at 75B Wells Street, Suite 230, Greenfield, Massachusetts 01301 (hereinafter called "Employee"). TERMS OF AGREEMENT ------------------ In consideration of this Agreement and the continued employment of the Employee by the Company, the parties agree as follows: 1. Employment. The Company hereby employs Employee, on a full-time basis, ---------- to act as Chief Executive Officer of the Company during the Employment Period and to perform such acts and duties and furnish such services to the Company in connection with and related to that position as is customary for persons with similar positions in like companies, as the Company's Board of Directors shall from time to time reasonably direct. Employee hereby accepts said employment. Employee shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties in a highly competent manner; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Employee shall report to the Board of Directors. 2. Employment Period. The Employment Period shall commence on the date ----------------- hereof and shall terminate twenty-four (24) months thereafter, unless the Employee's employment under this Agreement is terminated earlier pursuant to Section 3.6, 4 or 5. If Employee shall remain in the employ of the Company beyond the Employment Period in the absence of any other express agreement between the parties, this Agreement shall be deemed to continue on a quarterly basis. 3. Compensation and Benefits; Disability. ------------------------------------- 3.1 Salary. During the Employment Period, the Company shall pay ------ Employee a salary at an annualized rate equal to $190,000.00 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. The Employee's salary may be adjusted upward from time to time in the sole discretion of the Board of Directors of the Company, except that the Employee, if a Director, shall not be entitled to vote thereon. 3.2 Discretionary Bonus. During the Employment Period, the Employee ------------------- may participate in such bonus plan or plans of the Company as the Board of Directors, acting through its Compensation Committee, may approve for the Employee. Nothing contained in this Section 3.2 shall be construed to require the Board of Directors to approve a bonus plan or in any way grant to Employee the right to receive bonuses not otherwise approved. 3.3 Company Automobile. During the Employment Period, the Company ------------------ shall provide employee with a full-sized Company automobile which shall be replaced promptly after (a) the expiration of every three (3) year period after the date hereof or (b) the automobile reaches 60,000 miles, whichever occurs first. 3.4 Insurance Benefits. During the Employment Period, the Employee ------------------ shall receive such benefits as customarily provided to other officers and employees of the Company. 3.5 Vacation. Employee may take four (4) weeks of said vacation -------- during each year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for officers and other employees. 3.6 Disability. If during the Employment Period, Employee shall ---------- become ill, disabled or otherwise incapacitated so as to be unable to perform his usual duties (a) for a period in excess of one hundred twenty (120) consecutive days or (b) for more than one hundred eighty (180) days in any consecutive twelve (12) month period, then the Company shall have the right to terminate this Agreement, subject only to applicable laws, on thirty (30) days' notice to Employee. Termination pursuant to this Section 3.6 shall not affect any rights Employee may otherwise have under any disability insurance policies in effect at the time of such termination. 3.7 Severance Pay. ------------- 3.7.1 Termination By Company. In the event the Company terminates ---------------------- this Agreement pursuant to Section 5, the Company shall continue to pay Employee his Salary, at his then current rate, for (a) a twelve (12) month period after termination if termination shall occur prior to a Change in Control or an Approved Change in Control or subsequent to an Approved Change in Control (both as hereinafter defined), or (b) a twenty-four (24) month period after termination if termination shall occur after a Change in Control. 3.7.2 Termination by Employee For "Good Reason." (a) After a Change in Control and provided Employee has Good Reason (as hereinafter defined), Employee may terminate his employment hereunder upon fifteen (15) days written notice to the Company and the Company shall continue to pay Employee his Salary, at his then current rate, for a twelve (12) month period. (b) After an Approved Change in Control and provided Employee has Good Reason, Employee may terminate his employment hereunder upon fifteen (15) days written notice to the Company and the Company shall continue to pay Employee his 2 Salary, at his then current rate, for a six (6) month period and thereafter for one (1) additional six (6) month period or until the Employee shall become employed. 3.7.3 Definitions. For purposes of this Section 3.7, ----------- (a) a "Change in Control" shall mean: (i) A change in "control" [as defined in Rule 12b-2 adopted under the Securities Exchange Act of 1934, as amended (the "Exchange Act")] of the Company which would be required to be reported under either Section 13 or 14 of the Exchange Act whether or not the Company is then subject to said Act, including a change whereby (A) any "person" [as such term is used in Sections 13(d) and 14(d) of the Exchange Act] becomes a "beneficial owner" (as defined in Rule 13d-adopted under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (B) there ceases to be a majority of the Board of Directors comprised of individuals described in subsection (iii) below. (ii) An "Approved Change in Control" of the Company shall mean a Change in Control that is approved by a majority of the Company's Board of Directors. (iii) For the purposes of Sections 3.7.3(a)(i) and (ii), "Board of Directors" shall mean: (i) individuals who, on the date hereof, constituted the Board of the Company, and (ii) any directors who are elected or nominated for election by a majority of the directors who held such office immediately prior to a Change in Control. (b) "Good Reason" shall mean without the Employee's written consent, the occurrence after a Change in Control of any of the following circumstances unless, in the case of paragraphs (A), (B), (C) or (H), such circumstances constitute an isolated, insubstantial and inadvertent action not taken in bad faith and which are fully remedied by the Company prior to the Employee's last day of employment; (A) the assignment to the Employee of any duties inconsistent with the highest position in the Company that the Employee held at any time during the 90-day period immediately preceding the Change in Control of the Company, or a significant adverse alteration in the nature or status of the Employee's responsibilities or the conditions of the employee's employment from those in effect at any time during the 90-day period immediately preceding such Change in Control; (B) any violation of Section 1 or Section 3.1 through 3.5 of this Agreement; 3 (C) the failure by the Company to provide the Employee with the greatest number of vacation days to which the Employee is entitled in accordance with the Company's normal vacation policy in effect at any time during the 90-day period immediately preceding the Change in Control; (D) any requirement by the Company or of any person in control of the Company that the location at which the Employee perform the Employee's principal duties for the Company be (1) outside a radius of 50 miles from the location at which the Employee performed such duties immediately prior to the Change in Control, or (2) more than 25 miles in commuting distance further than the Employee's commuting distance to the location at which the Employee performed such duties immediately prior to the Change in Control; (E) the failure by the Company to pay to the Employee any portion of the Employee's current compensation within seven (7) days after such compensation is due; (F) any requirement by the Company or any person in control of the Company that the Employee travel on an overnight basis to an extent not substantially consistent with the Employee's business travel obligations immediately prior to the Change in Control; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement, as contemplated in Section 9.3; or (H) any purported termination of the Employee's employment which is not effected pursuant to the requirements of Section 5 and 8, which purported termination shall not be effective for purposes of this Agreement. The Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this Section 3.7.3(b), any good faith determination of "Good Reason" made by the Employee shall be conclusive. 4. Discharge for Cause. The Company may discharge Employee and terminate ------------------- his employment under this Agreement for cause without further liability to the Company by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. As used in this Section 4, "cause" shall mean any or all of the following: (a) gross or willful misconduct of Employee during the course of his employment; 4 (b) conviction of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during the Employment Period; (c) Employee's breach of any of the material terms of this Agreement. 5. Termination Without Cause. Upon thirty (30) days prior written notice, ------------------------- the Company may terminate this Agreement without cause without further liability to the Company except as set forth in Section 3.7 by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. 6. Expenses. Pursuant to the Company's customary policies in force at the -------- time of payment, Employee shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all authorized expenses properly incurred by him on the Company's behalf in the performance of his duties hereunder. 7. Additional Agreements. Upon execution of this Agreement, the Employee --------------------- shall execute and deliver to the Company, unless previously delivered, a Confidential and Proprietary Information Agreement (the "Proprietary Agreement") and an Agreement Not to Compete (the "Noncompetition Agreement") in the forms attached hereto as Exhibits A and B, respectively. 8. Notices. Any notice or communication given by any party hereto to the ------- other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the others, such other address to which notices to such person shall thereafter be sent. 9. Miscellaneous. ------------- 9.1 Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided, however that nothing in this Agreement shall affect the Employee's obligations under the Proprietary Agreement and Noncompetition Agreement. 9.2 Amendment; Waiver. This Agreement may not be amended, ----------------- supplemented, cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 9.3 Binding Effect, Assignment. Employee's rights or obligations -------------------------- under this Agreement may not be assigned by Employee; except that Employee's right to compensation to the earlier of date of death or termination of actual employment shall pass to Employee's 5 executor or administrator. The rights and obligations of this Agreement shall bind and inure to the benefit of the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such successor had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9.4 Headings. The headings contained in this Agreement are for -------- reference purposes only and shall not affect the meaning or interpretation of this Agreement. 9.5 Governing Law; Interpretation. This Agreement shall be construed ----------------------------- in accordance with and governed for all purposes by the laws and public policy of the Commonwealth of Massachusetts applicable to contracts executed and to be wholly performed within such Commonwealth. Service of process in any dispute shall be effective (a) upon the Company, if service is made on any officer of the Company other than the Employee; (b) upon the Employee, if served at Employee's residence last known to the Company with an information copy to the Employee at any other residence, or care of a subsequent employer, of which the Company may be aware. 9.6 Further Assurances. Each of the parties agrees to execute, ------------------ acknowledge, deliver and perform, or cause to be executed, acknowledged, delivered and performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 9.7 Severability. If any one or more of the terms, provisions, ------------ covenants or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the extent compatible with then applicable law. 6 EXECUTION --------- The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it became binding in accordance with its terms. MILLITECH CORPORATION By: /s/ William S. Day ------------------------------ Authorized Officer /s/ John L. Youngblood --------------------------------- John L. Youngblood, Employee 7 EX-10.13 10 LEASE BY & BETWEEN THE CO. & PARTNERSHIP EXHIBIT 10.13 LEASE ----- THIS LEASE, made this 16th day of January, 1990 by and between EDWARD J. O'LEARY - RAYMOND M. VINCUNAS PARTNERSHIP (hereinafter referred to as "Landlord") and MILLITECH CORPORATION, a corporation existing under the laws of the Commonwealth of Massachusetts (hereinafter referred to as "Tenant"). WITNESSETH Landlord, for and in consideration of the payment of the rent and the performance of the covenants and agreements by Tenant herein contained, does hereby lease to Tenant, and Tenant hereby lease from Landlord, the following described premises: A free-standing building ("Building 1") of 31,395 square feet of floor space located on a certain parcel of land on the south side of East Site Access Road, Deerfield Industrial Park, South Deerfield, Massachusetts, known as Lot 9 containing approximately 3.096 acres ("Parcel 1"). The land is more particularly described in Exhibit A attached hereto and made a part hereof. A second free-standing building ("Building 2") consisting of 7200 square feet of one-story floor space and a 2-story building addition of 24,000 square feet of floor space located on a certain parcel of land located on the south side of East Site Access Road, Deerfield Industrial Park, South Deerfield, Massachusetts, known as Lot 8 containing approximately two (2) acres ("Parcel 2"). Parcel 2 is more particularly described in Exhibit B attached hereto and made a part hereof. The 24,000 square foot addition to Building 2 is to be constructed for use by the Tenant in accordance with the plans and specifications described in Exhibit C which plans and specifications were supplied to Landlord and Tenant and are incorporated herein by reference. Building 1 and Building 2 and Parcels 1 and 2 are hereafter collectively referred to as the "Premises" or "Leased Premises." ARTICLE 1. TERM ---- a. The initial term of this Lease shall be for ten (10) years commencing on the Commencement Date as hereinafter defined and expiring without further notice or act on the tenth anniversary of the Commencement Date, as defined herein, said period being hereinafter referred to as the "Initial Term." b. Provided that the Tenant has provided notice thereof one hundred eighty (180) days prior to the expiration of the immediately preceding lease term, the Tenant shall have the right to extend the term of this Lease for an additional five (5) year term upon and subject to the provisions of this Lease. ARTICLE 2. COMMENCEMENT DATE ----------------- The Commencement Date shall be the date upon which the addition to Building 2 is substantially completed in accordance with the plans and specifications attached hereto as Exhibit C as indicated by the proper municipal authorities of a Certificate of Occupancy for the addition to Building 2. Promptly after the date hereof, Landlord will begin and prosecute the construction of the Building 2 Addition in accordance with Exhibit C which construction shall hereinafter be referred to as the "Improvements." In order to determine that the Improvements are being built in accordance with the plans and specifications, the Tenant and its representatives, shall have access to the Improvements at all reasonable times during the construction thereof for the purpose of making inspections of the work. The Improvements shall be substantially completed and premises made available to Tenant not later than June 30, 1990. Provided however, if the construction of the Improvements shall be delayed by causes beyond the reasonable control of Landlord, such as, but not limited to, strikes, inclement weather making construction not feasible, scarcity of materials, acts of God, war and governmental restrictions, the Commencement Date shall be adjusted accordingly and rental payments shall abate until delivery of possession occurs. Landlord shall advise Tenant in writing of the Commencement Date not less than ten (10) days prior thereto and immediately after the Commencement Date, the Landlord and Tenant will enter into a written memorandum of the date of commencement. Any work provided to be done under the plans and specifications which shall not have been completed at the Commencement Date, shall be promptly completed by Landlord and if not completed within thirty (30) days after the delivery of possession, the Tenant may after fifteen (15) days written notice to the Landlord complete the same and deduct the cost thereof from the rent for the next ensuing month or months. ARTICLE 3. RENT ---- Tenant in consideration of the Lease, covenants and agrees to pay to Landlord, as minimum annual rent (hereinafter referred to as "Base Rent") for said Premises the following: (i) for the first through fifth years of the initial term, the sum of Three Hundred Thirty-Eight Thousand Six Hundred Seventy-Three and 73/100 Dollars ($338,673.74) payable in equal monthly installments of Twenty-Eight Thousand Two Hundred Twenty-Two and 81/100 Dollars ($28,222.81); (ii) during the sixth through tenth years of the initial term, at an annual rate equal to the Base Rent of the first though fifth years of the initial term increased by the greater of a) 20% or b) the percentage increase in the Consumer Price Index during the first through fifth years of the initial term; (iii) during the five year optional extension period, at an annual rate which is the greater of the Base Rent during the sixth through tenth years of the initial term increased by the greater of a) Twenty Percent (20%); or b) the percentage increase in the Consumer Price Index during the sixth through tenth years of the initial term. Rent shall be paid in advance on the first day of each and every calendar month during the term hereof. If the Commencement Date is other than the first day of the calendar month, rent for the portion of the calendar month at the beginning of the term and at the end of the term shall be apportioned. Said payment shall be made in such manner and at such place or places as Landlord may direct and until further notice said rental payments shall be made to the Landlord; c/o Development Associates, 630 Silver Street, Unit 3C, P.O. Box 528, Agawam, Massachusetts 01001-0528. The Base Rent for the Initial Term has been established, in part, based upon the cost to the Landlord of financing improvements to Building 1, construction of Building 2, and construction of the addition to Building 2 with a loan from Shawmut Bank N.A. at an initial rate of interest of eleven and 1/4 percent (11.25%) per annum for a twenty-five (25) year loan term. The rate of interest on the loan is subject to changes monthly. In the event that the interest rate on the Landlord's loan increases in any year, the Tenant shall pay as Additional Rent any increases in the Landlord's debt service cost by reimbursing the Landlord annually for interest in excess of eleven and 1/4 percent (11.25%) per annum (the "Excess Interest") paid to a lending institution to service the above mentioned debt. The Tenant's responsibility to pay Excess Interest shall be limited in any one year to a three percent (3%) increase in said interest rate, it being the intention of the parties however that said increases by cumulative, using the highest interest rate paid any prior year as a base for calculating the three percent (3%) interest rate increase ceiling in the succeeding year. Any payment of Rent shall be considered overdue and assessed an interest fee equal to one percent (1%) of the current monthly Base Rent unless said payment is a) personally delivered to Landlord's place of business not more than fifteen (15) calendar days after date due, or b) sent to Landlord postmarked not more than ten (10) days after date due. In the event that an interest fee is incurred, Landlord will promptly notify Tenant in writing of such event and specify the amount of interest fee assessed. Tenant acknowledges that any such amounts are due immediately and shall pay the full amount of interest fee to Landlord within ten (10) days of receipt of said written notice. It is the intention of the Landlord and Tenant that the rents and other charges due the Landlord are "net" to the Landlord and that except for the Landlord's obligations to pay for certain items of repair and/or replacement specifically set forth in this Lease that the Tenant shall pay for all services, utilities, repairs, insurances, taxes, and all other operating expenses of the Premises whether or not specifically enumerated in this Lease. ARTICLE 4. USE OF PREMISES --------------- Tenant shall use the Premises solely for the purposes of maintaining an office and manufacturing facility. No other use shall be permitted without prior written consent of Landlord and Shawmut Bank N.A. or its subsidiary, or such other individual or institution as may be holding a mortgage on the Premises during the term hereof. Tenant shall at its own cost and expense, promptly observe and comply with all laws, ordinances, requirements, orders, directive, rules and regulations of the federal, state, county, municipal or town governments and of all governmental authorities affecting the Premises and Improvements, whether the same are in force at the commencement of the term of this lease or may be in the future passed, enacted or directed. Provided, however, that in observing and complying with all laws, ordinances, requirements, orders, directives, rules and regulations of all governmental authorities, Tenant shall not be required, at its expense, to make any structural repairs or changes in the Improvements or any nonstructural repairs or changes in the Improvements or any nonstructural repairs made necessary by defects in construction. Tenant shall not use or permit the Premises to be used for any purpose other than as specified herein and shall not use or permit the Premises to be used for any unlawful, immoral, or disreputable purposes, not for any use or occupation which would be in conflict with provisions of the Zoning Ordinance of the Town of Deerfield, Massachusetts, applicable to the use and occupancy of said Premises, or which would jeopardize or invalidate any of the insurance coverage on said Premises or which would violate the restriction applicable to the use of property in the Deerfield Industrial Park (the "Park Restriction"). ARTICLE 5. PAYMENT OF UTILITY CHARGES -------------------------- Tenant shall after the Commencement Date furnish and pay for its own gas, water, telephone, electricity, sewage, including the installation of any meters to calculate flowage, refuse disposal, and other utility services used or wasted by it on said Premises. Gas, water and electricity shall be separately metered for Premises, apart from other adjacent space rented, owned or reserved by Landlord. ARTICLE 6. TAXES AND ASSESSMENTS --------------------- Tenant shall pay when due as Additional Rent, all state, city and county real estate taxes, assessments, and other charges, including annual fees of the Deerfield Economic Development and Industrial Corporation, that become due and payable in connection with the premises, and any Improvements now thereon or hereafter placed upon said Premises during the original term of this Lease or during any extended terms in the event Tenant exercises its option to extend. In the event of any such taxes, assessments, or charges levied on the Premises may be paid on an installment basis, Landlord agrees to choose this method of payment and Tenant shall be obligated to pay only those installments which become due during the original term hereof or any renewal or extension thereof, provided, however, that if the first mortgagee of the Landlord shall require the payment of taxes, assessments, or charges on a periodic basis the Tenant shall make such payments accordingly. In the event the Premises are not separately assessed, but are a part of a larger tax parcel, real estate taxes applicable to the Premises shall be a prorata share of all real estate taxes levied or assessed with respect to any tax period during the term hereof against the land and Improvements comprising the tax parcel. Such prorata share shall be determined as follows: 1. The amount of real estate taxes assessment with respect to any such tax period against the land comprising the tax parcel multiplied by a fraction, the numerator of which shall be the number of square feet of land area in the Leased Premises and the denominator of which shall be the number of square feet of land area in the tax parcel; 2. The amount of real estate taxes assessed with respect to any such tax period against the Improvements located upon the tax parcel multiplied by a fraction, the numerator of which shall be the number of square feet of floor area then located on the Leased Premises and the denominator of which shall be the number of square feet of floor area in the buildings so assessed which are located on the tax parcel (including, but not limited to Improvements located on the Leased Premises). It is the intention of the parties hereto that Tenant shall pay the tax assessment herein provided for a period equal to the original term or any extension thereof, regardless of when such taxes become a lien. In no event shall Tenant be required to pay such taxes for a period longer than the original term or any extension thereof. It is expressly agreed, however, that Tenant shall not be required to pay, discharge or remove any taxes, assessments, charges or levies against the Premises, or any part thereof, which Tenant may deem illegal or excessive or to pay any judgments rendered therefor so long as Tenant shall at its own expense, in good faith, contest the same or the validity thereof by proper proceedings which shall operate to prevent the collection of the tax, assessment, lien or imposition so contested on the sale of said Premises, or any part thereof, to satisfy the same, so long as Tenant shall furnish to Landlord and its first Mortgagee indemnity satisfactory to them against any loss or damage by reason of such contest, including all costs and expenses thereof, and that pending any such legal proceedings, and Landlord shall not have the right to pay or discharge such tax or assessments thereby contested. In any such case, Tenant shall fully protect and preserve the title and rights of Landlord as well as Tenant's leasehold estate in and to the Premises. ARTICLE 7. HAZARD INSURANCE ---------------- During the term of this Lease or any extensions thereof Tenant at its own expense, covenants that it will keep the Improvements now standing upon, or which may hereafter be erected upon, the Premises insured against loss or damage by fire and the hazards covered by extended coverage insurance in a responsible insurance company or companies authorized to do business in the Commonwealth of Massachusetts and to maintain such insurance at all times during the original term of this Lease or any extensions thereof in an amount equal to not less than the greater of $2,925,000 or the full insurable value of said Improvements. The policy or policies thereof shall be taken out by Tenant and shall name Landlord as an additional insured and each Mortgagee of the Landlord under the standard Massachusetts mortgage clauses. Tenant shall provide Landlord and its Mortgagees with a Certificate of Insurance in evidence of such coverage. Should Tenant fail to carry such fire and extended coverage insurance, Landlord or its Mortgagees may at its option cause such insurance as aforesaid to be issued, and in such event, Tenant agrees to pay the premiums for such insurance upon Landlord's or Mortgagee's demand, as additional rent. Tenant shall be solely responsible for obtaining any fire or extended coverage insurance for its personal property and improvements of Tenant and for all goods, commodities and materials stored by Tenant in or about the Premises. ARTICLE 8. LIABILITY INSURANCE ------------------- At all times during the term hereof or any extension thereof, Tenant at its own expense shall maintain and keep in force for the mutual benefit of Landlord and Tenant general public liability insurance against claims for personal injury, death or property damage occurring in or about the Premises or sidewalks or areas adjacent to the Premises to afford protection to the combined single limit of not less than One Million and 00/100 ($1,000,000.00) Dollars in respect to injury or death to persons and property damage. The policy or policies shall name the Landlord as an additional insured. In order to evidence the coverage in effect, the Tenant shall provide the Landlord with a Certificate of Insurance and will obtain a written obligation from the insurers to notify Landlord in writing at least ten (10) days prior to cancellation or refusal to renew any such policies. Should Tenant fail to carry such public liability insurance, Landlord may, at its option, cause public liability insurance as aforesaid to be issued, and in such event, Tenant agrees to pay the premiums for such insurance promptly, upon Landlord's demand, as additional rent. ARTICLE 9. INDEMNIFICATION --------------- Except as hereinafter provided, Tenant shall indemnify and save Landlord harmless from and against any and all liability, claims, damages, penalties, or judgments arising from or in any way connected with injury to person or property sustained in action in and about the Premises in custody and control of Tenant, during the term of this Lease. If Landlord shall, without fault on its part, be made a part of any litigation commenced by or against Tenant, Tenant shall protect and hold Landlord harmless and pay all costs, expenses and reasonable attorneys fees that may be incurred or paid by Landlord in enforcing the covenants and agreements of this Lease. Except for the negligence of the Landlord or the negligence of Landlord's officers, agents, servants, employees or contractors, Landlord shall not be responsible or liability for any damage or injury to any property, fixtures, buildings or other Improvements, or to any person or person at any time on the Premises, including any damage or injury to Tenant or to any of Tenant's officers, agents, servants, employees, contractors, customers or sublessees. ARTICLE 10. MAINTENANCE AND REPAIRS ----------------------- Tenant will repair and maintain the Leased Premises at Tenants' own expense, and make every repair and replacement which may be needed to maintain the Improvements, water, sewer, pumping and heating systems, plumbing system, electrical wiring system, sprinkler system and air conditioning in good condition and repair as the same shall be on the Commencement Date. Tenant agrees to replace all glass with glazing of the same size and quality of that broken. Tenant shall also maintain and repair at its expense, lawn, landscaping, exterior paving and snow removal where applicable. Notwithstanding any other provision of this Lease, the Tenant shall not be required to make any repair to the structural members, including roof, exterior walls, and foundations, of the Premises, except to such extent such repairs are necessitated by the negligence of Tenant or Tenant's overloading the floor or other structural elements or by Tenant's having made substantial additional improvements to the Premises after the Commencement Date repair and maintenance of which shall be the responsibility of the Tenant. As of the commencement Date the Landlord will warrant that all structural and mechanical systems of Buildings 1 and 2 are in good working order and repair. Tenant shall have the benefit of all contractor and subcontractor warranties relative to the Improvements. If the repairs required to be made by Landlord or Tenant are not completed within a reasonable time after request for such repair by the other party, Landlord or Tenant, as the case may be, shall have the option to make such repairs after first giving the other party fifteen (15) days notice of its intention to do so, and any amounts expended by virtue thereof shall be added to or subtracted from the next month's rent in the full amount of the expenditures. ARTICLE 11. ALTERATIONS AND ADDITIONS ------------------------- Tenant at its expense, shall have the right to make such nonstructural changes in the interior of the Premises, as it shall deem necessary or advisable in adapting the Premises for its use. No structural changes shall be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld. All changes, alterations or installments shall be of first class construction and shall, if required, be made only after obtaining all permits for the same. The Tenant shall immediately pay all charges for such changes, alterations or installations and shall not permit any liens for unpaid labor or materials to arise. All fixtures shall become a part of the Premises and the property of the Landlord at the termination of the Lease except that trade fixtures, machinery and equipment installed by Tenant shall be considered as its own and Tenant may recover same at any time during the term of this Lease or any extension thereof, provided that Tenant shall repair any damage caused to said Premises by such removal. ARTICLE 12. DAMAGE OR DESTRUCTION OF IMPROVEMENTS ------------------------------------- In the event the Premises shall be rendered untenantable by insured casualty, the Landlord will within one hundred twenty (120) days from the date of said damage or destruction, repair and replace said Premises to substantially the same condition as prior to the damage or destruction less wear and tear caused by Tenant's use and occupation. If the Landlord fails to commence repair of the damage or destruction within ten (10) business days (unless the repair or restoration is of such character that it cannot be commenced within such time, provided that in any event that commencement thereof will occur within thirty (30) days of such damage or destruction) from the date of such damage or destruction, or if the Premises have not been replaced or repaired to such condition within one hundred twenty (120) days, Tenant may at its option, (to be exercised by written notice to the Landlord and to the Trustee) terminate this Lease. The Base Rent herein required to be paid shall abate during the period of such untenantability. If the premises shall be damaged in part by insured casualty, but still remain tenantable, the landlord shall repair said Premises to substantially the same condition as prior to the damage less wear and tear caused by Tenant's use and occupation. Landlord shall commence repair of the damage or destruction within thirty (30) days from the date of occurrence. During the period of such repairs and restorations, the Lease shall continue in full force and effect, provided, however, that Tenant shall be required to pay the Base Rent, herein reserved, abated by the percentage of area destroyed as compared to the total area herein demised. In the event that any damage or destruction occurring during the last twelve (12) months of the original or extended term of this Lease to the extent of ten (10%) percent or more of the insurable value of the Premises, Landlord or Tenant may elect to terminate this Lease as of the date of the destruction or damage, by giving notice of such election to the other and to the Trustee within fifteen (15) days after such damage or destruction provided, however, that if Tenant has exercised its option to purchase the Premises no such termination shall take place and upon the payment of the purpose price the proceeds of insurance shall be paid to the tenant. Except as otherwise provided in the preceding paragraph, the Tenant shall cause all insurance proceeds to be assigned to the Landlord in the event of fire or other insured damage to be used for repair or restoration. In no event shall the Landlord's obligations herein to restore the premises in the event of damage or casualty exceed the amount of insurance proceeds made available to landlord by the insurance carrier and released to Landlord by its Mortgagees for such repair and/or restoration. ARTICLE 13. LANDLORD'S RIGHT TO ACCESS -------------------------- Tenant shall permit Landlord and Trustee and their agents to enter upon said Premises at all reasonable times during business hours to examine the condition of the same, provided that Landlord and/or Trustee gives Tenant twenty-four (24) hour notice thereof except for in time of emergency, and provided further that such entry is consistent with the Tenant's security regulations, and shall permit Landlord and/or Trustee to make such repairs as may be required. Tenant shall permit Landlord for a period of one hundred eighty (180) days prior to the expiration of the original or extended term of this Lease, to place upon the Premises the usual "For Rent" or "For Sale" signs, and shall permit Landlord and his agents, at reasonable times, to conduct prospective Tenants or Purchasers through said Premises after giving notice as aforesaid. ARTICLE 14. SURRENDER OF PREMISES --------------------- Tenant shall surrender and deliver up said Premises and appurtenances at the end of said term broom-clean and in as good condition and order as they were at commencement of the term hereof, reasonable use and ordinary wear and tear thereof and damage by fire or other casually and leasehold improvements made with Landlord's consent excepted. Tenant may remove all the trade fixtures, signs, equipment, stock and trade, and other items of a similar nature used in connection with its business, including such as may have been temporarily attached to the realty, provided all rents stipulated to be paid hereunder have been paid and all damage to said Premises is properly repaired. If said removal results in injury to or defacement of said Premises, Tenant shall immediately repair the Premises at its expense. ARTICLE 15. SIGNS ----- Tenant shall have the privilege and right of placing on the Premises such signs as it deems necessary and proper in the conduct of its business subject to Landlord's prior written approval, which approval may not be unreasonably withheld. Tenant shall comply with all laws, ordinances, deed and municipal regulations and Industrial Park Restrictions applicable to the erection, maintenance and the removal of said signs. Any damage to any Improvements by said signs shall be restored by Tenant forthwith at its expense. ARTICLE 16. ASSIGNMENT AND SUBLETTING ------------------------- Provided Tenant is not in default of any of the terms, conditions or covenants contained in this Lease, Tenant may assign this Lease or sublet the Premises or any part thereof after first obtaining the prior written consent of Landlord and Trustee which consent shall not be unreasonably withheld and upon the further condition that the use of the property by a sublessee or assignee are permitted by Municipal Ordinance, Industrial Park Restrictions, and that such use will not create any default under any mortgage against the Premises. No assignment or subletting consented to by Landlord shall relieve Tenant from its liability hereunder, and each and every assignee or sublessee shall be charged with all of the provisions hereof by a separate writing. Tenant shall provide Landlord and Trustee with written identification of subtenant or assignee, and terms of such subletting or assignment. ARTICLE 17. EMINENT DOMAIN -------------- If the entire Premises, or such part thereof, as, in the parties' judgment, renders the remainder unsuitable for Tenant's continued use, shall be taken in appropriation proceedings or by any rights of eminent domain, then this Lease shall terminate and be void from the time when possession thereof is required for public use, and such taking shall not operate as or be deemed an eviction of the Tenant or a breach of Landlord's covenant for quiet enjoyment; but Tenant shall pay all rent due, and perform and observe all other covenants hereof, up to the time when possession is required for public use. Provided, however, that if only a part of said Premises be so taken and in the Landlord and Tenant's judgment the Leased Premises remain unsuitable for Tenant's continued use, and if two (2) years or more of the term hereof then remains unexpired, and if the remaining Premises can be substantially restored within sixty (60) days, then this Lease shall not terminate, but Landlord will, at its sole expense, restore the Leased Premises. Rent payable by Tenant during the period of restoration shall be reduced by a reasonable amount, but after such restoration, the rent herein reserved shall be paid by Tenant as herein provided during the remainder of the term hereof abated by the percentage that the fair market value of the Premises, attributable solely to the land and Improvements, has been reduced because of such taking. Said market value immediately before and after such taking shall be determined by agreement of the parties or, failing agreement of the parties within thirty (30) days of the effective date of such taking, by a local Independent Fee Appraiser selected by mutual agreement of Landlord and Tenant, which appraiser's decision will be final and binding on the parties. The cost of such appraiser shall be borne equally by Landlord and Tenant. Tenant shall have the right at its sole cost and expense to assert a separate claim or join in Landlord's claim in any condemnation proceeding for its personal property, its improvements, moving expenses, or any other claims it may have; provided, however, that no award to the Tenant shall reduce the award which would otherwise be due the Landlord and in no event prevent the Mortgagee from collecting award proceeds. Tenant shall be entitled to and shall receive that portion of any award or payment made which is attributable solely to its claim, as set forth above and Landlord shall be entitled to and shall receive that portion of any award of payment made which is attributable solely to the land and Improvements erected thereon. ARTICLE 18. DEFAULT ------- The following events shall be deemed to be events of default by Tenant under this Lease: a. Tenant shall fail to pay any installment of the rent hereby reserved and such failure shall continue for fifteen (15) days. b. Tenant shall fail to comply with any term, provision or covenant of this Lease, other than the payment of rent, and shall not cure such failure within thirty (30) days after due written notice thereof to Tenant; or if such failure shall be of such a nature that the same cannot be completely cured within the said thirty (30) days and Tenant shall not have commenced to cure such failure within such thirty (30) day period and shall not thereafter with reasonable diligence and good faith proceed to cure such failure. c. Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. d. Tenant shall file a petition under any section or chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States or any State thereof; or an involuntary petition in bankruptcy shall be filed against Tenant thereunder. e. A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. f. Tenant shall abandon or vacate the Premises during the term of this Lease for a period in excess of three (3) months. g. Tenant or anyone claiming under or through Tenant shall use the premises in violation of zoning ordinances or in material violation of Park Restrictions. h. Tenant or anyone claiming under or through Tenant shall use the Premises in violation of the covenants of any mortgage applicable to the Premises. Upon the occurrence of any of such events of default, Landlord shall have the right, at Landlord's election subject to rules relating to government security to pursue, in addition to and cumulative of any other rights Landlord may have, at law or in equity, any one or more of the following remedies without any notice or demand whatsoever: a) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails so to do, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the demised premises and expel or remove Tenant and any other person who may be occupying said Premises or any part thereof, without being liable for prosecution or any claim of damages therefore; and Tenant agrees to pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination. b) Enter upon and take possession of the demised Premises and expel or remove Tenant and any other person who may be occupying said Premises or any part thereof without being liable for prosecution or any claim for damages therefore, and relet the Premises and receive the rent thereof; crediting Tenant therefore; and Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting. c) Enter upon the demised Premises without being liable for prosecution of any claim for damages therefore, and do whatever Tenant is obligated to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on demand for any expense which Landlord may incur in thus effecting compliance with Tenant's obligations under the Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to the Tenant from such action, whether caused by the negligence of Landlord or otherwise. d) Require all rental payments by "subtenants" (including within that term the third parties occupying various portions of the demised Premises under the terms of Lease agreements with Tenant, as primary lessor or as sublessor) which would otherwise be paid to Tenant to be paid directly to Landlord and apply such rentals so paid to or collected by Landlord against any rents or other charges due to Landlord by Tenant hereunder. No direct collection by Landlord from any such "subtenants" shall release Tenant from the further performance of Tenant's obligations hereunder. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. Failure by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or of any other violation or breach of any of the terms, provisions and covenants herein contained. In determining the amount of loss or damage which Landlord may suffer by reason of termination of this Lease or the deficiency arising by reason of the reletting by Landlord as above provided, allowance shall be made for the expense of repossession and any repairs. The Landlord shall use reasonable efforts to relet the Leased Premises on commercially reasonable terms and to apply all rents received in reduction of the Tenant's liability hereunder. ARTICLE 19. OPTION TO PURCHASE ------------------ a. Landlord grants Tenant the option, exercisable by Tenant at any time during the term and any extension of this Lease, to purchase the Premises at a purchase price in 1990 of Two Million, Nine Hundred Twenty-five Thousand Eight Hundred Sixty-six ($2,925,866) which price shall increase at the rate of four (4) percent per annum on the first day of each calendar year after 1990 during the term and any extension of this Lease. Tenant shall exercise its option to purchase by notice in writing thereof delivered to or mailed by registered or certified mail to Landlord at Landlord's address, which notice shall specify a closing date of not more than sixty (60) days and not less than thirty (30) days from the date thereof. On the closing date so specified or such other closing date as may be otherwise mutually agreed upon between the parties, Landlord shall deliver to Tenant a good and sufficient quitclaim deed running to Tenant or to the nominee designated in writing by Tenant to Landlord prior to the closing date, which deed shall convey to Tenant or Tenant's nominee a good and clear record and marketable title to the Premises free and clear from all liens, encumbrances and restrictions, except: 1. Provisions of existing building and zoning laws; 2. Such taxes for the then current year as are not due and payable on the date of delivery of such deed; and 3. Such other easements, restrictions and encumbrances of record which do not materially interfere with the continuing use and operations of the Premises. Upon the delivery of such deed Tenant shall pay Landlord the purchase price in full in cash or by bank or certified check and there upon all obligations of Tenant under this Lease with respect to the Premises shall cease and determine (except that the rent shall be apportioned as of such date). b. In the event Landlord is unable to deliver the Premises to Tenant upon the exercise of its option to purchase, this Lease shall automatically revive and continue for a period of sixty (60) days during which time Landlord shall use its best efforts (said obligation being limited by Landlord's expectation of net proceeds from said sale) to deliver title to Tenant at the end of said period. At the end of said sixty (60) days, tenant may elect to continue this lease or terminate this lease, vacating the premises promptly. ARTICLE 20. SERVICE OF NOTICE. ----------------- Every notice, approval, consent or other communication authorized or required by this Lease shall be in writing and sent by certified or registered mail to the other party at the following address or at such other address as may be designated by notice in writing given from time to tome and shall be deemed given as of the date of mailing. If notice is to be given to Landlord it shall be given at the following address: c/o Development Associates 630 Silver Street Post Office Box 528 Agawam, Massachusetts 01001 If notice is to be given to Tenant is shall be given at the following address: Millitech Corporation South Deerfield Research Park Post Office Box 109 South Deerfield, Massachusetts 01373 ARTICLE 21. QUIET ENJOYMENT --------------- Landlord hereby covenants and agrees to and with the Tenant that the Tenant shall have the peaceable possession and enjoyment of the Premises throughout the term of this Lease without any hindrance, disturbance or ejectment by the Landlord, its successors and assigns. Landlord represents and warrants that it has full right and authority to enter into and perform its obligations as Landlord under this Lease for the full term hereof. ARTICLE 22. SUBORDINATION AND NONDISTURBANCE -------------------------------- This Lease and all of the rights of Tenant hereunder are and shall be subject and subordinate to the lien of any mortgage or mortgages hereinafter placed on the Premises or any part thereof, except the Tenant's property or trade fixtures, and to any and all renewals, modifications, replacements, extensions or substitutions of any such mortgage or mortgages (all of which are hereinafter termed the mortgage or mortgages) provided, nevertheless, each or all of such mortgage or mortgages shall contain a provision to the effect that so long as the Tenant is not in default under this Lease, or any renewal thereof, no foreclosure of the lien of said mortgage or any other proceeding in respect thereof shall divest, impair, modify, abrogate or otherwise adversely effect any interest or rights whatsoever of the Tenant under the said Lease. ARTICLE 23. RIGHTS OF MORTGAGEE ------------------- Any Mortgagee of the Landlord shall have the following rights: a. Any notice required to be given to the Landlord by the Tenant shall be given as well in the same manner to the Mortgagee. b. In the event that the Tenant shall have any excuse from paying rent or right to set off its expenses from the rent, as a result of any default by the Landlord or shall have any excuse from the performance of any obligation imposed upon the Tenant by the terms of this Lease then and in such event, the tenant shall give notice of its intended exercise of such right in the manner provided for herein to the Mortgagee and thereafter the Trustee shall have the right, but not the obligation, to cure said defaults within the time provided for cure of the same as set forth in this Lease. c. Upon the request of the Mortgagee or any assignee of the Mortgagee the Tenant will furnish an estoppel certificate certifying that (i) the improvements have been substantially completed or if not, the extent to which work remains, and when completed that the Improvements have been completed in accordance with the Lease; (ii) that the Tenant is in possession of the Premises; (iii) that rent payments have commenced or are due and not paid more than one month in advance; (iv) that the Lease is in full force and effect and has not been amended, modified or superceded; (v) that the Tenant has received no notice that the Lease has been assigned, transferred or pledged by the Landlord, not that rentals under the Lease have been assigned other than to the Mortgagee; (vi) that the Tenant has not advanced any unreimbursed sums to or on behalf of the Landlord; (vii) that the Tenant holds no claim against the Landlord which is a set off against rents due under the Lease; and (viii) such other information concerning this tenancy as Mortgagee may from time to time require. d. Upon the request of the Mortgagee the Tenant will furnish a copy of its most recent annual report. ARTICLE 24. HOLDOVER -------- In the event Tenant remains in possession of the demised Premises after the expiration of this Lease, it shall operate and be construed to be a tenancy from month-to-month only, at a monthly rental equal to the annual rent charged at the last and highest amount and additional rent paid for the last and highest amount and additional rent paid for the last month of the term of this Lease plus twenty (20%) percent of such amount, unless otherwise agreed in writing, and otherwise subject to the conditions, provisions and obligations of this Lease insofar as the same are applicable to a month-to-month tenancy. Written notice thirty (30) days in advance given either Party to the other shall constitute compliance with conditions of the month-to-month tenancy and establish the termination date of the holdover term. ARTICLE 25. TERMINATION OF PRIOR LEASE ON COMMENCEMENT DATE ----------------------------------------------- Landlord and Tenant are parties to a certain "Lease" dated August 31, 1987 governing the portion of the Leased Premises described herein as Building 1 and Building 2 ("Prior Lease"). Landlord and Tenant agree that the Prior Lease will terminate on the Commencement Date as defined in Article 2 and all of the rights of the Landlord and Tenant shall be thereafter governed by this Lease. ARTICLE 26. GOVERNING LAW ------------- This Lease and the performance thereof shall be governed, interpreted, construed and regulated by the laws of the Commonwealth of Massachusetts. ARTICLE 27. PARTIAL INVALIDITY ------------------ If any term, covenant, condition or provision of this Lease, or the application thereof, to any person or circumstances, shall at any time or to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant, condition or provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. ARTICLE 28. INTERPRETATION -------------- Wherever in this Lease the singular number is used, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders, and vice versa, as the context shall require. The section headings used herein are for reference and conveniences only and shall not enter into the interpretation thereof. This Lease may be executed in several counterparts, each of which shall be an original but all of which shall constitute one and the same instrument. ARTICLE 29. SECURITY DEPOSIT ---------------- Tenant has deposited with the Landlord the sum of $12,938.35 as security for the performance by the Tenant of the terms of this lease. The Landlord may use, apply, or retain the whole or any part of this security deposit to the extent required for the payment of any rent and additional rent or any sums as to the Landlord may expand by reason of the Tenant's default in respect to any of the terms of this lease, including but not limited to any damage or deficiency in reletting of the leased property, whether such damages or deficiency accrued before or after summary proceedings or any other reentry by Landlord. In the event that the Tenant complies with all of the terms of the lease, the security deposit shall be returned to the Tenant within 30 days after the date fixed as the end of the lease. In the event of a sale of the premises by the Landlord, they shall have the right to transfer the security deposit to the purchaser and the Landlord shall thereupon be released from all liability for the return of such security deposit. The Tenant shall look solely to the new Landlord for the return of such deposits. The Tenant shall not assign or encumber the money deposited as security and neither Landlord nor its successors or assigns shall be bound by any such assignment or encumbrance. ARTICLE 30. ENTIRE AGREEMENT ---------------- No oral statement or prior written matter shall have any force or effect. Tenant agrees that it is not relying on any representations or agreements other than those contained in this Lease. This agreement shall not be modified or canceled except by writing subscribed by all parties. ARTICLE 31. PARTIES ------- The term "Landlord" as used in this Lease means only the owner, or mortgagee in possession of the Leased Premises. Landlord Warrants to Tenant that Landlord has the full right and lawful authority to enter into this Lease and is fee simple owner of the Premises and title to the Leased Premises is free and clear of any liens or encumbrances which would affect Tenant's use and occupancy of said premises except those set forth in Exhibit A. Except as otherwise expressly provided herein, the covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective successors and assigns. Executed as a sealed instrument as of the day and year first written above. TENANT LANDLORD MILLITECH CORPORATION EDWARD J. O'LEARY/RAYMOND M. VINCUNAS PARTNERSHIP By /s/ By /s/ Edward J. O'Leary --------------------------- --------------------------- Its President Edward J. O'Leary General Partner By /s/ Willie S. Day By /s/ Raymond M. Vincunas --------------------------- --------------------------- Its Vice President Raymond M. Vincunas General Partner EXHIBIT A O'LEARY-VINCUNAS/MILLITECH LEASE The land situate in South Deerfield, Franklin County, Massachusetts which is shown as Lot 9 on a certain plan entitled "Deerfield Industrial Park Disposition Parcels and Easements" recorded in the Franklin County Registry of Deeds in Book of Plans 57, Page 93. EXHIBIT B O'LEARY-VINCUNAS/MILLITECH LEASE The land situate in South Deerfield, Franklin County, Massachusetts which is shown as Lot 8 on a certain plan entitled "Deerfield Industrial Park Disposition Parcels and Easements" recorded in the Franklin County Registry of Deeds in Book 57, Page 93. EXHIBIT C O'LEARY-VINCUNAS/MILLITECH LEASE Plans by The O'Leary Company, Inc., College Highway Southampton, Massachusetts, all numbered 82073 and entitled "New Building Addition for Millitech Corporation South Deerfield, MA" sheets 1-1, A-1, A-2, A-3, and A-4. Specifications entitled "Outline specifications for Millitech Corporation" revised October 17, 1989. THE FOLLOWING IS A SUMMARY OF INFORMATION PROVIDED IN THE EXHIBITS OF THE LEASE. FURTHER INFORMATION WILL BE FURNISHED UPON REQUEST. Exhibit A Identification of where full description of the leased real property (lot 9) is recorded. Exhibit B Identification of where full description of the leased real property (lot 8) is recorded. Exhibit C Further identification of the plans and specifications for the addition to Building 2. Insert for Antennae An agreement whereby the Landlord grants the Tenant the right to install and operate, at its own cost and expense, up to two communications antennae on the roof of the building. EX-10.14 11 LEASE BY & BETWEEN THE CO. & L.C.GREEN & M.E.GREEN EXHIBIT 10.14 LEASE 1. PARTIES. LLOYD C. GREEN and MILDRED E. GREEN, both of Greenfield, ------- Massachusetts, hereinafter referred to as the LESSOR, do hereby lease to MILLITECH CORP. a Massachusetts corporation having its principal place of business in Deerfield, Massachusetts, hereinafter referred to as the LESSEE. 2. PREMISES. The LESSEE hereby leases the following described premises: -------- Land and Buildings at 6 North Street, South Deerfield, Massachusetts 3. TERM. The term of this Lease shall be for three (3) years, commencing on ---- August 1, 1998 and ending on July 31, 2001. The LESSEE shall have the option upon ninety (90) days prior written notice to LESSOR to renew this Lease upon the same terms and conditions for an additional two (2) year term at a rent to be agreed upon by the parties. 4. RENT. The annual rent under this Lease is SEVENTY EIGHT THOUSAND and 00/100 ---- DOLLARS ($78,000.00), payable by the LESSEE to the LESSOR in advance in monthly installments of SIX THOUSAND FIVE HUNDRED DOLLARS and 00/100 ($6,500.00) beginning on August 1, 1998, with succeeding payments due on the 1st day of each month thereafter during the term of this Lease. In addition to all other remedies, the LESSOR shall be entitled to a late charge equal to five percent (5%) of the amount of any payment which is not made as hereinbefore provided within ten (10) days of the due date. 5. TAXES, ETC. This Lease shall be net, net, net to the LESSOR. The LESSEE ---------- shall pay all real estate taxes, insurance charges, all repairs and maintenance and all capital improvements. The LESSEE shall pay for all of LESSEE's utilities, water and sewer use charges. Notwithstanding the provisions of the previous paragraph, the LESSOR agrees to reimburse the LESSEE for one half (1/2) of the cost of making the repairs described on the list entitled "Repairs and Improvements to be made to 6 North Street, South Deerfield, MA" attached hereto as Exhibit A and incorporated herein by reference. The amount reimbursed to the LESSEE by the LESSOR shall not exceed $70,000.00. The LESSEE shall submit all invoices for said repairs to the LESSOR within 10 days of LESSEE'S receipt for LESSOR'S approval, which approval shall not be unreasonably withheld. The LESSOR, after approval, shall pay said one half (1/2) of the invoice amount to the LESSEE within 15 days of receipt of said invoice. The cost of all other repairs, maintenance and capital improvements shall be born solely by the LESSEE. 6. USE OF LEASED PREMISES. The LESSEE shall use the leased premises ---------------------- exclusively for the assembly and testing of electronic equipment. 7. COMPLIANCE WITH LAWS. The LESSEE acknowledges that no trade or occupation -------------------- shall be conducted in the leased premises or use made thereof which will be unlawful, improper, noisy or offensive, or contrary to any law or any municipal by-law or ordinance in force in the Town of Deerfield, Massachusetts. 8. FIRE INSURANCE. The LESSEE shall not do or suffer to be done any act, matter -------------- or thing objectionable to insurance companies whereby the fire insurance or any other insurance now in force, or hereafter to be placed on the premises, shall become void or suspended or whereby the same shall be rated as a more hazardous risk than that contemplated by the parties pursuant to this lease. 9. MAINTENANCE AND REPAIR OF PREMISES. The LESSEE covenants to keep the ---------------------------------- premises in such repair, order and condition as the same are at the commencement of this Lease, or as the same may be put in by reason of alterations or improvements made during the term thereof, damage by reasonable and ordinary use and wear thereof, and fire or other casualty excepted. The LESSEE shall also keep the premises including drives, walkways, sidewalks and parking lot clear of all ice and snow, and debris and shall maintain lawns and shrubs by regular cutting, trimming, mowing, feeding and watering, and shall be responsible for sweeping the parking lot. 10. SIGNS. The LESSEE shall be entitled to erect such signage as are: ----- (a) in compliance with all state and municipal statutes, by laws and regulations, and (b) meet with the LESSOR's approval, which approval shall not be unreasonably withheld. 11. ALTERATIONS/ADDITIONS. The LESSEE shall not make structural alterations or --------------------- additions to the leased premises, but may make nonstructural alterations, provided the LESSOR consents thereto in writing. All such allowed alterations shall be at LESSEE's expense and shall be of good workmanlike quality. The parties agree and acknowledge that the LESSEE may make the alterations and improvements described on the list attached hereto as Exhibit A. LESSEE shall not permit any mechanics' liens or similar liens to remain upon the leased premises for labor and material furnished to LESSEE or claimed to have been furnished to LESSEE in connection with work of any character performed or claimed to have been performed at the direction of LESSEE, and shall cause any such lien to be released of record forthwith without cost to LESSOR. Any alterations or improvements made by the LESSEE shall become the property of the LESSOR at the termination of occupancy as provided herein. Notwithstanding the provisions of this paragraph and paragraph 21, if required by the LESSOR when this lease terminates, the LESSEE agrees to re-install the truck docks as they were on June 20, 1998. 2 12. ASSIGNMENT/SUBLEASING. The LESSEE shall not assign, mortgage, pledge or --------------------- sublet the whole or any part of the premises without LESSOR's prior written consent. Notwithstanding such consent, LESSEE shall remain liable to LESSOR for the payment of all rent and for the full performance of the covenants and conditions of this Lease. 13. SUBORDINATION. This Lease shall be subject and subordinate to any and all ------------- mortgages, deeds of trust and other instruments in the nature of a mortgage, now or at any time hereafter a lien or liens on the leased premises and the LESSEE shall, when requested, promptly execute and deliver such written instruments as shall be necessary to show the subordination of this Lease to said mortgages, deeds of trust or other such instruments in the nature of a mortgage. 14. LESSOR's ACCESS. The LESSOR or agents of the LESSOR may, at reasonable --------------- times, enter to view the leased premises and may remove placards and signs not approved and affixed as herein provided, and make repairs and alterations as LESSOR should elect to do, and may show the leased premises to others, and at any time, within six (6) months before the expiration of the term, may affix to any suitable part of the leased premises a notice for letting or selling the leased premises. 15. INDEMNIFICATION AND LIABILITY. The LESSEE shall indemnify and hold harmless ----------------------------- the LESSOR from and against any and all claims arising out of LESSEE's use and occupation of the Premises and exercise of LESSEE's rights hereunder. 16. INSURANCE. The LESSEE shall maintain an "all risk" business owners policy, --------- including fire and extended coverage on the premises in amounts equal to at least 80% of the replacement cost of the building on the premises and Comprehensive General Liability Insurance in the amount of at least THREE MILLION DOLLARS ($3,000,000.00)* in responsible companies qualified to do business in Massachusetts, and in good standing therein, insuring the LESSOR as well as LESSEE against injury to persons or damage to the Leased Premises or other property as provided herein. The LESSEE shall furnish the LESSOR certificates for such insurance at or prior to the commencement of the lease term which state the limits insured and contain clauses stating (i) that the policy will not be materially changed or canceled by either party thereto without thirty (30) days prior written notice to the LESSOR (ii) that new certificates of said insurance shall be filed with the LESSOR prior to ten (10) days of the expiration date (iii) that the insurance company issuing such policy waives all rights of subrogation against the LESSOR in a form satisfactory to the LESSOR's counsel if such waiver is obtainable without affecting the LESSEE's against the LESSOR for loss or injury to the extent the LESSEE is protected by insurance containing such waiver of subrogation clause and agrees that at least ten (10) days prior to the expiration of any of the foregoing insurance to furnish the LESSOR with proper certificates of continuation of such coverage. 17. FIRE AND CASUALTY. Should a substantial portion of the leased premises be ----------------- substantially damaged by fire or other casualty, the LESSOR may elect to terminate * Per Incident, Five Million Dollars ($5,000,000.00) In The Agregate. 3 this Lease. When such fire or casualty renders the leased premises substantially unsuitable for their intended use and if such fire or casualty was not a result of the intentional, wilful or grossly negligent acts of the LESSEE or those employed by or acting for the LESSEE, a just and proportionate abatement of rent shall be made, and the LESSEE may elect to terminate this Lease if: 17.1 the LESSOR fails to give written notice within thirty (30) days of intention to restore the leased premises, or 17.2 the LESSOR fails to restore the leased premises to a condition substantially suitable for their intended use within ninety (90) days of said fire or casualty. 18. EMINENT DOMAIN. It is agreed by and between the LESSOR and the LESSEE that -------------- should the premises or any part thereof be taken under the right of eminent domain in condemnation proceedings against the LESSOR during the term of this Lease, no part of the award made or the amount paid for such taking shall go to the LESSEE but the LESSOR shall be entitled to receive the entire amount paid or awarded therefore and the LESSEE covenants and agrees that LESSEE will in the event of such taking execute such assignment or assignments as may be necessary to fully carry out the intent and purpose of these provisions. If the whole or a significant portion of the said premises shall be taken by any public authority under the power of eminent domain, then the term of this Lease as to the entire premises shall terminate as of the time that possession is so taken and all rent shall be paid up to that date. 19. DEFAULT AND BANKRUPTCY. In the event that: ---------------------- 19.1. The LESSEE shall default in the payment of any installment of rent or other sum herein specified, and such default shall continue for ten (10) days after written notice thereof; or 19.2. The LESSEE shall default in the observance or performance of any other of the LESSEE's covenants, agreements or obligations hereunder, and such default shall not be corrected within thirty (30) days after written notice thereof; or 19.3. The LESSEE shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of LESSEE's property for the benefit of creditors, then the LESSOR shall have the right thereafter, while such default continues, to reenter and take complete possession of the leased premises, to declare the term of the lease ended, and remove the LESSEE's effects, without prejudice to any remedies which might be otherwise used for arrears of rent or other default. The LESSEE shall indemnify the LESSOR against all loss of rent and other default. The LESSEE shall indemnify the LESSOR against all loss of rent and other payments which the 4 LESSOR may incur by reason of such termination during the residue of the term. If the LESSEE shall default, after reasonable notice thereof, in the observance or performance of any conditions of covenants on LESSEE's part to be observed or performed under or by virtue of any of the provisions in any article of this lease, the LESSOR, without being under any obligation to do so, and without thereby waiving such default, may remedy such default for the account and at the expense of the LESSEE. If the LESSOR makes any expenditures or incurs any obligations for the payment of money in connection therewith, including, but not limited to, reasonable attorney's fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred, with interest at the rate of twelve (12%) percent per annum, and costs, shall be paid to the LESSOR by the LESSEE as additional rent. In any litigation between the LESSOR and the LESSEE, the LESSEE shall pay the LESSOR's costs and attorney's fees in the event that the final judgment is in favor of the LESSOR and the LESSOR shall pay the LESSEE's costs and attorney's fees in the event that the final judgment is in favor of the LESSEE. The LESSEE further covenants that in case the LESSOR shall, without fault on LESSOR's part, be made a party to any litigation commenced against the LESSEE, then the LESSEE shall pay all expenses, costs and reasonable attorney's fees incurred by or imposed upon the LESSOR in connection with such litigation, and such expenses, costs and attorney's fees shall be additional rent due on the last rent day after service of notice of such payment or payments, together with interest at the rate of twelve (12) percent per annum from the date of payment, and shall be collected as any other rent specifically reserved herein, unless the LESSOR shall be made a party by reason of any independent liability of the LESSOR caused by some act or omission on the part of the LESSOR and not resulting from any act or omission on the part of the LESSEE or from the execution of the lease by the LESSOR. 20. NOTICES. Any notice from the LESSOR to the LESSEE relating to the ------- leased premises or to the occupancy thereof shall be deemed duly served if delivered to the leased premises, addressed to the LESSEE and acknowledged by any occupant of the leased premises, or, if mailed to the leased premises, registered or certified mail, return receipt requested, postage prepaid, addressed to the LESSEE. Any notice from the LESSEE to the LESSOR relating to the leased premises or to the occupancy thereof, shall be deemed duly served, if mailed to the LESSOR by registered or certified mail, return receipt requested, postage prepaid, addressed to the LESSOR at such address as the LESSOR may from time to time advise in writing. All rent and notices shall be paid and sent to the LESSOR at 9 George Street, Greenfield, MA 01301. 21. SURRENDER. The LESSEE shall, at the expiration or other termination of --------- this Lease, remove all of LESSEE'S goods and effects from the leased premises (including, without hereby limiting the generality of the foregoing, all signs and 5 lettering affixed or painted by the LESSEE, either inside or outside the leased premises). LESSEE shall deliver to the LESSOR the leased premises and all keys and locks thereto, and other fixtures connected therewith and all alterations and additions made to or upon the leased premises, in the same condition as they were at the commencement of the term, or as they were put in during the term hereof, reasonable wear and tear and damage by fire or other casualty only excepted. In the event of the LESSEE'S failure to remove any of the LESSEE'S property from the premises, LESSOR is hereby authorized, without liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE, to remove and store any of the property at LESSEE'S expense, or to retain same under LESSOR'S control, or to sell at public or private sale, without notice, any or all of the property not so removed and to apply the net proceeds of such sale to the payments of any sum due hereunder, or to destroy such property. 22. SECURITY DEPOSIT. The LESSEE acknowledges that no security deposit has been ---------------- paid to the LESSOR. 23. LESSEE'S FAILURE TO PERFORM. --------------------------- 23.1 If the LESSEE shall at any time fail to take out, pay for, maintain or deliver any of the insurance policies provided for in this Lease or shall fail to make any other payment or perform any other act on its part to be made or performed under this Lease, then the LESSOR, after ten (10) days' written notice to the LESSEE, except when other notice is expressly provided for in this Lease (or without notice in case of an emergency), and without waiving or releasing the LESSEE from any obligation of the LESSEE contained in this Lease, may, but shall not be required to: (1) Pay any tax or assessment payable by the LESSEE; (2) Take out, pay for and maintain any of the insurance policies provided for in this Lease; or (3) Make any other payments or perform or cause to be performed any act on the LESSEE'S part to be made or performed as in this Lease provided; and may enter upon the leased premises for any such purpose, and take all such action thereon as may be necessary therefor. 23.2 All sums so paid by the LESSOR and all costs and expenses incurred by the LESSOR in connection with the performance of any such act, together with interest thereon at the rate of twelve percent (12%) per annum or such lesser rate as may at the time be the maximum rate permitted by law, from the respective dates of the LESSOR'S making of such payment or incurring of each such cost and expense, shall be paid by the LESSEE to the LESSOR on demand as additional rent hereunder. 6 24. ESTOPPEL CERTIFICATE. Upon not less than fifteen (15) days prior written -------------------- request, the LESSOR and the LESSEE agree, each in favor of the other, to execute, acknowledge and deliver a statement in writing certifying that this Lease is unmodified and in full force and effect or, if there have been any modifications that the same is in full force and effect as modified and stating the modifications, and the date to which the rent hereunder and other charges have been paid and any other information reasonably requested. Any such statement delivered pursuant to this paragraph may be relied upon by any prospective purchaser, mortgagee or lending source. 25. QUIET ENJOYMENT. The LESSOR further covenants and agrees with the LESSEE --------------- that it, paying the rent aforesaid and performing the covenants herein contained on their part, shall peaceably hold and enjoy the demised premises without hinderance or interruption by the LESSOR or any person or persons whomsoever, subject only to the right of the LESSOR to enter the premises pursuant to the provisions of Paragraph 14. 26. BROKERS. The LESSEE warrants and represents to the LESSOR that the LESSEE ------- had dealt with no broker or third person with respect to this Lease or the Premises except Colebrook Realty Services, Inc. (the "Broker"). The LESSEE covenants and agrees to indemnify the LESSOR against any brokerage claims by third persons claiming to have dealt with the LESSEE or to have brought the Premises or LESSOR to the attention of the LESSEE, except for commissions due the Broker, which shall be paid for by the LESSOR and in furtherance thereof, at the LESSOR'S request, to enter and defend in the LESSOR'S name and behalf any action or proceeding commenced against the LESSOR to establish any such brokerage claim. The indemnification hereunder shall include the LESSOR'S reasonable attorney's fees in resisting any such brokerage claim. 27. MISCELLANEOUS PROVISIONS. ------------------------ 27.1 Applicable Law. This Agreement shall be construed in accordance with -------------- the laws of the Commonwealth of Massachusetts. 27.2 Modification, Waiver or Change. No modifications, waiver or change ------------------------------ shall be made in the terms and conditions of this Agreement, except as may be mutually agreed upon in writing by all the parties hereto. 27.3 Successors and Assigns. This Agreement shall inure to the benefit of ---------------------- and be binding upon the successors and assigns of each of the parties hereto. 27.4 Entire Understanding. This Agreement, together with the exhibits -------------------- attached hereto, if any, represent the entire understanding of the parties, and neither party is relying upon any representation not contained herein. 27.5 Severability. In the event that any provision of this Agreement shall ------------ be deemed invalid, unreasonable or unenforceable by any court of competent 7 jurisdiction, such provision shall be stricken from the Agreement or modified so as to render is reasonable, and the remaining provisions of this Agreement, or the modified provision as provided above, shall continue in full force and effect and be binding upon the parties so long as such remaining or modified provisions reflect the intent of the parties as of the date of this Agreement. 27.6 Marginal Headings: Pronouns. The marginal headings used in this --------------------------- Agreement are for convenience only and shall not be deemed to be a binding portion of this Agreement. The pronouns he, she or it are also used for convenience, and in the event that an improper pronoun has been used, it shall be deemed changed so as to render the sentence in which it is contained effective in accordance with its terms. IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands and seals this 30th day of June, 1998. In the presence of: /s/ (Unreadable) /s/ Lloyd C. Green - ---------------------------------- ---------------------------------- Lloyd C. Green (Lessor) /s/ (Unreadable) /s/ Mildred E. Green - ---------------------------------- ---------------------------------- Mildred E. Green (Lessor) Millitech Corp. /s/ R. Reynolds by: /s/ Roger Boyce - ---------------------------------- its Sr. Contracts Administrator 8 INSERT FOR ANTENNAE "Tenant shall have the right, at its sole cost and expense, to install, maintain, operate, repair, replace and remove, up to two (2) communications antennae (hereinafter, collectively called "antenna" or "antennae") on the roof of the Building and run lines, risers, conduits and cables therefrom into the Premises, provided that in such event: (a) Landlord approves the location of each antenna on the roof; (b) Landlord approves the plans and specifications for the antennae, which shall also include any screening material, such approval not to be unreasonably withheld or delayed; (c) Tenant shall perform the installation of the antennae in accordance with all legal requirements, including obtaining any required permits, and otherwise in accordance with the provisions of the Lease; (d) Tenant shall access the roof of the Building for the installation, replacement or removal of the antennae and related risers, conduits and cable or the repair of any of the same, only upon prior written notice to Landlord to afford Landlord the opportunity for it, or its agents (including any roofing contractor), to supervise any such work and so that no work by Tenant shall void any roof warranty currently maintained by Landlord (the supervision by Landlord or Landlord's agents shall not, however, be required for any emergency repair or routine maintenance or repair of the antennae); and (e) Tenant's installation and operation of the antennae does not interfere with other tenant's use of their premises at the Project. Notwithstanding any obligation of Landlord to make repairs to the roof, Tenant shall be liable for any and all repairs to the roof stemming from the installation, operation, maintenance and removal of the antennae. To the extent any damages result from the installation, operation, maintenance or removal of the antennae, Tenant shall be liable therefor, and Tenant agrees to indemnify, defend and hold Landlord harmless from any claims arising therefrom." 9 THE FOLLOWING IS A SUMMARY OF INFORMATION PROVIDED IN THE EXHIBITS OF THE LEASE. FURTHER INFORMATION WILL BE FURNISHED UPON REQUEST. Exhibit A Description of the alterations and improvements made to 6 North Street, South Deerfield, Massachusetts. EX-10.15 12 REVOLVING LINE OF CREDIT, BOSTON FEDERAL SAVINGS EXHIBIT 10.15 Execution Copy REVOLVING LINE OF CREDIT AGREEMENT --------- ---- -- ------ --------- REVOLVING LINE OF CREDIT AGREEMENT ("Agreement") dated as of August 20, 1999 between MILLITECH CORPORATION, a Massachusetts corporation having a principal place of business at 20 Industrial Drive, South Deerfield, Massachusetts 01373 (the "Borrower") and BOSTON FEDERAL SAVINGS BANK, having a principal place of business at 17 New England Executive Park, Burlington. Massachusetts 01803 (the "Bank"). RECITALS WHEREAS, Borrower desires that Bank loan to Borrower the amount of up to Two Million Dollars ($2,000,000), all in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 --------- DEFINITIONS AND ACCOUNTING TERMS 1.1 Defined Terms As used in this Agreement, the following terms have the ------------- following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): 1.1.1 Accounts Receivable means all of Borrower's accounts, ------------------- accounts receivable, contract rights, notes, bills, drafts, acceptances, instruments, documents, chattel paper and all other debts1 obligations and liabilities in whatever form owing to Borrower from any Person for goods sold by it or for services rendered by it, or however otherwise established or created, all guaranties and security therefor, all right, title and interest of Borrower in the goods or services which gave rise thereto, including rights to reclamation and stoppage in transit and all rights of an unpaid seller of goods or services, whether any of the foregoing are now existing or hereafter arising, now or hereafter received by or owing or belonging to Borrower. 1.1.2 Advances means all money advanced to Borrower under this -------- Agreement. 1.1.3 Affiliate means any Person, other than an employee --------- stockholder of Borrower (defined below) (a) which directly or indirectly controls, or is controlled by, or is under common control with Borrower or a Subsidiary, (b) which directly or Execution Copy indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of Borrower or any Subsidiary, or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by Borrower or a Subsidiary. The term control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. 1.1.4 Agreement means this Revolving Line of Credit Agreement, as --------- amended, supplemented, or modified from time to time. 1.1.5 Borrowing Base means at the relevant time of reference -------------- thereto, an amount determined by Bank by reference to the most recent Borrowing Base Certificate delivered to Bank, which is equal to seventy- five percent (75%) of Domestic Eligible Non-Progress/Contract Accounts Receivable, plus, fifty percent (50%) of Domestic Eligible Progress/Contract Accounts Receivable for which invoices have been issued and are payable (availability related to such Progress/Contract Accounts Receivable not to exceed $300,000). 1.1.6 Borrowing Base Certificate means a certificate executed by -------------------------- the Chief Financial Officer of Borrower as to the calculation of Borrowing Base in the form attached as Exhibit A together with such back-up --------- documentation as Bank may reasonably request. 1.1.7 Business Day means any day other than a Saturday, Sunday, or ------------ other day on which commercial banks in Boston, Massachusetts are authorized or required to close under the laws of the Commonwealth of Massachusetts. 1.1.8 Capital Lease means all leases which have been or should be ------------- capitalized on the books of the lessee in accordance with GAAP. 1.1.9 Capital Expenditures means, for any period, amounts added or -------------------- required to be added to the fixed assets account on the consolidated balance sheet of Borrower, prepared in accordance with GAAP, in respect of (i) the acquisition, construction, improvement or replacement of land, buildings, machinery, equipment, leaseholds and any other real or personal property, and (ii) to the extent not included in the preceding (i), expenditures on account of materials, contract labor and direct labor relating thereto (excluding expenditures properly expensed as repairs and maintenance in accordance with GAAP). 1.1.10 Closing Date shall mean the date this Agreement is executed. ------------ Execution Copy 1.1.11 Code means the Internal Revenue Code of 1986, as amended from ---- time to time, and the regulations and published interpretations thereof. 1.1.12 Collateral means all assets of Borrower of every type and ---------- description subject to the Lien of the Security Agreement and as further defined in the Security Agreement, as well as certain rights under the Warrant and Warrant Purchase Agreement. 1.1.13 Commitment Letter means the letter dated August 18, 1999 ----------------- executed by Bank and Borrower. 1.1.14 "Consolidated" and "Consolidating" when used with reference -------------------------------- to any term, mean that term (or the terms "combined" and "combining", as the case may be, in the case of partnerships, joint ventures and Affiliates that are not Subsidiaries) as applied to the accounts of the Company (or other specified Person) and all of its Subsidiaries (or other Specified Person), or such of its Subsidiaries as may be specified, consolidated (or combined) in accordance with GAAP and with appropriate deductions for minority interests in Subsidiaries, whether or not such deductions are required by GAAP. 1.1.15 Consolidated Tangible Net Worth shall mean, on any date, the ------------------------------- total of: (a) Stockholders equity of Borrower and Borrower's Subsidiaries determined in accordance with GAAP, minus ----- (b) The amount by which such equity balance has been increased by a write up of any asset of Borrower after December 31, 1998 minus ----- (c) The amount of intangible assets of Borrower determined in accordance with GAAP including, without limitation, goodwill, formula, trademarks, noncompetition covenants, tradenames, patents and patent rights. 1.1.16 Consolidated Net Income means, for any period, the net income ----------------------- (or deficit) of the Borrower and the Subsidiaries, determined in accordance with GAAP on a Consolidated basis; provided however, that Consolidated Net ---------------- Income shall not include: (i) the income (or deficit) of any Subsidiary accrued prior to the date such Person becomes a Subsidiary or is merged into or consolidated with any Subsidiary; Execution Copy (ii) the income (or deficit) of any Person (other than a Subsidiary) in which the Borrower or any Subsidiary has an ownership interest; provided, however, that ----------------- (a) Consolidated Net Income shall include amounts in respect of the income of such Person when actually received in cash by the Borrower or such Subsidiary in the form of dividends or similar distributions and (b) Consolidated Net Income shall be reduced by the aggregate amount of all investments, regardless of the form thereof, made by the Company or any Subsidiary in any such Person for the purpose of funding any deficit of such Person, all as determined in good faith and certified to the Bank by Borrower's Chief Financial Officer; (iii) all amounts included in computing such net income (or deficit) in respect of the write-up of any asset after December 31, 1998; and (iv) extraordinary and nonrecurring gains. 1.1.17 Consolidated Leverage Ratio [INTENTIONALLY OMITTED] ------------ -------- ----- 1.1.18 Debt means, without duplication, (a) indebtedness or liability for borrowed money, (b) obligations evidenced by bonds, debentures, notes, or other similar instruments, (c) obligations for the deferred purchase price of property or services (including trade obligations), (d) obligations as lessee under Capital Leases, (e) current liabilities in respect of unfunded vested benefits under Plans covered by ERISA, (f) obligations under letters of credit, (g) obligations under acceptance facilities, (h) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person or entity, or otherwise to assure a creditor against loss, and (i) obligations secured by any liens, whether or not the obligations have been assumed. 1.1.19 Default shall mean a state of facts which with the passage of ------- time or notice and the passage of time would become an Event of Default. 1.1.20 Depreciation shall mean depreciation determined in accordance ------------ with GAAP. 1.1.21 Domestic Eligible Accounts Receivable means an Eligible ------------------------------------- Accounts Receivable due from an Account Debtor located in the United States or Canada. Execution Copy 1.1.22 Eligible Accounts Receivable means at the time of any ---------------------------- determination thereof, any Accounts Receivable of Borrower which meet the following standards of eligibility: (a) Borrower lawfully owns such Accounts Receivable and Borrower has not acquired such Accounts Receivable from any other Person; (b) Borrower has the full and unqualified right to assign and grant liens in such Accounts Receivable to Bank as security for the obligations; (c) pursuant to the Security Agreement executed by Borrower in favor of Bank (or with respect to an Accounts Receivable of a Subsidiary, a separate assignment or security agreement for each such Accounts Receivable executed by such subsidiary to collateralize the guaranty of such subsidiary), such Accounts Receivable is subject to a lien in favor of Bank, which lien is perfected under the laws of applicable jurisdiction within the United States and is prior to the rights of, and enforceable as such against, any other Person; (d) such Accounts Receivable is not subject to any lien in favor of any Person other than liens in favor of Bank; (e) such Accounts Receivable is to Borrower's knowledge, a valid, binding, and legally enforceable obligation of the Person who is obligated under such Accounts Receivable (the "Account Debtor"); -------------- (f) such Accounts Receivable is a bona fide Accounts --------- Receivable arising from the sale (on an absolute basis and not on a consignment, approval, or sale-or-return basis or as part of any product swap) of goods or the rendering of services in the ordinary course of business, which goods have been shipped or delivered to, or which services have been performed for, the Account Debtor for such Accounts Receivable; (g) with respect to such Accounts Receivable, no Account Debtor is (i) incorporated in or primarily conducting business in any jurisdiction outside the United States or Canada unless such Account Receivable is adequately insured to Bank's satisfaction, (ii) an Affiliate of the Borrower, (iii) a foreign government or any agency, department, or instrumentality thereof, other than Puerto Rico, (iv) the subject of any reorganization, bankruptcy, receivership, custodianship, insolvency, or other like condition, or (v) an agency, department or instrumentality of the United States or any state governmental authority in the United States unless the requirements of the Assignment of Claims Act of 1940, as amended, and any similar state legislation shall have been satisfied in respect thereof and Bank is satisfied as to the absence of set-offs, Execution Copy counterclaims, and other defenses to payment on the part of the United States or such state governmental authority. (h) such Accounts Receivable is not outstanding more than ninety (90) days past the invoice date with respect thereto; (i) such Accounts Receivable is payable in United States Dollars; (j) the Account Debtor on such Account Receivable or any of its Affiliates is not also a supplier or creditor of the Borrower or any of its Subsidiaries unless such supplier or creditor has executed a no-offset letter satisfactory to Bank; provided, however, that if the Account Receivable is otherwise an Eligible Receivable, then the amount by which the Account Receivable exceeds the corresponding account payable may be included in the Borrowing Base; (k) where required in order to enforce an obligation in the courts of such state or otherwise to comply with applicable laws, Borrower has either (i) received a certificate of authority to the business and is in good standing in all states in which an Account Debtor is located, or (ii) filed a Notice of Business Activities Report or comparable document with the appropriate office or agency of such state for the current year; and (l) any warranty contained in this Agreement or any other Loan Document with respect either to Accounts or Eligible Receivables in general or to such specific Account is not true and correct with respect to such Account, provided, however, if more than ten percent (10%) of the -------- Account Receivable due from any Account Debtor is more than ninety (90) days old, the Borrowing Base as to such Account Debtor be reduced to fifty percent (50%) of Domestic Eligible Non-Progress/Contract Accounts Receivable, twenty-five percent (25%) of Domestic Eligible Progress/Contract Accounts Receivable, and if more than twenty percent (20%) of such Account Receivable from such Account Debtor is more than ninety (90) days old, all Accounts Receivable from such Account Debtor shall be excluded from the Borrowing Base until at least ninety percent (90%) of Accounts Receivable from such Account Debtor are less than ninety (90) days old. If requested to do so by Borrower, Bank agrees to exercise commercially reasonable judgment in Bank's sole discretion, in determining whether that portion of the Account Receivable which is less than ninety (90) days old should be included as an Eligible Account Receivable. 1.1.23 ERISA means the Employee Retirement Income Security Act of ----- 1974, as amended from time to time, and the regulations and published interpretations thereof. Execution Copy 1.1.24 Event of Default means any of the events specified in ---------------- Article 8 and, if a cure period shall be provided therein, such Event of Default shall not be deemed to have occurred until such cure period has expired without such Event of Default being remedied. 1.1.25 Environmental Laws shall mean all federal, state and local ------------------ laws, rules or regulations relating in any way to the environment or health and safety of humans, plant and wildlife including, but not limited to the Clean Water Act, 33 USC Section 1251-1387; The Safe Drinking Water Act, 42 USC Section 3001-3002; Emergency Planning and Community Right to Know Act of 1986, 42 USC Section 11001-11050; National Environmental Policy Act, 42 USC Section 4321-4361; Toxic Substances Control Act, 15 USC Section 2601- 2629; The Federal Insecticide, Fungicide and Rodenticide Act, 7 USC Section 135435k; Occupational Safety and Health Act, 29 USC Section 651 et seq.; Resource Conservation and Recovery Act, 42 USC Section 6901-6991(c); Comprehensive Environmental Response, Compensation and Liability Act, 42 USC Section 9601-9675; Clean Air Act, 42 USC Section 7401-7642; Federal Coastal Zone Management Act, 1.6 USC Section 1451-1464; Massachusetts Environmental Policy Act, MGL c.30 Section 61-6211; Massachusetts Clean Air Act, MGL c. 111 Section 142A-142K; Massachusetts Clean Water Act, MOL e.21 Section 26-53; Massachusetts Wetlands Protection Act, N4GL C. 131 Section 40, MGL c.91; Massachusetts Hazardous Waste Management Act, MGL c.21C; Board of Fire Protection Regulations, 527 CMR Section 9.00 et seq.; Massachusetts Oil and Hazardous Materials Release Prevention and Response Act, MOL c.21E; Massachusetts Right to Know Act, MGL c. 11 1F; Massachusetts Toxic Use Reduction Act, MGL c.2 11. 1.1.26 Guarantor (INTENTIONALLY OMITTED) --------- 1.1.27 GAAP means generally accepted accounting principles in the ---- United States. 1.1.28 International Eligible Accounts Receivable (INTENTIONALLY ------------------------------------------ OMITTED) 1.1.29 Lien means any mortgage, deed of trust, pledge, security ---- interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing). Execution Copy 1.1.30 Loan means the Revolving Line of Credit Loan. ---- 1.1.31 Loan Documents means this Agreement, the Note, the Commitment -------------- Letter (to the extent not inconsistent with the other Loan Documents), Security Agreement, Warrant, Warrant Agreement and all other documents executed by Bank or Borrower in connection with the Loan. 1.1.32 Multiemployer Plan means a Plan described in Section ------------------ 4001(a)(3) of ERISA. 1.1.33 Maturity Date means August 19, 2000. ------------- 1.1.33A Non-Progress/Contract Account Receivable means an Account ---------------------------------------- Receivable for which delivery to the Account Debtor or a supply contract has been completed. 1.1.34 Note shall have the meaning set forth in Section 2.2. ---- ----------- 1.1.35 PBGC means the Pension Benefit Guaranty Corporation or any ---- entity succeeding to any of all of its functions under ERISA. 1.1.36 Permitted Liens shall mean those Liens described in Section --------------- 4.3 of the Security Agreement. 1.1.37 Person means an individual, partnership, corporation, ------ business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. 1.1.38 Plan means any pension plan which is covered by Title IV of ---- ERISA and in respect of which Borrower or a Commonly Controlled Entity as defined in ERISA is an "employer" as defined in Section 3(5) of ERISA. 1.1.39 Pledge (INTENTIONALLY OMITTED) ------ 1.1.40 Prime Rate shall mean the rate of interest announced by The ---------- Wall Street Journal from time to time as the Prime Rate. 1.1.41 Principal Office means Bank's office at 17 New England ---------------- Executive Park, Burlington, Massachusetts 01803. 1.1.41A Progress/Contract Account Receivable means an Account ------------------------------------ Receivable generated prior to the completion of delivery of an entire order or supply contract to an Execution Copy Account Debtor. By way of example, an invoice generated after three shipments on a purchase order calling for ten shipments would be a Progress Account Receivable. 1.1.42 Prohibited Transaction means any transaction set forth in ---------------------- Section 406 of ERISA or Section 4975 of the Code. 1.1.43 Regulations D. G. T. U and X means Regulations U and X of ---------------------------- the Board of Governors of the Federal Reserve System as amended or supplemented from time to time. 1.1.44 Reportable Event means any of the events set forth in Section ---------------- 4043 of ERISA. 1.1.45 Security Agreement means the All Assets Security Agreement ------------------ executed by Borrower in connection with the Loans of even date herewith. 1.1.46 Subordinated Debt means debt of Borrower to third parties ----------------- other than trade debt, which is subject to the amount and terms of this Loan, as amended from time to time. 1.1.47 Subsidiary means, as to Borrower, a corporation of which ---------- shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by Borrower. Accessories and Product Genesis, Inc. are Affiliates but not Subsidiaries. 1.1.48 Revolving Line of Credit Loan shall have the meaning given in ----------------------------- Section 2.1. 1.1.49 Working Capital (INTENTIONALLY OMITTED) --------------- ARTICLE 2 --------- AMOUNT AND TERMS OF THE LOAN 2.1 Revolving Line of Credit Loan. Bank agrees on the terms and conditions ----------------------------- set forth in this Agreement to make one or more Advances to Borrower from time to time in an aggregate principal amount not to exceed Two Million Dollars ($2,000,000) (the "Commitment"). Within the limits of the Commitment, and subject to the limitations of this Execution Copy Section 2.1 and Section 7.3 below regarding capital infusion, and provided the Borrowing Base is adequate, Borrower may borrow, repay, and reborrow under this Section 2.1. Borrower acknowledges that the amount available under the Revolving Line of Credit Loan shall in no event exceed the Borrowing Base. If at any time the amount of principal plus accrued interest outstanding hereunder shall exceed the Borrowing Base, Borrower shall immediately prepay an amount sufficient such that the amount outstanding is within the Borrowing Base. The amount initially available to Borrower shall be up to One Million Dollars ($1,000,000). At such time as Borrower shall deliver to Bank evidence in form sufficient to satisfy the reporting requirements of Section 5.9 below of its compliance with the provisions of Section 7.3 hereof, and provided that there are no other defaults hereunder, the amount available to Borrower shall increase to One Million Five Hundred Thousand Dollars ($1,500,000). At such time as Borrower shall deliver to Bank evidence in form sufficient to satisfy the reporting requirements of Section 5.9 below of its compliance with Section 7.3 below, Borrower has delivered to Bank an appraisal performed by an appraiser satisfactory to Bank that the forced liquidation value of the machinery and equipment owned by Borrower and not subject to any other lien or encumbrance is at least Five Hundred Thousand Dollars ($500,000), and provided Borrower is otherwise in compliance hereunder (including, without limitation, the requirements of Section 5.11), the amount available to Borrower shall be the lesser of the Borrowing Base or Two Million Dollars ($2,000,000). 2.2 Note. The Revolving Line of Credit Loan made by Bank under this ---- Agreement shall be evidenced by, and repaid with interest in accordance with a single promissory note (the "Note") of Borrower in substantially the form of Exhibit B, duly completed, in the principal amount of Two Million Dollars - --------- ($2,000,000), dated the date of this Agreement, payable to Bank. Bank is hereby authorized by Borrower to endorse on the schedule on the reverse side of the Revolving Line of Credit Note or to document in such other manner as is Bank's usual and customary practice the amount of each Advance and of each payment of principal received by Bank on account of the Revolving Line of Credit Loan, which endorsement or other method of documentation shall, in the absence of manifest error, be conclusive as to the outstanding balance of the Revolving Line of Credit Loan made by Bank, provided, however, that the failure to make such notation or otherwise document the amount of such Advances with respect to the Revolving Line of Credit Loan or payment shall not limit or otherwise affect the obligations of Borrower under this Agreement or the Revolving Line of Credit Note. This Note may be prepaid in whole or in part, am any time and from mime to time without premium or penalty. 2.3 Notice and Manner of Borrowing on Revolving Line of Credit Loan. Upon --------------------------------------------------------------- notice given by Borrower not later than 11:00 AM Eastern Time on the date of an Advance and upon fulfillment of the applicable conditions set forth in Article 3, Bank will make such Execution Copy Advance available to Borrower in immediately available funds by crediting the amount thereof to Borrower's account with Bank. 2.4 Interest. Borrower shall pay interest to Bank on the outstanding and -------- unpaid principal amount of the Revolving Line of Credit Loan at a rate per annum at the Prime Rate plus one percent (1%) (the "Interest Rate"). Any change in the Interest Rate resulting from a change in the Prime Rate shall be effective as of the opening of business on the day on which such change in the Prime Rate becomes effective. Interest shall be paid in immediately available funds on the first day of each month at the Principal Office (by deducting the amount due from a demand deposit account of Borrower). Any principal amount not paid when due, whether on the Maturity Date, by acceleration, or otherwise, shall bear interest from the date when due until said principal amount is paid in full at a rate per annum equal at all times to five percent (5%) above the Prime Rate, but in no event more than the maximum amount allowed by law. If more than the maximum interest rate allowed by law is inadvertently charged to Borrower, then the excess interest shall either be refunded to Borrower or applied against the outstanding principal balance under the Note. 2.5 Facility Fee. Borrower shall pay to Bank at the closing a facility fee ------------ equal to Thirty Thousand Dollars ($30,000) (the "Closing Fee"). In addition to the interest each month and the Closing Fee, Borrower shall pay to Bank each fiscal quarter an unused facility fee equal to one quarter of one percent (.25) of the average unused portion of the facility. 2.6 Method of Payment. Borrower shall make each payment under this ----------------- Agreement and under the Note not later than 1:00 PM (Eastern Time) on the date when due in lawful money of the United States to Bank at its Principal Office in immediately available funds. Borrower hereby authorizes Bank to charge from time to time against a demand deposit account of Borrower designated by Borrower (or, if such account has insufficient funds, against another account of Borrower) any amount so due. Whenever any payment to be made under this Agreement or under the Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest. 2.7 Use of Proceeds - Revolving Line of Credit Loan. The proceeds of the ----------------------------------------------- Revolving Line of Credit Loan hereunder shall be used by Borrower for working capital purposes in the ordinary course of business. Borrower will not, directly or indirectly. use any part of such proceeds for the purpose of (i) acquisition of any other business or entity of any type or substantially all the assets of any such entity or business without prior written consent of Bank, or (ii) purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to any Person for the purposes of purchasing or carrying any such margin stock, or for any purpose which violates, or is inconsistent with, Regulation X of such Board of Governors. Execution Copy 2.8 Term - Revolving Line of Credit. If not sooner accelerated due to an ------------------------------- Event of Default, the Note shall be due and payable in full on the Maturity Date. ARTICLE 3 ------- - CONDITIONS PRECEDENT 3.1 Conditions Precedent to Loan. The obligation of Bank to make the Loan ---------------------------- to Borrower is subject to the conditions precedent that Bank shall have received on or before the day of such Loan each of the following, in form and substance satisfactory to Bank and its counsel: 3.1.1 Note. The Note duly executed by Borrower. ---- 3.1.2 Security Agreement. A Security Agreement duly executed by ------------------ Borrower together with (a) acknowledged copies of the Financing Statements (Form Ucc-1) duly filed under the Uniform Commercial Code of all jurisdictions necessary or, in the opinion of Bank, desirable to perfect the security interest created by the Security Agreement, and (b) certified copies of Requests for Copies or Information (Form UCC11) identifying all of the financing statements on file with respect to Borrower in all jurisdictions referred to under (a), including the Financing Statement filed by Bank against Borrower, indicating that no party claims an interest in any of the Collateral other than pursuant to the Permitted Liens. 3.1.3 Guaranty. (INTENTIONALLY OMITTED) -------- 3.1.4 Bridge Financing. Borrower shall provide satisfactory ---------------- evidence to Bank that Borrower has received Two Million Dollars ($2,000,000) in bridge financing to be available in until the equity investments required in Section 7.3 are complete. ----------- 3.1.5 Warrant. The Warrant Agreement, duly executed by Borrower, in ------- accordance with the terms of the Commitment Letter. 3.1.6 Expenses. Borrower has paid or has agreed to pay all of -------- Bank's expenses in connection with the Loans as provided in the Commitment Letter. 3.1.7 Evidence of all Corporate Action by Borrower. Certified (as --------------------------------------------- of the date of this Agreement) copies of all corporate action taken by Borrower including resolutions of the Board of Directors authorizing the execution, delivery and performance of the Loan Documents to which it is a party and each other document delivered pursuant to this Agreement. Execution Copy 3.1.8 Incumbency and Signature Certificate of Borrower. A ------------------------------------------------ certificate (dated as of the date of this Agreement) of the Clerk of Borrower certifying the names and true signatures of the officers of Borrower authorized to sign the Loan Documents to which it is a party and the other documents to be delivered by Borrower under this Agreement. 3.1.9 Corporate Matters. A certified copy of (a) Articles of ----------------- Organization of Borrower certified by the Secretary of State of the Commonwealth of Massachusetts, (b) by-laws of Borrower certified as true by the Clerk of Borrower, (c) a Certificate of Legal Existence and Good Standing issued by the Secretary of State for the Commonwealth of Massachusetts, and (d) a Certificate of Tax Good Standing issued by the Department of Revenue of the Commonwealth of Massachusetts (to be delivered within sixty (60) days from the date hereof). 3.1.10 Corporate Records. Records of Borrower's organization and ----------------- operation, including Borrower's Articles of Organization, By-Laws, minutes, Stock Certificates and other records of Borrower in sufficient detail so as to enable Bank to determine that the stock subject to the Warrant described in Section 5.10 below is validly issued and that the warrant is ------------ enforceable. 3.1.11 Insurance. Borrower has delivered to Bank evidence of --------- insurance prepaid for a period reasonably satisfactory to Bank as reasonably required in Section 5.6 in amounts satisfactory to Bank. 3.1.12 Opinion of Counsel. An opinion of counsel satisfactory to ------------------ Bank as to the due incorporation of Borrower, the authority of Borrower to enter into this Agreement, the enforceability of this Agreement, the absence of any conflict between this Agreement and any other agreement or contract to which Borrower is a party, and such other matters as Bank may reasonably request, in form and substance satisfactory to Bank. ARTICLE 4 REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to Bank that as of the date hereof: 4.1 Incorporation Good Standing and Due Qualification. Each of Borrower ------------------------------------------------- and its Subsidiaries is a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged in Execution Copy and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required in order to enable Borrower to enforce obligations of customers or suppliers in the courts of such jurisdiction. Borrower is not in violation of its Articles of Organization or By-laws. 4.2 Corporate Power and Authority. The execution, delivery and performance ----------------------------- by Borrower of the Loan Documents have been duly authorized by all necessary corporate action and do not and will not (l) require any additional consent or approval of the stockholders of Borrower, (2) contravene Borrower's charter or bylaws, (3) violate any provision of any law, rule, regulation (including, without limitation, Regulations U and X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to Borrower, (4) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower is a party or by which it or its properties may be bound or affected, and (5) result in, or require, the creation or imposition of any Lien (except in favor of Bank), upon or with respect to any of the properties now owned or hereafter acquired by Borrower, where such breach could reasonably be expected to have a material adverse effect on the business, assets, operations or financial condition of Borrower taken as a whole or Borrower's ability to perform its obligations under the Loan Documents (a "Material Adverse Effect"). 4.3 Legally Enforceable Agreement. This Agreement is, and each of the ----------------------------- other Loan Documents when delivered under this Agreement will be, legal, valid and binding obligations of Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditor's rights generally and subject to general principles of equity. 4.4 Financial Statements. The audited balance sheet of Borrower as of -------------------- December 31, 1998, and the related statements of income and retained earnings of Borrower for the fiscal year then ended, and the accompanying footnotes, together with the report thereon, of independent certified public accountants acceptable to Bank, copies of which have been furnished to Bank, as well as the management prepared draft financial statements for the six (6) month period ended June 30, 1999, are complete and correct and fairly present the financial condition of Borrower as of such dates and the results of the operations of Borrower for the periods covered by such statements, all in accordance with GAAP consistently applied (except for lack of footnotes and normal year-end adjustments with respect to June 30,1999 statements) and since June 30, 1999 there has been no material adverse change in the condition (financial or otherwise), business, or operations of Borrower taken as a whole. There are no liabilities of Borrower, fixed or contingent, which are material but are not reflected in the financial statements or in the notes thereto, other than liabilities arising in the ordinary course of business since June 30, 1999. No information, exhibit, or report furnished by Borrower to Execution Copy Bank in connection with the negotiation of this Agreement contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statement contained therein not materially misleading. 4.5 Labor Disputes and Acts of God. Neither the business nor the ------------------------------ properties of Borrower or any Subsidiary are affected by any fire, explosion, accident, strike, lockout, or other labor dispute, storm, earthquake, embargo, or other casualty (whether or not covered by insurance), materially or adversely affecting such business or properties or the operation of Borrower or such Subsidiary. 4.6 Other Agreements. Neither Borrower nor any Subsidiary is a party to ---------------- any indenture, loan, or credit agreement, or to any lease or other agreement or instrument or subject to any charter or corporate restriction which is reasonably likely to have a Material Adverse Effect on Borrower or any Subsidiary except as set forth on Schedule 4.6. Neither Borrower nor any ----------------------------------- Subsidiary is in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party, where such default is reasonably likely to cause a Material Adverse Effect. 4.7 Litigation. There is no pending or, to the knowledge of Borrower, ---------- threatened action or proceeding against or affecting Borrower or any of its Subsidiaries before any court, governmental agency, or arbitrator, which is reasonably likely to, in any one case or in the aggregate, materially, adversely affect the financial condition, operations, properties, or business of Borrower taken as a whole or any Subsidiary or the ability of Borrower to perform its obligations under the Loan Documents to which it is a party. 4.8 No Defaults on Outstanding Judgments or Orders. Borrower and its ---------------------------------------------- Subsidiaries have satisfied all judgments, and neither Borrower nor any Subsidiary is in default with respect to any judgment, writ, injunction, decree, rule, or regulation of any court, arbitrator, or federal, state, municipal, or other governmental authority, commission, board, bureau, agency, or instrumentality, domestic or foreign, where such default is reasonably likely to cause a Material Adverse Effect. 4.9 Ownership and Liens. Borrower and each Subsidiary have title to all of ------------------- the Collateral (other than any Collateral disposed of in the ordinary course of business), and none of the Collateral owned by Borrower or any Subsidiary is subject to any Lien other than a Lien in favor of the Bank and the Permitted Liens. 4.10 ERISA. Borrower and each Subsidiary are in compliance in all material ----- respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction, has occurred and is continuing with respect to any Plan, no notice of intent to terminate a Plan has been filed nor has any Plan been terminated, no circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings, neither Execution Copy Borrower nor any "commonly controlled entity" (as defined in ERISA) has completely or partially withdrawn from a Multiemployer Plan, Borrower and each commonly controlled entity have met their minimum funding requirements under ERISA with respect to all of their Plans and the present value of all vested benefits under each Plan does riot exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA, and neither Borrower nor any commonly controlled entity has incurred any liability to the PBGC under ERISA. 4.11 Operation of Business Compliance with Law. Borrower and its ----------------------------------------- Subsidiaries possess all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted, and, to the knowledge of Borrower, Borrower and its Subsidiaries are not in violation of any valid rights of others with respect to any of the foregoing, which could be reasonably expected to have a Material Adverse Effect on Borrower. Borrower is in material compliance with (i) all federal, state and local laws, rules, regulations, permits, ordinances and (ii) permits, licenses, ordinances, regulations and requirements of any governmental agency having jurisdiction over Borrower or the conduct of its business. Borrower's principal place of business is at the address provided in Section 10.2 and all Accounts Receivable and other documents relating thereto are kept at such address. 4.12 Taxes. Borrower and each Subsidiary have filed all tax returns ----- (federal, state and local) required to be filed and have paid all taxes, assessments and governmental charges and levies shown thereon to be due, including interest and penalties. Borrower's federal income tax liabilities have been satisfied for all taxable years up to and including the taxable year ending December 31, 1998. 4.13 Debt. Schedule 4.13 is a complete and correct list of all credit ---- agreements, indentures, purchase agreements, guaranties, Capital Leases and other Debt (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which Borrower or any Subsidiary is in any manner directly or contingently obligated which exceeds Fifty Thousand Dollars ($50,000), and the maximum principal or face amounts of the Debt in question, outstanding or to be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Schedule 4.13. ------------- 4.14 Environmental Law. Borrower and each Subsidiary have duly complied ----------------- with in all material respects, and their businesses, operations, assets, equipment, property, leaseholds or other facilities are in material compliance with, the provisions of all applicable Environmental Laws and all rules and regulations promulgated thereunder. Execution Copy ARTICLE 5 --------- AFFIRMATIVE COVENANTS So long as the Note shall remain unpaid or Bank shall have any commitment under this Agreement, Borrower shall: 5.1 Maintenance of Existence. Preserve and maintain, and cause each ------------------------ Subsidiary to preserve and maintain, its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is required. 5.2 Maintenance of Accounts. Maintain an operating account at Bank. ----------------------- 5.3 Maintenance of Records. Keep, and cause each Subsidiary to keep, ---------------------- adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of Borrower and its Subsidiaries. 5.4 Maintenance of Properties. Maintain, keep, and preserve and cause each ------------------------- Subsidiary to maintain, keep, and preserve, all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. 5.5 Conduct of Business. Continue, and cause each Subsidiary to continue, ------------------- to engage in a business of the same general type as conducted by it on the date of this Agreement in a manner commercially reasonable and not to engage in any other type of business in any material way without Bank's written consent (which will not be unreasonably withheld). 5.6 Maintenance of Insurance. Maintain, and cause each Subsidiary to ------------------------ maintain (i) fire and extended coverage casualty insurance with an "all-risk" endorsement covering all personal property, including work in process with financially sound and reputable insurance companies or associations in such amounts and covering such risks as may be reasonably acceptable to Bank (and which shall be generally equivalent in type and amount to insurance maintained by businesses of similar size engaged in a similar business) from time to time (including, without limitation, business interruption insurance covering net income for at least four (4) months) which insurance may provide for reasonable deductibles from coverage thereof, and (ii) general liability insurance covering personal injury and property damage occurring at or about Borrower's place or places of business. Such insurance shall (a) name Bank as an additional insured and loss payee, (b) be on an "occurrence" basis, (c) be paid Execution Copy under normal commercial terms for a period reasonably satisfactory to Bank, (d) be in amounts reasonably satisfactory to Bank and (e) not be cancelable except upon thirty (30) days prior written notice to Bank. The Borrower shall, if so requested by Bank, deliver to Bank original or duplicate policies of such insurance. Further, the Borrower shall, at the request of Bank, duly execute and deliver instruments of assignment of such insurance policies and cause the insurers to acknowledge notice of such assignment. 5.7 Compliance with Laws. Comply, and cause each Subsidiary to comply, in -------------------- all material respects with all applicable laws, rules, regulations, and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property, except those being contested in good faith by proceedings being diligently prosecuted, where such contest does not give nor is reasonably likely to give rise to any lien on the Collateral or otherwise to have a material adverse effect on the Collateral or Bank's security interest thereon. 5.8 Right of Inspection. At any reasonable time and from time to time ------------------- during normal business hours, upon reasonable notice, permit Bank or any agent or representative thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, Borrower and any Subsidiary, and to discuss the affairs, finances, and accounts of Borrower and any Subsidiary with any of their respective officers and directors and Borrower's independent accountants. Bank will treat as confidential and will not disclose voluntarily to third parties all information obtained during such inspection (all confidential). 5.9 Reporting Requirements. Furnish to Bank: ---------------------- 5.9.1 Monthly Accounts Receivable Report and Management Prepared ---------------------------------------------------------- Financial Statements. Commencing on September 15, 1999 and on the 15th day -------------------- of each month thereafter, Borrower shall furnish a report detailing the aging of Accounts Receivable of Borrower, the Borrowing Base Certificate as of the last day of the preceding month, a Customer Advance Payment Report in the form attached as Schedule 5.9.1(a) and a Progress Billing Report detailing deposits made by customers on orders as customarily maintained by Borrower in the form attached as Schedule 5.9.1(b). 5.9.2 Quarterly Financial Statements. As soon as available and in ------------------------------ any event within forty-five (45) days after the end of each quarter of each fiscal year of Borrower, consolidated and consolidating balance sheets of Borrower and its Subsidiaries as of the end of such quarter, statements of income and retained earnings of Borrower and its Subsidiaries for the quarter completed and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and statements of cash flow of Borrower and its Subsidiaries for the portion of the fiscal year ended with the last day of such quarter, all in reasonable detail and stating in comparative form the Execution Copy respective figures for the corresponding date and period in the previous fiscal year and all prepared in accordance with GAAP consistently applied and certified by the chief financial officer of Borrower (subject to year- end adjustments and the absence of footnotes); 5.9.3 Annual Financial Statements. As soon as available and within --------------------------- one hundred twenty (120) days after the end of each other fiscal year of Borrower consolidated and consolidating balance sheets of Borrower and its Subsidiaries as of the end of such fiscal year, and statements of income and retained earnings of Borrower and its Subsidiaries for such fiscal year, and statements of cash flows of Borrower and its Subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year and all prepared in accordance with GAAP consistently applied audited by independent accountants selected by Borrower and reasonably acceptable to Bank. 5.9.4 Management Letters. Promptly upon receipt thereof, copies ------------------ of any reports submitted to Borrower or any Subsidiary by independent certified public accountants in connection with examination of the financial statements of Borrower or any Subsidiary made by such accountants; 5.9.5 Certificate of No Default. Together with the quarterly ------------------------- statements required above, a certificate of the chief financial officer of Borrower (a) certifying that to the best of his knowledge no Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and (b) with computations demonstrating compliance with the covenants contained in Article 6; 5.9.6 Notice of Litigation. Promptly after the commencement -------------------- thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting Borrower and any Subsidiary which, if determined adversely to Borrower or such Subsidiary, is reasonably likely to have a Material Adverse Effect on the Borrower or such Subsidiary taken as a whole; 5.9.7 Notice of Defaults and Events of Default. As soon as possible ---------------------------------------- and in any event within three (3) business days after becoming aware of an Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by Borrower with respect thereto; Execution Copy 5.9.8 ERISA Reports. As soon as possible, and in any event within ------------- thirty (30) days after Borrower knows or has reason to know that any circumstances exist that constitute grounds entitling the PBGC to institute proceedings to terminate a Plan subject to ERISA with respect to Borrower or any Subsidiary, and promptly but in any event within two (2) Business Days of receipt by Borrower or any Subsidiary of notice that the PBGC intends to terminate a Plan or appoint a trustee to administer the same, and promptly but in any event within five (5) Business Days of the receipt of notice concerning the imposition of withdrawal liability with respect to Borrower or any commonly controlled entity, Borrower will deliver to Bank a certificate of the chief financial officer of Borrower setting forth all relevant details and the action which Borrower proposes to take with respect thereto; 5.9.9 Reports to Other Creditors. Promptly after the furnishing -------------------------- thereof, copies of any statement or report furnished to any other party pursuant to the terms of any indenture, loan, credit, or similar agreement and not otherwise required to be furnished to Bank pursuant to any other clause of this Section 5.9; and 5.9.10 Director Changes. Borrower shall provide Bank with written ---------------- notice of all changes to Borrower's Board of Directors within thirty (30) days of any resignation, removal or appointment. Borrower shall also provide such other information respecting the condition or operations, financial or otherwise, of Borrower or any Subsidiary as Bank may from time to tune reasonably request. 5.9.11 Quarterly Major Contracts Summary. (INTENTIONALLY OMITTED) --------------- --------- ------- 5.10 Warrant. Borrower grants to Bank an option, pursuant to the Warrant ------- attached hereto as Exhibit C (the terms of which are hereby incorporated by --------- reference), to purchase at a price of $2.25 per share up to 44,445 shares of Class E preferred stock as set forth on Exhibit C. ARTICLE 6 ------- - NEGATIVE COVENANTS So long as the Note shall remain unpaid or Bank shall have any Commitment under this Agreement without the prior written consent of Bank, Borrower will not: 6.1 Liens. Create, incur, assume, or suffer to exist, or permit any ----- Subsidiary to create, incur, assume, or suffer to exist, any Lien, upon or with respect to any of its properties, now owned or hereafter acquired, except: Execution Copy 6.1.1 Liens in favor of Bank; 6.1.2 Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained; 6.1.3 Liens imposed by law, such as mechanics', materialmen's, landlords', warehousemen's, and carriers' Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than thirty (30) days or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; 6.1.4 Liens under workers' compensation, unemployment insurance, Social Security, or similar legislation; 6.1.5 Judgment and other similar Liens arising in connection with court proceedings not exceeding $50,000, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; and 6.1.6 Permitted Liens and Liens securing Debt permitted under 6.2.3 hereof. 6.2 Debt. Except as otherwise provided in this Agreement, create, incur, ---- assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Debt, except: 6.2.1 Debt of Borrower under this Agreement or the Note or other debt to the Bank; 6.2.2 Accounts payable to trade creditors for goods or services which are not aged more than sixty (60) days from the due date (other than as is in accordance with Borrower's customary practices, but in no event more than ninety (90) days) and current operating liabilities (other than for borrowed money) which are not more than sixty (60) days past due, in each case incurred in the ordinary course of business, as presently conducted, and paid within the specified time, unless contested in good faith and by appropriate proceedings, provided, however, that accounts payable to Standard Aero and Product Genesis and payments of Subordinated Debt shall not be subject to this clause; and 6.2.3 Debt which is subordinate to the Loan in all respects on terms and conditions satisfactory to the Bank. Execution Copy 6.3 Mergers, Etc. Wind up, liquidate or dissolve itself, reorganize, merge ------------ or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, or acquire all or substantially all of the assets or the business of any Person, or permit any Subsidiary to do so, except that (l) any Subsidiary may merge into or transfer assets to Borrower, and (2) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary. Notwithstanding the foregoing, any merger or other transaction restricted by this Section 6.3 pursuant to which all amounts outstanding hereunder are to be ----------- paid and this Revolving Loan facility cancelled shall not require Bank's consent. 6.4 Leases. Create, incur, assume, or suffer to exist, or permit any ------ Subsidiary to create, incur, assume, or suffer to exist, any obligation as lessee for the rental or hire of any real or personal property, except (l) Capital Leases as set forth in Borrower's Calendar 1998 Annual Financial Statement, (2) leases existing on the date of this Agreement and any extensions or renewals thereof, (3) (INTENTIONALLY OMITTED), and (4) (INTENTIONALLY OMITTED). 6.5 Sale and Leaseback. Sell, transfer, or otherwise dispose of, or permit ------------------ any Subsidiary to sell, transfer, or otherwise dispose of, any real or personal property to any Person and thereafter directly or indirectly lease back the same or similar property. 6.6 Bonuses. (INTENTIONALLY OMITTED) ------- 6.7 Investments. Make, or permit any Subsidiary to make, any loan or ----------- advance to any Person, or purchase or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any capital stock, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any Person, including Affiliates, or participate as a partner or joint venture with any other Person, except (l) direct obligations of the United States or any agency thereof with maturities of one year or less from the date of acquisition, (2) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-l" by Moody's Investors Service Inc., (3) short-term investments, or certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank having capital and surplus in excess of One Hundred Million Dollars ($100,000,000), (4) stock, obligations, or securities received in settlement of debts (created in the ordinary course of business) owing to Borrower or any Subsidiary, (5) loans, investments or advances not to exceed One Hundred Thousand Dollars ($100,000) on a revolving basis during the term hereof or (6) advances to employees for travel and related business expenses. Execution Copy 6.8 Guaranties. Assume, guaranty, endorse, or otherwise be or become ---------- directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods, or services, or to supply or advance any funds, assets, goods, or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth, or to otherwise assure the creditors of any Person against loss), for obligations of any Person, except (i) guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (ii) guaranties which do not, in the aggregate, exceed $10,000 in the aggregate at any time. 6.9 Transactions With Affiliates. Enter into any transaction, including, ---------------------------- without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, or permit any Subsidiary to enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to Borrower or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. 6.10 Distributions. (INTENTIONALLY OMITTED) ------------- 6.11 Change of Name and Address. Without first providing written notice to -------------------------- Bank at least ten (10) business days in advance, change its name or the address of any place of business of Borrower. The address of all of Borrower's offices are set forth in Schedule 6.11. ARTICLE 7 ------- - FINANCIAL COVENANTS So long as the Term Note shall remain unpaid or Bank shall have any Commitment under this Agreement: 7.1 Consolidated Net Income. Borrower shall earn Consolidated Net Income ----------------------- in accordance with the following schedule measured quarterly on a non-cumulative basis: As of December 31, 1999 $ 1.00 As of March 31, 2000 $ 1.00 As of June 30, 2000 $200,000.00
7.2 Minimum Consolidated Tangible Net Worth. Borrower shall have Minimum --------------------------------------- Consolidated Tangible Net Worth in accordance with the following schedule: As of September 30, 1999 $5,000,000.00 As of December 31, 1999 $10,000,001.00 As of March 31, 2000 $10,000,001.00 As of June 30, 2000 $10,200,000.00
Execution Copy 7.3 Increased Capital. Borrower shall, on or before October 15, 1999, ----------------- raise an additional Three Million Dollars ($3,000,000) in shareholder's equity. On or before January 15, 2000, Borrower shall raise an additional Five Million Dollars ($5,000,000) (over and above the prior Three Million Dollars ($3,000,000) in shareholder's equity. ARTICLE 8 REVOLVING LOAN PAYABLE ON DEMAND 8.1 Revolving Loan Payable on Demand. (INTENTIONALLY OMITTED) -------------------------------- ARTICLE 9 --------- EVENTS OF DEFAULT 9.1 Events of Default. An Event of Default hereunder shall occur if any of ----------------- the following events shall occur: 9.1.1 Borrower shall fail to pay the principal of, or interest on the Note within seven (7) days after the date such payment is due and payable; 9.1.2 Any Borrowing Base Certificate shall indicate that the principal amount plus accrued interest outstanding hereunder is in excess of the amount available to Borrower under Section 2.1 hereof and Borrower ----------- shall fail to repay such excess in accordance with Section 2.1. ----------- 9.1.3 Any representation or warranty made by Borrower in the Loan Documents or which is contained in any certificate, document, opinion, or financial or other statement furnished at any lime under or in connection with any Loan Document shall prove to have been incorrect, incomplete, or misleading in any material respect on or as of the date made or deemed made; 9.1.4 Borrower shall fail to perform or observe any term, covenant or agreement contained in Articles 5, 6, or 7 hereof, provided that with regard to Articles 5 and 6, unless Borrower's failure shall jeopardize the Collateral or Bank's security interest therein, Borrower shall have thirty (30) days from the date of written notice by the Bank within which to cure any such failure before such failure shall become an Event of Default; 9.1.5 Borrower or any of its Subsidiaries shall (a) fail to pay any indebtedness under the Loan when due, or (b) fail to perform or observe any term, covenant, or Execution Copy condition on its part to be performed or observed under any agreement or instrument relating to the Loan, in each case which failure continues beyond any applicable cure period, including cure periods referenced in Section 9.1.3; 9.1.6 Borrower or any of its Subsidiaries (a) shall generally not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts as such debts become due, (b) shall make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or a substantial part of its assets, (c) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, (d) shall have had any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or an adjudication or appointment is made, and which remains undismissed for a period of ninety (90) days or more, (e) shall take any corporate action indicating its consent to, approval of, or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties, or (f) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of ninety (90) days or more; 9.1.7 One or more judgments, decrees, or orders for the payment of money in excess of Fifty Thousand and 00/100 Dollars ($50,000) in the aggregate shall be rendered against Borrower or any of its Subsidiaries, and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of sixty (60) consecutive days without being vacated, discharged, satisfied, or stayed or bonded pending appeal; 9.1.8 The Security Agreement shall at any time after its execution and delivery and for any reason cease (a) to create a valid and perfected first priority security interest (other than Permitted Liens) in and to the property purported to be subject to such Security Agreement, or (b) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by Borrower, or Borrower shall deny it has any further liability or obligation under the Security Agreement, or Borrower shall fail to perform any of its obligations or otherwise be in breach or default in any material respect under the Security Agreement, which failure, breach or default continues beyond any applicable cure period; 9.1.9 Any of the following events shall occur or exist with respect to Borrower and any Commonly Controlled Entity under ERISA (i) any Reportable Event shall occur, (ii) complete or partial withdrawal from any Multiemployer Plan shall take place, (iii) any Prohibited Transaction shall occur, (iv) a notice of intent to terminate a Plan shall be filed, or a Plan shall be terminated for reasons of non-compliance, or (v) Execution Copy circumstances shall exist which constitute ground entitling the PBGC to institute proceedings to terminate a Plan, or the PBGC shall institute such proceedings, and in each case above, such event or condition, together with all other events or conditions, if any, could subject Borrower to any tax, penalty, or other liability which in the aggregate may exceed Twenty- five Thousand Dollars ($25,000); 9.1.10 There shall occur any material adverse change in Borrower's financial condition which, were the provisions of Article 7 hereof applied concurrently with such occurrence, would constitute an Event to Default under said Article 7 measured for the reporting period commencing at the beginning of the most recent financial covenant test period which was the subject of the most recent quarterly report delivered pursuant to Section 5.9.1 hereof through the date of such event; or 9.1.11 Borrower shall violate any Environmental Law which violation, in Bank's good faith judgment reasonably exercised, may cause a Material Adverse Effect. Upon the occurrence and during the continuance of any Event of Default, Bank is hereby authorized at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Bank to or for the credit or the account of Borrower against any and all of the obligations of Borrower now or hereafter existing under this Agreement or the Note or any other Loan Document, irrespective of whether or not Bank shall have made any demand under this Agreement or the Note or such other Loan Document and although such obligations may be unmatured. Bank agrees promptly to notify Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of Bank under this Article 9 are in addition to other rights and remedies (including, without limitation, other rights of set off which Bank may have. ARTICLE 10 ---------- MISCELLANEOUS 10.1 Amendments. No amendment, modification, termination, or waiver of any ---------- provision of any Loan Document to which Borrower is a party, nor consent to any departure by Borrower from any Loan Document to which it is a party, shall in any event be effective unless the same shall be in writing and signed by Bank and Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Execution Copy 10.2 Notices. All notices and other communications provided for under this ------- Agreement and under the other Loan Documents to which Borrower is a parry shall be in writing (including telegraphic, telex and facsimile transmissions) and mailed or transmitted or delivered: if to Borrower: Millitech Corporation 20 Industrial Drive South Deerfield, MA 01373 Telephone: (413) 665-8551 Facsimile: (413) 665-0089 with a copy to: Mirick, O'Connell, DeMallie & Lougee, LLP 100 Front Street Worcester, MA 01608 Attention: David L. Renauld, Esquire Telephone: (508) 791-8500 Facsimile: (508) 791-8502 if to Bank: Boston Federal Savings Bank 17 New England Executive Park Burlington, MA 01803 Attention: Byron Quint, Vice President Telephone: (781) 273-0300 Facsimile: (781) 221-7143 with a copy to: Masterman, Culbert & Tully LLP One Lewis Wharf Boston, MA 02110 Attention: Paul L. Baccari, Esquire Telephone: (617) 227-8010 Facsimile: (617) 227-2630 or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 10.2. Except as is otherwise provided in this Agreement, all such notices and communications shall be effective (i) if by first class mail, three business days after being deposited in the mails, or, (ii) if delivered by hand or by a nationally recognized overnight delivery service, when delivered or, if delivery is refused, when delivery was attempted, or (iii) if by telecopier when receipt is confirmed, respectively, addressed as aforesaid, except that notices to Bank pursuant to the provisions of Article 2 shall not be effective until received by Bank. Notice given by mail Execution Copy shall be sent certified, first class mail, return receipt requested, and shall be deemed effective as of the first date of attempted delivery as reflected in the return receipt or the returned item itself. 10.3 No Waiver. No failure or delay on the part of Bank in exercising any --------- right, power, or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative and are not exclusive of any ocher rights, powers, privileges or remedies, now or hereafter existing, at law or in equity or otherwise. 10.4 Successors and Assigns. This Agreement shall be binding upon and inure ---------------------- to the benefit of Borrower and Bank and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights under the Loan Documents to which Borrower is a party without the prior written consent of Bank. Bank agrees not to assign this Agreement on a voluntary basis (excluding for example, assignment by merger with another institution) without providing thirty (30) days prior written notice to Borrower. 10.5 Costs, Expenses, and Taxes. Borrower agrees to pay within thirty (30) -------------------------- days of demand (except after an Event of Default, in which event, such 30-day period shall be reduced to ten (10) business days) all reasonable out-of-pocket costs and expenses incurred by Bank in connection with the preparation execution, delivery, filing, and administering of the Loan Documents, and of any amendment, modification, or supplement to the Loan Documents, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Bank incurred in connection with advising Bank as to its rights and responsibilities hereunder. Borrower also agrees to pay all such costs and expenses, including court costs, incurred in connection with enforcement of the Loan Documents, or any amendment, modification, or supplement thereto, whether by negotiation. legal proceedings, or otherwise. In addition, Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Loan Documents and the other documents to be delivered under any such Loan Documents, and agrees to hold Bank harmless from and against any and all liabilities with respect to or resulting from the delay in paying or omission to pay such taxes and fees. This provision shall survive termination of this Agreement. 10.6 Integration. This Agreement, the Security Agreement and the Note ----------- contain the entire agreement between the parties relating to the subject matter hereof and supersede all oral statements and prior writings with respect thereto. 10.7 Indemnity, No Liability. Borrower hereby agrees to defend, indemnify, ----------------------- and hold Bank harmless from and against any and all claims, damages, judgments, penalties, costs Execution Copy and expenses (including reasonable attorneys' fees and court costs now or hereafter arising from the aforesaid enforcement of this clause) arising directly or indirectly from the activities of Borrower and its Subsidiaries, its predecessors in interest, or third parties with whom it has a contractual relationship, or arising directly or indirectly from the Borrower's violation of any environmental protection, health, or safety law, whether such claims are asserted by any governmental agency or any other Person. This indemnity shall survive the termination of this Agreement. In the absence of gross negligence or willful misconduct, Bank shall never be liable to Borrower or any other Person for any act or omission, any mistake of fact or any error of judgment in exercising any right or remedy granted herein. 10.8 Governing Law. This Agreement and the Note shall be governed by, and ------------- construed in accordance with, the laws of the Commonwealth of Massachusetts. 10.9 Severability of Provisions. Any provision of any Loan Document 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 of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. 10.10 Headings. Article and Section headings in the Loan Documents are -------- included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. 10.11 JURY TRIAL WAIVER. BANK AND BORROWER HEREBY WAIVE TRIAL BY JURY IN ----------------- ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS. NO OFFICER OF BANK HAS AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION. Borrower acknowledges that Bank has been induced to enter into this Agreement by, among other things, this waiver. Borrower acknowledges that it has read the provisions of this Agreement and in particular, this Section 10.11, has consulted legal counsel, understands the rights it is granting in this Agreement and is waiving in this Section 10.11 in particular, and makes the above waiver knowingly, voluntarily and intentionally. Execution Copy IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. MILLITECH CORPORATION By: /s/ Dennis C. Stempel ----------------------------- Dennis C. Stempel Its Chief Financial Officer Hereunto Duly Authorized BOSTON FEDERAL SAVINGS BANK By: /s/ Byron Quint ----------------------------- Byron Quint Its Vice President Hereunto Duly Authorized THE FOLLOWING IS A SUMMARY OF INFORMATION PROVIDED IN THE EXHIBITS AND SCHEDULES OF THE REVOLVING LINE OF CREDIT AGREEMENT. FURTHER INFORMATION WILL BE FURNISHED UPON REQUEST. Exhibit A A sample Certificate of the Chief Financial Officer of the Company, which provides the calculation to determine the maximum amount the Company may borrow from the bank. Exhibit B A promissory note between Boston Federal Savings Bank and the Company representing the Company's obligation to repay Boston Federal Savings Bank a loan in the principal amount of $2,000,000 dated August 20, 1999. Exhibit C Warrant to Boston Federal Savings Bank for an option to purchase 44,445 shares of Class E Preferred Stock at $2.25 per share. Schedule 4.13 List of all credit agreements, indentures, purchase agreements, guaranties, capital leases and other debts of the Company which exceed $50,000; and a list of all liens against the Company. Schedule 5.9.1(a) Sample Customer Advance Payment Report. Schedule 5.9.1(b) Sample Progress Billing Report. Schedule 6.11 A list of each place of business of the Company. EX-10.16 13 FOURTH AMENDED & RESTATED REGISTRATION RIGHTS AGRM EXHIBIT 10.16 FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is made this 17th day of September, 1999, by and among Millitech Corporation, a Massachusetts corporation (the "Company"), the persons or entities listed on Schedule I attached hereto (individually, a "Stockholder" and collectively, the "Stockholders"), and the persons or entities who are listed on Schedule II attached hereto (individually, a "Purchaser" and collectively, the "Purchasers"). WHEREAS, the Third Amended and Restated Registration Rights Agreement dated as of October 27, 1998 by and among the Company and the Stockholders (the "Registration Agreement") grants the Stockholders certain rights with respect to certain securities of the Company; WHEREAS, the Purchasers have agreed to purchase up to 6,666,667 shares of Class E Preferred Stock, par value $.01 per share, of the Company (the "Class E Preferred Stock") pursuant to a Stock Purchase Agreement between the Company and the Purchasers (the "Class E Agreement") of even date herewith; and WHEREAS, the parties desire to amend and restate the Registration Agreement in order to take into account the issuance of additional Class E Preferred Stock, such amendment being a condition precedent to the execution, delivery and performance of the Class E Agreement; NOW THEREFORE, in consideration of the transactions contemplated by the Class E Agreement and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, including without limitation the issuance and sale to the Purchasers of shares of the Class E Preferred Stock and the receipt by the Company of the consideration therefor, the parties hereto agree to amend and restate the Registration Agreement in its entirety as follows: Section 1. Certain Definitions. As used in this Agreement, the following ------------------------------- terms shall have the following meanings: "Act" means the Securities Act of 1933, as amended. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Act. "Holder" shall mean any Stockholder or Purchaser or assignee under Section 10 hereof who holds outstanding Registrable Securities which have not been sold to the public. 1 "Initial Public Offering" shall mean the effective date of a registration statement under the Act in connection with the initial public offering of the Company's securities for its own account. "Initiating Holders" shall mean Holders who in the aggregate hold forty percent (40%) or more of the Registrable Securities. "1934 Act" shall mean the Securities Exchange Act of 1934. "Other Shareholders" shall mean any holders of securities of the Company who are entitled, by agreement with the Company, to have securities included in a requested registration of securities of the Company. "Purchased Securities" shall mean the Company's Class A Preferred Stock, Class B Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and the Warrants. "Registrable Securities" shall mean (i) the shares of the Company's common stock ("Common Stock") issuable upon conversion of the Purchased Securities except the Warrants, (ii) the Common Stock issued upon exercise of the Warrants, (iii) the Common Stock purchased by a Purchaser or a Stockholder pursuant to Section 3 of the Stockholders Agreement (or Common Stock for or into which New Securities (as therein defined) purchased by a Purchaser or a Stockholder pursuant to such Section 3 may be exercised or converted), (iv) any Common Stock issued as a dividend or other distribution with respect to, or in exchange or in replacement of, such Purchased Securities or Common Stock, (v) any Common Stock issuable upon conversion, exercise or exchange of convertible securities, warrants, options or similar rights issued as a dividend or other distribution with respect to, or in exchange or in replacement of, such Purchased Stock or Common Stock and (vi) any other shares of Common Stock acquired by a Purchaser or a Stockholder. In addition, for purposes of all calculations, and notices under, and all provisions of this Agreement, where the context permits, a holder of Purchased Securities (except the Warrants) shall be deemed the holder of all Registrable Securities issuable upon conversion thereof. The terms "register", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses incurred by the Company in connection with a registration, including without limitation all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, fees and disbursements of a single counsel for all the selling Holders and other security holders for a "due diligence" examination of the Company, and the expense of any special audits incident to or 2 required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). "Restricted Securities" shall mean the securities of the Company which have not been registered. "Warrants" shall mean the Company's Warrants for Common Stock dated December 7, 1992, September 25, 1996 and July 31, 1997. Section 2. Requested Registration. ---------------------------------- (a) Request for Registration. If at any time after the earlier to occur of ------------------------ (i) the third anniversary of the date hereof and (ii) the date which is six months after the Initial Public Offering, the Company shall receive from Initiating Holders, a written request that the Company effect any registration with respect to all or a part of the Registrable Securities, the Company will: (i) promptly give written notice of the proposed registration to all other Holders and the holders of the Warrants at least 45 days prior to the date the Company anticipates filing the registration statement covering the Registrable Securities so requested to be registered; and (ii) as soon as practicable, use its diligent best efforts to effect such registration as may be so requested and which would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within 30 days after receipt of such written notice from the Company. The Company shall not be obligated to effect any registrations pursuant to this Section 2 after the Company shall have effected two such registrations pursuant to this Section 2 and such registrations shall have been declared or ordered effective by the Commission and the sales of such Registrable Securities shall have closed. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 2, include securities of the Company for its own account, or other securities of the Company which are held by officers or directors of the Company or which are held by persons who, by virtue of agreements with the Company, are entitled to include their securities in any such registration. (b) Underwriting. If the Initiating Holders intend to distribute the ------------ Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to paragraph 2 hereof and the Company shall include such information in the written notice referred to in Section 2(a)(i). The right of any Holder to registration pursuant to this Section 2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders 3 and such Holder with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities it holds. If officers or directors of the Company holding other securities of the Company shall request inclusion in any registration pursuant to this Section 2, or if Other Shareholders request such inclusion, the Initiating Holders shall, on behalf of all Holders, offer to include the securities of such officers, directors and Other Shareholders in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Agreement. The Company shall (together with all Holders, officers, directors and Other Shareholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2, if the representative of the underwriter advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by officers or directors (other than Registrable Securities) of the Company shall be excluded from such registration to the extent so required by such limitation and if a limitation of the number of shares is still required, the Initiating Holders shall so advise all Other Shareholders whose securities would otherwise be included pursuant to the request described herein, and the number of other securities that may be included in the registration and underwriting shall be allocated among all such Other Shareholders in proportion, as nearly as practicable, to the respective amounts of securities which they had requested to be included. If a limitation of the number of shares is still required, the Initiating Holders shall so advise all Holders whose Registrable Securities would otherwise be included pursuant to the request described herein, and the number of Registrable Securities that may be included in the registration and underwriting shall be allocated among all such Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities which they had requested be included. No Registrable Securities or any other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder of Registrable Securities, officer, director or Other Shareholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The securities held by such person shall then be withdrawn from registration. If the underwriter has not limited the number of Registrable Securities or other securities to be underwritten, the Company may include its securities for its own account in such registration if the underwriter so agrees and if the number of Registrable Securities and other securities which would otherwise have been included in such registration and underwriting has not thereby been limited. Section 3. Company Registration. -------------------------------- (a) If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights, other than a registration relating solely to a Commission Rule 145 transaction, 4 or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (i) promptly give to each Holder and each holder of a Warrant written notice thereof; and (ii) include in such registration and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by any Holder within 15 days after receipt of the written notice from the Company described in clause (i) above, except as set forth in Section 3(b). Such written request may specify all or a part of a Holder's Registrable Securities be included in the Company's registration. (b) Underwriting. If the registration of which the Company gives notice is ------------ for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3(a)(i). In such event the right of any Holder to registration pursuant to Section 3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the Other Shareholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of Section 3, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, and (a) if such registration is the Initial Public Offering, the underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant to the notice described herein, and (b) if such registration is other than the Initial Public Offering, the underwriter may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the registration and underwriting to not less than fifty percent (50%) of the securities included therein (based on aggregate market values). The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following manner. The securities of the Company held by officers and directors of the Company (other than Registrable Securities) shall be excluded from such registration and underwriting to the extent required by such limitation, and, if a limitation on the number of shares is still required, the number of shares that may be included in the registration and underwriting shall be allocated among all such Holders and Other Shareholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and other securities which they had requested to be included in such registration at the time of filing the registration statement, except that Registrable Securities held by any of the Purchasers, or any other Holder shall be the last to be limited. If any Holder of Registrable Securities or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company 5 and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. Section 4. Registration on Form S-2 or Form S-3. The Company shall use ------------------------------------------------ its best efforts to qualify for registration of its securities on Form S-2 or Form S-3 or any comparable or successor form or forms; the Company shall register (whether or not required by law to do so) the Common Stock under the Exchange Act in accordance with the provisions thereof, following the effective date of the first registration of any securities of the company on Form S-1 or Form S-18 or any comparable or successor form or forms. If, at any time after the Corporation becomes eligible to file a registration statement on Form S-2 or S-3 (or any successor form regardless of its designation), the Corporation shall receive a written request from any Holder or Holders of twenty percent (20%) of the then-outstanding Registrable Securities that the Corporation file a registration statement on Form S-2 or S-3 (or any successor form 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 exceed One Million Dollars ($1,000,000), then the Corporation shall use its best efforts to cause such shares to be so registered. Section 5. Expenses of Registration. All Registration Expenses incurred ------------------------------------ in connection with any registration pursuant to Section 2 or 3 shall be borne by the Company; provided, however, that the Company shall not be required to pay any Registration Expenses if, as a result of the withdrawal of a request for registration by Initiating Holders, the registration statement does not become effective, in which case the Holders and Other Shareholders requesting registration shall bear such Registration Expenses pro-rata on the basis of the number of their shares so included in the registration request, and provided, further, that such registration shall not be counted as a requested registration pursuant to Section 2(a)(ii)(B). All Registration Expenses incurred in connection with the first two registrations pursuant to Section 4 shall be borne by the Company; thereafter such Registration Expenses shall be borne by the selling Holder or Holders. Section 6. Registration Procedures. In the case of each registration ----------------------------------- effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the Commission a registration statement covering the Registrable Securities requested to be registered as expeditiously as reasonably possible and keep such registration effective for a period of nine months; provided, however, that (i) such nine-month period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration in accordance with the provisions of Section 11; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such nine-month period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an 6 offering on a continuous or delayed basis, and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (y) includes any prospectus required by Section 10(a)(3) of the Act or (z) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (y) and (z) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; (b) Furnish such number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request; (c) 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 Company 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; (d) Provide a transfer agent for the Common Stock no later than the effective date of the first registration of any Registrable Securities; (e) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission; (f) 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 Company 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 Commission 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.; (g) 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; (h) In the case of an underwritten offering, on the date of delivery of the Registrable Securities sold pursuant thereto, cause to be delivered to the selling Holders and the underwriters, opinions of counsel for the Company, which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to counsel for the underwriters and counsel for the selling Holders, covering the matters customarily covered in opinions given to underwriters in primary underwritten public offerings. At the time of delivery of any Registrable Securities sold pursuant 7 to an underwritten offering, the Company shall cause to be delivered to the selling Holders and the underwriters a letter from the Company's independent public accountants, addressed to the underwriters and the selling Holders, stating that they are independent public accountants within the meaning of the Act and the applicable published rules and regulations of the Commission thereunder, and otherwise in customary form and covering such financial and accounting matters as are customarily covered by letters of the independent public accountants delivered in connection with underwritten public offerings; (i) Make available for inspection 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 Company and cause all of the Company'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; in each case as permitted by law and contractual confidentiality restrictions; (j) Permit any Holder of Registrable Securities which Holder, in the sole and exclusive judgment, exercised in good faith, of such Holder, might be deemed to be a controlling person of the Company (within the meaning of the Act or the 1934 Act) to participate in the preparation of such registration statement and to request the insertion therein of material, furnished to the Company in writing, which in the judgment of such controlling Holder should be included and which is reasonably acceptable to the Company; (k) 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; and (l) Make such representations and warranties to the selling Holders and the underwriters as are customarily made by issuers to underwriters and selling Holders, as the case may be, in underwritten public offerings. Section 7. Indemnification. --------------------------- (a) The Company will indemnify each Holder, each of its officers, directors and partners, and each person who controls such Holder, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter (within the meaning of the Act and the rules and regulations thereunder) against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or 8 necessary to make the statements therein not misleading, or any violation by the Company of the Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person who controls such Holder, each such underwriter and each person who controls any such underwriter, for any legal and other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises from or is based on any untrue statement or omission or alleged untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, and each Other Shareholder who has the right to register its securities pursuant to this Agreement will be required by the Company to, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter (within the meaning of the Act and the rules and regulations thereunder) each other such Holder and Other Shareholder and each of their officers, directors and partners, and each person who controls such Holder or Other Shareholder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained if any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, Other Shareholders, directors, officers, partners, persons, underwriters or controlling persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder or Other Shareholder and stated to be specifically for use therein; provided, however, that the obligations of such Holders and Other Shareholders hereunder shall be limited to an amount equal to the proceeds to each such Holder or Other Shareholder of securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further 9 that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party (which consent shall not unreasonably be withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) In order to provide for just and equitable contribution to joint liability under the Act in any case in which either (i) any Holder of Registrable Securities exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 7 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 7 provides for indemnification in such case, or (ii) contribution under the Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 7; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such Holder of -------- ------- Registrable Securities will be required to contribute any amount in excess of the net proceeds received from the sale of all such Registrable Securities offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. Section 8. Information by Holder. Each Holder of Registrable Securities, --------------------------------- and each Other Shareholder holding securities included in any registration, shall furnish to the Company such information regarding such Holder or Other Shareholder and the distribution proposed by such Holder or Other Shareholder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in Section 2, 3 or 4. Section 9. Limitations on Registration of Issues of Securities. From and ---------------------------------------------------------------- after the date of this Agreement, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder the 10 right to require the Company to initiate any registration of any securities of the Company, provided that this Section 9 shall not limit the right of the Company to enter any agreements with any holder or prospective holder of any securities of the Company giving such holder or prospective holder the right to require the Company, upon any registration of any of its securities, to include, among the securities which the Company is then registering, securities owned by such holder. Any right given by the Company to any holder or prospective holder of the Company's securities in connection with the registration of securities shall be conditioned such that it shall be consistent with the provisions of this Agreement and with the rights of the Holders provided in this Agreement. Section 10. Transfer or Assignment of Registration Rights. The rights to ---------------------------------------------------------- cause the Company to register the Registrable Securities granted by the Company under Sections 2, 3 and 4 may be transferred or assigned by a Holder to a transferee or assignee of any of the Holder's Registrable Securities, provided that the Company is given written notice by a Holder at the time of or within a reasonable time after said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned and provided further that the transferee or assignee of such rights assumes the obligations of such Holder under this Agreement. Section 11. "Market Stand-off" Agreement. Each Purchaser agrees, if ----------------------------------------- requested by the Company and an underwriter of Common Stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by it during the time period following the effective date of a registration statement of the Company filed under the Act requested by the underwriter, or in the absence of such request, 90 days, provided that: (a) such agreement only applies to the first such registration statement of the Company including securities to be sold on its behalf to the public in an underwritten offering; and (b) all other Holders, Other Shareholders, principal officers and directors of the Company enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of the restricted period. Section 12. Reports Under the 1934 Act. 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 Commission that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees to use its best efforts to: (a) make and keep public information available, within the meaning of Rule 144, at all times after the effective date of (i) the first registration statement covering an underwritten public offering filed by the Company or (ii) registration by the Company under the 1934 Act; 11 (b) following a public offering or a registration under the 1934 Act, file with the Commission in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder forthwith upon request a written statement by the Company 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 Company), 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 Company, and such other reports and documents filed by the Company with the Commission as may be reasonably requested to permit any such holder to take advantage of any rule or regulation of the Commission permitting the selling of any such securities without registration. Section 13. Mergers, Etc. The Company shall not, directly or -------------------------- indirectly, enter into any merger, consolidation or reorganization in which the Company 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 Company 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 Company is not the surviving corporation if the Holders of Registrable Securities are entitled to receive in exchange therefor (i) cash or (ii) securities of the acquiring corporation which may be immediately sold to the public without registration under the Act. Section 14. Miscellaneous. -------------------------- 14.1 Governing Law. This Agreement shall be governed in all respects by ---- ------------- the laws of The Commonwealth of Massachusetts. 14.2 Successors and Assigns. Except as otherwise expressly provided ---- ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 14.3 Entire Agreement; Amendment. This Agreement constitutes the full ---- --------------------------- and entire understanding and agreement between the parties with regard to the subject hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the Company and the holders of sixty-six and two-thirds percent (66-2/3%) or more of the Registrable Securities. Notice of any proposed amendment will be given to the holders of the Warrants at least 15 days prior to the effective date of any such amendment. Notwithstanding the foregoing, in no event shall the obligation of any Purchaser or Stockholder hereunder be increased, except with such party's written consent. 12 14.4 Notices. All notices and other communications required or permitted ---- ------- under this Agreement shall be in writing and shall be deemed effectively given upon personal delivery or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid, if to the Company, at South Deerfield Research Park, South Deerfield, Massachusetts, 01373, with a copy to David L. Lougee, Esq., Mirick, O'Connell, DeMallie & Lougee LLP, 100 Front Street, Worcester, MA 01608; if to a Stockholder, at its address on Schedule I, with a copy to Testa Hurwitz & Thibeault, 53 State Street, Boston, MA 02109; if to a Purchaser, at its address set forth on Schedule II, with a copy to Arnold M. Zaff, Esq., Foley, Hoag & Eliot LLP, One Post Office Square, Boston, MA 02109; or at such other address as any party may designate by ten days' prior written notice to the other party. 14.5 Delays or Omissions. No delay or omission to exercise any right, ---- ------------------- power or remedy accruing to any holder of any Registrable Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default occurring thereafter; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or, default theretofore or thereafter occurring. Any waiver; permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 14.6 Rights; Separability. Unless otherwise expressly provided herein, ---- -------------------- each Purchaser's rights hereunder are several rights, not rights jointly held with, any of the other Purchasers. 14.7 Titles. The titles of the Sections, paragraphs and subparagraphs of ---- ------ this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 14.8 Counterparts. This Agreement may be executed in any number of ---- ------------ counterparts, each of which shall be an original, but all of which together shall constitute one Agreement. 14.9 Termination. The rights granted the Holders pursuant to Sections 2, ---- ----------- 3 and 4 hereof shall terminate after the fifth anniversary of the Initial Public Offering. 14.10 Replacement Agreement. This Agreement supersedes and replaces in its ----- --------------------- entirety the Registration Agreement. 13 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MILLITECH CORP By: /s/ John L. Youngblood --------------------------------------- John L. Youngblood, Chief Executive Officer ALLIANCE TECHNOLOGY VENTURES II, L.P. By: Alliance Associates II, LLC By: /s/ Stephen Fleming ----------------------------------- Stephen Fleming Manager ATV II AFFILIATES FUND, L.P. By: Alliance Associates II, LLC By: /s/ Stephen Fleming ----------------------------------- Stephen Fleming Manager PRISM VENTURE PARTNERS I, L.P. By: Prism Investment Partners, L.P. its general partner By: Prism Venture Partners, L.L.C. its general partner By: /s/ Unreadable --------------------------------------- Managing Director 14 SPRING POINT PARTNERS L.P. By: /s/ Unreadable --------------------------------------- General Partner SPRING POINT OFFSHORE FUND By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ AXIOM VENTURE PARTNERS II L.P. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ SVE Star Ventures Enterprises No. V, a German Civil Law Partnership (with limitation of liability) By: SVM Star Ventures Management GmbH No. 3- Managing Partner By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ SVE Star Ventures Managementgesellschaft mbH Nr. 3 & Co. Betelligungs KG Nr. 2 By: SVM Star Ventures Management GmbH No. 3- Managing Partner By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ 15 SVM Star Ventures Management GmbH No. 3 By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ SVE STAR VENTURE ENTERPRISES VII, a German Civil Law Partnership (with limitation of liability) By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ STAR GROWTH ENTERPRISES, a German Civil Law Partnership (with limitation of liability) By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ TECHNOLOGY ASSOCIATES MANAGEMENT CO., LTD. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ TECHGAINS INTERNATIONAL CORP. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ TECHGAINS CORP. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ 16 /s/ Richard J. Testa ------------------------------------------- Richard J. Testa K.D. PARTNERS, INC. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ /s/ M. Michael E. Frank ------------------------------------------- Michael E. Frank /s/ Timothy C. Maguire ------------------------------------------- Timothy C. Maguire /s/ Lior Bregman ------------------------------------------- Lior Bregman /s/ Stanley Stern ------------------------------------------- Stanley Stern UNITED OF OMAHA LIFE INSURANCE COMPANY By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ MASSACHUSETTS CAPITAL RESOURCE COMPANY (MCRC) By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ 17 MASSACHUSETTS TECHNOLOGY DEVELOPMENT CORPORATION/ COMMONWEALTH FUND (MTDC) By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ FLEET GROWTH RESOURCES, INC. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ BANC BOSTON INVESTMENTS, INC. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ PRINCE VENTURE PARTNERS II By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ NEWMARKET VENTURE CAPITAL PLC By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ /s/ James W. Fordyce ------------------------------------------- James W. Fordyce /s/ Mark J. Gabrielson ------------------------------------------- Mark J. Gabrielson /s/ James G. Bass ------------------------------------------- James G. Bass 18 /s/ Jasper A. Welch, Jr. ------------------------------------------- Jasper A. Welch, Jr. /s/ John L. Youngblood ------------------------------------------- John L. Youngblood /s/ Raymond M. Vincunas ------------------------------------------- Raymond M. Vincunas /s/ Howard R. Schlossberg ------------------------------------------- Howard R. Schlossberg /s/ William G. Maloney ------------------------------------------- William G. Maloney /s/ Robert Ammerman ------------------------------------------- Robert Ammerman /s/ Robert G. Loewy ------------------------------------------- Robert G. Loewy /s/ Henry E. Blair ------------------------------------------- Henry E. Blair /s/ Allan M. Doyle, Jr. ------------------------------------------- Allan M. Doyle, Jr. /s/ G.S. Beckwith Gilbert ------------------------------------------- G.S. Beckwith Gilbert /s/ Harold McCray ------------------------------------------- Harold McCray /s/ Albert E. Paladino ------------------------------------------- Albert E. Paladino /s/ Ransom D. Reynolds ------------------------------------------- Ransom D. Reynolds /s/ Edward J. O'Leary ------------------------------------------- Edward J. O'Leary /s/ Anne C. Crudge ------------------------------------------- Anne C. Crudge 19 /s/ Royce Diener ------------------------------------------- Royce Diener FRAP CO. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ PANTHEON VENTURES, INC. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ PHILIP HILL INVESTMENT TRUST PLC By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ PRINCE VENTURE PARTNERS By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ RAYTHEON COMPANY By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ ESTATE OF T.F. WALKOWICZ By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ 20 WESTPOOL INVESTMENT TRUST PLC By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ KOLLMORGEN CORPORATION By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ /s/ Richard Lapin ------------------------------------------- Richard Lapin /s/ Martha R. Morgan ------------------------------------------- Martha R. Morgan NSI, Inc. By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ /s/ Shirley Nunziato ------------------------------------------- Shirley Nunziato LATE STAGE FUND 1990 LIMITED PARTNERSHIP By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ 21 KENNETH VINCUNAS and LYNN TRAVERS, TRUSTEES 1988 VINCUNAS FAMILY TRUST By: /s/ Kenneth Vincunas --------------------------------------- Kenneth Vincunas By: /s/ Lynn Travers --------------------------------------- Lynn Travers CSR-10 TRUST /s/ Joseph M. Fee ------------------------------------------- Joseph M. Fee, Trustee TRUSTEES OF GENERAL ELECTRIC PENSION TRUST By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ /s/ Sam Croland ------------------------------------------- Sam Croland /s/ Vicki L. Schnell ------------------------------------------- Vicki L. Schnell /s/ Nancy Schnell ------------------------------------------- Nancy Schnell /s/ Lois Shugar ------------------------------------------- Lois Shugar /s/ Richard Rapaport ------------------------------------------- Richard Rapaport 22 /s/ Eric A. Schnell ------------------------------------------- Eric A. Schnell /s/ Anthony Gilbert Summers ------------------------------------------- Anthony Gilbert Summers /s/ Christine Helen Summers ------------------------------------------- Christine Helen Summers /s/ Pieter J. Schiller ------------------------------------------- Pieter J. Schiller /s/ Jos C. Henkens ------------------------------------------- Jos C. Henkens /s/ Robert F. Sproull ------------------------------------------- Robert F. Sproull /s/ Ivan E. Sutherland ------------------------------------------- Ivan E. Sutherland /s/ William R. Sutherland ------------------------------------------- William R. Sutherland THE ESTATE OF RALPH P. NUNZIATO--TRUST A By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ 23 THE ESTATE OF RALPH P. NUNZIATO--TRUST B By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ /s/ David A. Norbury ------------------------------------------- David A. Norbury /s/ Erik van der Kaay ------------------------------------------- Erik van der Kaay /s/ April Evans ------------------------------------------- April Evans /s/ Dennis C. Stempel ------------------------------------------- Dennis C. Stempel /s/ Matthew Robison ------------------------------------------- Matthew Robison KUMMEL INVESTMENTS LIMITED By: /s/ Unreadable --------------------------------------- Title: ------------------------------------ 24 THE FOLLOWING IS A SUMMARY OF INFORMATION PROVIDED IN THE SCHEDULES OF THE FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT. FURTHER INFORMATION WILL BE FURNISHED UPON REQUEST. Schedule I List of Stockholders Schedule II List of Purchasers EX-10.17 14 REGISTRATION RIGHTS AGREEMENT, BOSTON FEDERAL SVGS EXHIBIT 10.17 BOSTON FEDERAL REGISTRATION RIGHTS AGREEMENT -------------------------------------------- THIS BOSTON FEDERAL REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of August 20, 1999 by and between Millitech Corporation, a Massachusetts corporation (the "Company"), and Boston Federal Savings Bank, a federal savings bank ("Boston Federal"). WHEREAS, Boston Federal has agreed to loan money to the Company pursuant to the Revolving Line of Credit Agreement of even date herewith (the "Loan Agreement") ; WHEREAS, in connection with the Loan Agreement, the Company has issued Boston Federal warrants to purchase 44,445 shares (the "Warrant Shares") of Class E Preferred Stock, par value $.01 per share, of the Company pursuant to a Stock Purchase Warrant (the "Class E Warrant") of even date herewith; and WHEREAS, as contemplated by the Class E Warrant, the parties desire to enter into this Agreement to grant Boston Federal certain rights with respect to the Warrant Shares; NOW THEREFORE, in consideration of the transactions contemplated by the Loan Agreement and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows: Section 1. Certain Definitions. As used in this Agreement, the following ------------------------------- terms shall have the following meanings: "Act" means the Securities Act of 1933, as amended. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Act. "Holder" shall mean Boston Federal or any assignee under Section 7 hereof who holds outstanding Registrable Securities which have not been sold to the public. "Initial Public Offering" shall mean the effective date of a registration statement under the Act in connection with the initial public offering of the Company's securities for its own account. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. "Other Shareholders" shall mean any holders of securities of the Company who are entitled, by agreement with the Company, to have securities included in a registration of securities of the Company. "Registrable Securities" shall mean (i) the shares of the Company's common stock ("Common Stock") issuable upon conversion of the Warrant Shares, (ii) any Common Stock issued as a dividend or other distribution with respect to, or in exchange or in replacement of, such Warrant Shares or Common Stock, and (iii) any Common Stock issuable upon conversion, exercise or exchange of convertible securities, warrants, options or similar rights issued as a dividend or other distribution with respect to, or in exchange or in replacement of, such Warrant Shares or Common Stock. The terms "register", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses incurred by the Company in connection with a registration, including without limitation all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, fees and disbursements of a single counsel for all the selling Holders and other security holders for a "due diligence" examination of the Company, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). Section 2. Company Registration. -------------------------------- (a) If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights, other than a registration relating solely to a Commission Rule 145 transaction, or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by any Holder within 15 days after receipt of the written notice from the Company described in clause (i) above, except as set forth in Section 2(b). Such written request may specify all or a part of a Holder's Registrable Securities be included in the Company's registration. (b) Underwriting. If the registration of which the Company gives notice is ------------ for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2(a)(i). In such event the right of any Holder to registration pursuant to Section 2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the Other Shareholders distributing their 2 securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of Section 2, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, and (a) if such registration is the Initial Public Offering, the underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant to the notice described herein, and (b) if such registration is other than the Initial Public Offering, the underwriter may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the registration and underwriting to not less than fifty percent (50%) of the securities included therein (based on aggregate market values). The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following manner. The securities of the Company held by officers and directors of the Company (other than Registrable Securities) shall be excluded from such registration and underwriting to the extent required by such limitation, and, if a limitation on the number of shares is still required, the number of shares that may be included in the registration and underwriting shall be allocated among all such Holders and Other Shareholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and other securities which they had requested to be included in such registration at the time of filing the registration statement, except that Registrable Securities held by the Other Shareholders shall be the last to be limited. If any Holder of Registrable Securities or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. Section 3. Expenses of Registration. All Registration Expenses incurred ------------------------------------ in connection with any registration pursuant to Section 2 shall be borne by the Company. Section 4. Registration Procedures. In the case of each registration ----------------------------------- effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the Commission a registration statement covering the Registrable Securities requested to be registered as expeditiously as reasonably possible and keep such registration effective for a period of nine months; provided, however, that (i) such nine-month period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration in accordance with the provisions of Section 8; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such nine-month period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post- 3 effective amendment which (y) includes any prospectus required by Section 10(a)(3) of the Act or (z) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (y) and (z) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; (b) Furnish such number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request; (c) 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 Company 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; (d) Provide a transfer agent for the Common Stock no later than the effective date of the first registration of any Registrable Securities; (e) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission; (f) 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 Company 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 Commission 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.; (g) 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; (h) In the case of an underwritten offering, on the date of delivery of the Registrable Securities sold pursuant thereto, cause to be delivered to the selling Holders and the underwriters, opinions of counsel for the Company, which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to counsel for the underwriters and counsel for the selling Holders, covering the matters customarily covered in opinions given to underwriters in primary underwritten public offerings. At the time of delivery of any Registrable Securities sold pursuant to an underwritten offering, the Company shall cause to be delivered to the selling Holders and the underwriters a letter from the Company's independent public accountants, addressed to the underwriters and the selling Holders, stating that they are independent public accountants within 4 the meaning of the Act and the applicable published rules and regulations of the Commission thereunder, and otherwise in customary form and covering such financial and accounting matters as are customarily covered by letters of the independent public accountants delivered in connection with underwritten public offerings; (i) Make available for inspection 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 Company and cause all of the Company'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; in each case as permitted by law and contractual confidentiality restrictions; (j) Permit any Holder of Registrable Securities which Holder, in the sole and exclusive judgment, exercised in good faith, of such Holder, might be deemed to be a controlling person of the Company (within the meaning of the Act or the 1934 Act) to participate in the preparation of such registration statement and to request the insertion therein of material, furnished to the Company in writing, which in the judgment of such controlling Holder should be included and which is reasonably acceptable to the Company; (k) 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; and (l) Make such representations and warranties to the selling Holders and the underwriters as are customarily made by issuers to underwriters and selling Holders, as the case may be, in underwritten public offerings. Section 5. Indemnification. --------------------------- (a) The Company will indemnify each Holder, each of its officers, directors and partners, and each person who controls such Holder, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter (within the meaning of the Act and the rules and regulations thereunder) against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to any such registration, qualification or compliance, or based on any 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 any violation by the Company of the Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and 5 each person who controls such Holder, each such underwriter and each person who controls any such underwriter, for any legal and other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises from or is based on any untrue statement or omission or alleged untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, and each Other Shareholder who has the right to register its securities pursuant to this Agreement will be required by the Company to, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter (within the meaning of the Act and the rules and regulations thereunder) each other such Holder and Other Shareholder and each of their officers, directors and partners, and each person who controls such Holder or Other Shareholder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained if any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, Other Shareholders, directors, officers, partners, persons, underwriters or controlling persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder or Other Shareholder and stated to be specifically for use therein; provided, however, that the obligations of such Holders and Other Shareholders hereunder shall be limited to an amount equal to the proceeds to each such Holder or Other Shareholder of securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party (which consent shall not unreasonably be withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the 6 claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) In order to provide for just and equitable contribution to joint liability under the Act in any case in which either (i) any Holder of Registrable Securities exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such Holder of -------- ------- Registrable Securities will be required to contribute any amount in excess of the net proceeds received from the sale of all such Registrable Securities offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. Section 6. Information by Holder. Each Holder of Registrable Securities, --------------------------------- and each Other Shareholder holding securities included in any registration, shall furnish to the Company such information regarding such Holder or Other Shareholder and the distribution proposed by such Holder or Other Shareholder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in Section 2 or 4. Section 7. Transfer or Assignment of Registration Rights. The rights to --------------------------------------------------------- cause the Company to register the Registrable Securities granted by the Company under Section 2 may be transferred or assigned by a Holder to a transferee or assignee of any of the Holder's Registrable Securities, provided that the Company is given written notice by a Holder at the time of or within a reasonable time after said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned and provided further that the transferee or assignee of such rights assumes the obligations of such Holder under this Agreement. Section 8. "Market Stand-off" Agreement. Each Holder agrees, if requested ---------------------------------------- by the Company and an underwriter of Common Stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held 7 by it during the time period following the effective date of a registration statement of the Company filed under the Act requested by the underwriter, or in the absence of such request, 90 days, provided that: (a) such agreement only applies to the first such registration statement of the Company including securities to be sold on its behalf to the public in an underwritten offering; and (b) all other Holders, Other Shareholders, principal officers and directors of the Company enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of the restricted period. Section 9. Reports Under the 1934 Act. 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 Commission that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees to use its best efforts to: (a) make and keep public information available, within the meaning of Rule 144, at all times after the effective date of (i) the first registration statement covering an underwritten public offering filed by the Company or (ii) registration by the Company under the 1934 Act; (b) following a public offering or a registration under the 1934 Act, file with the Commission in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder forthwith upon request a written statement by the Company 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 Company), 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 Company, and such other reports and documents filed by the Company with the Commission as may be reasonably requested to permit any such holder to take advantage of any rule or regulation of the Commission permitting the selling of any such securities without registration. Section 10. Mergers, Etc. The Company shall not, directly or indirectly, -------------------------- enter into any merger, consolidation or reorganization in which the Company 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 Company 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 8 merger, consolidation or reorganization in which the Company is not the surviving corporation if the Holders of Registrable Securities are entitled to receive in exchange therefor (i) cash or (ii) securities of the acquiring corporation which may be immediately sold to the public without registration under the Act. Section 11. Miscellaneous. -------------------------- 11.1 Governing Law. This Agreement shall be governed in all respects by ------------- the laws of The Commonwealth of Massachusetts. 11.2 Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 11.3 Entire Agreement; Amendment. This Agreement constitutes the full --------------------------- and entire understanding and agreement between the parties with regard to the subject hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the Company and Boston Federal. 11.4 Notices. All notices and other communications required or permitted ------- under this Agreement shall be in writing and shall be deemed effectively given upon personal delivery or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid, if to the Company, at South Deerfield Research Park, South Deerfield, Massachusetts, 01373, with a copy to David L. Renauld, Esq., Mirick, O'Connell, DeMallie & Lougee LLP, 100 Front Street, Worcester, MA 01608; if to Boston Federal, at 17 New England Executive Park, Burlington, Massachusetts 01803, Attention: Byron W. Quint or at such other address as any party may designate by ten days' prior written notice to the other party. 11.5 Delays or Omissions. No delay or omission to exercise any right, ------------------- power or remedy accruing to any holder of any Registrable Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default occurring thereafter; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or, default theretofore or thereafter occurring. Any waiver; permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 11.6 Rights; Separability. Unless otherwise expressly provided herein, -------------------- each Holder's rights hereunder are several rights, not rights jointly held with, any of the other Holders. 11.7 Titles. The titles of the Sections, paragraphs and subparagraphs of ------ this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 9 11.8 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which together shall constitute one Agreement. 11.9 Termination. The rights granted the Holders pursuant to Section 2 ----------- hereof shall terminate after the fifth anniversary of the Initial Public Offering. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MILLITECH CORP By: /s/ Dennis C. Stempel ---------------------------------------- Name: Dennis C. Stempel Title: Chief Financial Officer BOSTON FEDERAL SAVINGS BANK By: /s/ Byron W. Quint ---------------------------------------- Name: Byron W. Quint Title: Vice President 10 EX-10.18 15 REGISTRATION RIGHTS AGREEMENT, PHOENIX LEASING EXHIBIT 10.18 PHOENIX REGISTRATION RIGHTS AGREEMENT ------------------------------------- THIS PHOENIX REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of May 19, 1999 by and between Millitech Corporation, a Massachusetts corporation (the "Company"), and Phoenix Leasing Incorporated, a California corporation ("Phoenix"). WHEREAS, Phoenix has agreed to loan money to the Company pursuant to the Senior Loan and Security Agreement No. 6240, dated as of May 19, 1999 (the "Loan Agreement"); WHEREAS, in connection with the Loan Agreement, the Company has issued Phoenix warrants to purchase 44,445 shares (the "Warrant Shares") of Class E Preferred Stock, par value $.01 per share, of the Company pursuant to a Warrant to Purchase Shares of Class E Preferred Stock (the "Class E Warrant") of even date herewith; and WHEREAS, as contemplated by the Class E Warrant, the parties desire to enter into this Agreement to grant Phoenix certain rights with respect to the Warrant Shares; NOW THEREFORE, in consideration of the transactions contemplated by the Loan Agreement and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows: Section 1. Certain Definitions. As used in this Agreement, the following ------------------------------- terms shall have the following meanings: "Act" means the Securities Act of 1933, as amended. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Act. "Holder" shall mean Phoenix or any assignee under Section 7 hereof who holds outstanding Registrable Securities which have not been sold to the public. "Initial Public Offering" shall mean the effective date of a registration statement under the Act in connection with the initial public offering of the Company's securities for its own account. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. "Other Shareholders" shall mean any holders of securities of the Company who are entitled, by agreement with the Company, to have securities included in a registration of securities of the Company. "Registrable Securities" shall mean (i) the shares of the Company's common stock ("Common Stock") issuable upon conversion of the Warrant Shares, (ii) any Common Stock issued as a dividend or other distribution with respect to, or in exchange or in replacement of, such Warrant Shares or Common Stock, and (iii) any Common Stock issuable upon conversion, exercise or exchange of convertible securities, warrants, options or similar rights issued as a dividend or other distribution with respect to, or in exchange or in replacement of, such Warrant Shares or Common Stock. The terms "register", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses incurred by the Company in connection with a registration, including without limitation all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, fees and disbursements of a single counsel for all the selling Holders and other security holders for a "due diligence" examination of the Company, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). Section 2. Company Registration. -------------------------------- (a) If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights, other than a registration relating solely to a Commission Rule 145 transaction, or a registration on any registration form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by any Holder within 15 days after receipt of the written notice from the Company described in clause (i) above, except as set forth in Section 2(b). Such written request may specify all or a part of a Holder's Registrable Securities be included in the Company's registration. (b) Underwriting. If the registration of which the Company gives notice is ------------ for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2(a)(i). In such event the right of any Holder to registration pursuant to Section 2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the Other Shareholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company. 2 Notwithstanding any other provision of Section 2, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, and (a) if such registration is the Initial Public Offering, the underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant to the notice described herein, and (b) if such registration is other than the Initial Public Offering, the underwriter may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the registration and underwriting to not less than fifty percent (50%) of the securities included therein (based on aggregate market values). The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated in the following manner. The securities of the Company held by officers and directors of the Company (other than Registrable Securities) shall be excluded from such registration and underwriting to the extent required by such limitation, and, if a limitation on the number of shares is still required, the number of shares that may be included in the registration and underwriting shall be allocated among all such Holders and Other Shareholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and other securities which they had requested to be included in such registration at the time of filing the registration statement, except that Registrable Securities held by the Other Shareholders shall be the last to be limited. If any Holder of Registrable Securities or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. Section 3. Expenses of Registration. All Registration Expenses incurred ------------------------------------ in connection with any registration pursuant to Section 2 shall be borne by the Company. Section 4. Registration Procedures. In the case of each registration ----------------------------------- effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the Commission a registration statement covering the Registrable Securities requested to be registered as expeditiously as reasonably possible and keep such registration effective for a period of nine months; provided, however, that (i) such nine-month period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration in accordance with the provisions of Section 8; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such nine-month period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (y) includes any prospectus required by Section 10(a)(3) of the Act or (z) reflects facts or events representing a material or fundamental change in the information set 3 forth in the registration statement, the incorporation by reference of information required to be included in (y) and (z) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; (b) Furnish such number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request; (c) 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 Company 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; (d) Provide a transfer agent for the Common Stock no later than the effective date of the first registration of any Registrable Securities; (e) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission; (f) 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 Company 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 Commission 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.; (g) 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; (h) In the case of an underwritten offering, on the date of delivery of the Registrable Securities sold pursuant thereto, cause to be delivered to the selling Holders and the underwriters, opinions of counsel for the Company, which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to counsel for the underwriters and counsel for the selling Holders, covering the matters customarily covered in opinions given to underwriters in primary underwritten public offerings. At the time of delivery of any Registrable Securities sold pursuant to an underwritten offering, the Company shall cause to be delivered to the selling Holders and the underwriters a letter from the Company's independent public accountants, addressed to the underwriters and the selling Holders, stating that they are independent public accountants within the meaning of the Act and the applicable published rules and regulations of the Commission thereunder, and otherwise in customary form and covering such financial and accounting matters 4 as are customarily covered by letters of the independent public accountants delivered in connection with underwritten public offerings; (i) Make available for inspection 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 Company and cause all of the Company'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; in each case as permitted by law and contractual confidentiality restrictions; (j) Permit any Holder of Registrable Securities which Holder, in the sole and exclusive judgment, exercised in good faith, of such Holder, might be deemed to be a controlling person of the Company (within the meaning of the Act or the 1934 Act) to participate in the preparation of such registration statement and to request the insertion therein of material, furnished to the Company in writing, which in the judgment of such controlling Holder should be included and which is reasonably acceptable to the Company; (k) 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; and (l) Make such representations and warranties to the selling Holders and the underwriters as are customarily made by issuers to underwriters and selling Holders, as the case may be, in underwritten public offerings. Section 5. Indemnification. --------------------------- (a) The Company will indemnify each Holder, each of its officers, directors and partners, and each person who controls such Holder, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter (within the meaning of the Act and the rules and regulations thereunder) against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to any such registration, qualification or compliance, or based on any 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 any violation by the Company of the Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person who controls such Holder, each such underwriter and each person who controls any such underwriter, for any legal and other expenses reasonably incurred in connection with 5 investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises from or is based on any untrue statement or omission or alleged untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, and each Other Shareholder who has the right to register its securities pursuant to this Agreement will be required by the Company to, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter (within the meaning of the Act and the rules and regulations thereunder) each other such Holder and Other Shareholder and each of their officers, directors and partners, and each person who controls such Holder or Other Shareholder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained if any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, Other Shareholders, directors, officers, partners, persons, underwriters or controlling persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder or Other Shareholder and stated to be specifically for use therein; provided, however, that the obligations of such Holders and Other Shareholders hereunder shall be limited to an amount equal to the proceeds to each such Holder or Other Shareholder of securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party (which consent shall not unreasonably be withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the 6 claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) In order to provide for just and equitable contribution to joint liability under the Act in any case in which either (i) any Holder of Registrable Securities exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such Holder of -------- ------- Registrable Securities will be required to contribute any amount in excess of the net proceeds received from the sale of all such Registrable Securities offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. Section 6. Information by Holder. Each Holder of Registrable Securities, --------------------------------- and each Other Shareholder holding securities included in any registration, shall furnish to the Company such information regarding such Holder or Other Shareholder and the distribution proposed by such Holder or Other Shareholder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in Section 2 or 4. Section 7. Transfer or Assignment of Registration Rights. The rights to --------------------------------------------------------- cause the Company to register the Registrable Securities granted by the Company under Section 2 may be transferred or assigned by a Holder to a transferee or assignee of any of the Holder's Registrable Securities, provided that the Company is given written notice by a Holder at the time of or within a reasonable time after said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned and provided further that the transferee or assignee of such rights assumes the obligations of such Holder under this Agreement. Section 8. "Market Stand-off" Agreement. Each Holder agrees, if requested ---------------------------------------- by the Company and an underwriter of Common Stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by it during the time period following the effective date of a registration statement of the 7 Company filed under the Act requested by the underwriter, or in the absence of such request, 90 days, provided that: (a) such agreement only applies to the first such registration statement of the Company including securities to be sold on its behalf to the public in an underwritten offering; and (b) all other Holders, Other Shareholders, principal officers and directors of the Company enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of the restricted period. Section 9. Reports Under the 1934 Act. 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 Commission that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees to use its best efforts to: (a) make and keep public information available, within the meaning of Rule 144, at all times after the effective date of (i) the first registration statement covering an underwritten public offering filed by the Company or (ii) registration by the Company under the 1934 Act; (b) following a public offering or a registration under the 1934 Act, file with the Commission in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder forthwith upon request a written statement by the Company 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 Company), 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 Company, and such other reports and documents filed by the Company with the Commission as may be reasonably requested to permit any such holder to take advantage of any rule or regulation of the Commission permitting the selling of any such securities without registration. Section 10. Mergers, Etc. The Company shall not, directly or indirectly, -------------------------- enter into any merger, consolidation or reorganization in which the Company 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 Company 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 Company is not the surviving corporation if 8 the Holders of Registrable Securities are entitled to receive in exchange therefor (i) cash or (ii) securities of the acquiring corporation which may be immediately sold to the public without registration under the Act. Section 11. Miscellaneous. -------------------------- 11.1 Governing Law. This Agreement shall be governed in all respects by ------------- the laws of The Commonwealth of Massachusetts. 11.2 Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 11.3 Entire Agreement; Amendment. This Agreement constitutes the full --------------------------- and entire understanding and agreement between the parties with regard to the subject hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the Company and Phoenix. 11.4 Notices. All notices and other communications required or permitted ------- under this Agreement shall be in writing and shall be deemed effectively given upon personal delivery or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid, if to the Company, at South Deerfield Research Park, South Deerfield, Massachusetts, 01373, with a copy to David L. Renauld, Esq., Mirick, O'Connell, DeMallie & Lougee LLP, 100 Front Street, Worcester, MA 01608; if to Phoenix, at 2401 Kerner Boulevard, San Rafael, California, 94901, Attention: Asset Management or at such other address as any party may designate by ten days' prior written notice to the other party. 11.5 Delays or Omissions. No delay or omission to exercise any right, ------------------- power or remedy accruing to any holder of any Registrable Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default occurring thereafter; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or, default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 11.6 Rights; Separability. Unless otherwise expressly provided herein, -------------------- each Holder's rights hereunder are several rights, not rights jointly held with, any of the other Holders. 11.7 Titles. The titles of the Sections, paragraphs and subparagraphs of ------ this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 9 11.8 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which together shall constitute one Agreement. 11.9 Termination. The rights granted the Holders pursuant to Section 2 ----------- hereof shall terminate after the fifth anniversary of the Initial Public Offering. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MILLITECH CORP By:_______________________________________ Name: Title: PHOENIX LEASING INCORPORATED By:__________________________________ Name: Title: 10 EX-23.1 16 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our reports dated March 5, 1999, except for Note 2 as to which the date is August 24, 1999, relating to the financial statements and financial statement schedule of Millitech Corporation, which appear in such Registration Statement. We also consent to the references to us under the headings "Selected Financial Data" and "Experts." /s/ PricewaterhouseCoopers LLP Springfield, Massachusetts September 27, 1999 EX-27 17 FINANCIAL DATA SCHEDULE
5 12-MOS 12-MOS 12-MOS 6-MOS DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1999 JAN-01-1996 JAN-01-1997 JAN-31-1998 JAN-01-1999 DEC-31-1996 DEC-31-1997 DEC-31-1998 JUN-30-1999 1,213,000 10,294,000 2,635,000 405,000 0 0 0 0 2,583,000 2,744,000 3,013,000 955,000 0 0 0 0 3,382,000 3,162,000 3,093,000 2,613,000 7,832,000 16,381,000 8,977,000 5,625,000 10,447,000 12,756,000 17,151,000 13,564,000 8,183,000 9,326,000 11,229,000 8,634,000 10,728,000 20,059,000 5,922,000 10,650,000 4,566,000 7,942,000 5,706,000 6,046,000 0 0 0 0 12,465,000 25,425,000 32,793,000 32,793,000 0 0 0 0 9,000 10,000 10,000 10,000 (9,569,000) (15,008,000) (24,601,000) (29,885,000) 10,728,000 20,059,000 14,955,000 10,650,000 201,000 1,733,000 2,386,000 2,762,000 201,000 1,733,000 2,386,000 2,762,000 147,000 2,328,000 7,200,000 2,779,000 147,000 2,328,000 7,200,000 2,779,000 1,883,000 6,131,000 8,358,000 3,699,000 0 0 0 0 423,000 683,000 473,000 154,000 (2,239,000) (7,352,000) (12,415,000) (3,845,000) 0 (640,000) (1,162,000) 0 (2,239,000) (6,712,000) (11,253,000) (3,845,000) (530,000) 1,342,000 1,724,000 (1,533,000) 0 0 0 0 0 0 0 0 (2,769,000) (5,370,000) (9,529,000) (5,378,000) (2.56) (5.66) (9.68) (5.42) (2.56) (5.66) (9.68) (5.42)
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