-----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, O4va2xxtWHQvuqvqg0reFBsm2HUW5OybJZhR5mx97s586r8PIEuBlXI1Aer+A3ah b1ShB9mxdXffMxhOdq3RdA== 0000898430-01-501821.txt : 20010815 0000898430-01-501821.hdr.sgml : 20010815 ACCESSION NUMBER: 0000898430-01-501821 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LARSCOM INC CENTRAL INDEX KEY: 0001024047 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 942362692 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12491 FILM NUMBER: 1708173 BUSINESS ADDRESS: STREET 1: 1845 MCCANDLESS DR CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089414000 10-Q 1 d10q.txt FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ________to________ Commission File Number: 1-12491 LARSCOM INCORPORATED (Exact name of registrant as specified in its charter) Delaware 94-2362692 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1845 McCandless Drive Milpitas, CA 95035 (408) 941-4000 (Address of principal executive offices, zip code and telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- The number of the registrant's shares outstanding as of August 6, 2001, was 8,831,863 of Class A Common Stock and 10,000,000 of Class B Common Stock. 1 LARSCOM INCORPORATED FORM 10-Q TABLE OF CONTENTS Part I: Financial Information ............................................ 3 Item 1: Financial Statements (Unaudited) ................................. 3 Condensed Consolidated Balance Sheets ............................ 3 Condensed Consolidated Statements of Operations .................. 4 Condensed Consolidated Statements of Cash Flows .................. 5 Notes to Condensed Consolidated Financial Statements ............. 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations .............................. 9 Item 3: Quantitative and Qualitative Disclosures about Market Risk ...................................................... 16 Part II: Other Information ................................................ 17 Item 1: Legal Proceedings ................................................ 17 Item 2: Changes in Securities ............................................ 17 Item 3: Defaults upon Senior Securities .................................. 17 Item 4: Submission of Matters to a Vote of Security Holders .............. 17 Item 5: Other Information ................................................ 17 Item 6: Exhibits and Reports on Form 8-K ................................. 18 a: Exhibits ...................................................... 18 b: Reports on Form 8-K ........................................... 18 Signatures ................................................................. 19
2 Part I: Financial Information Item 1: Financial Statements LARSCOM INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
June 30, December 31, 2001 2000 ------------- ------------- ASSETS Current assets: Cash and cash equivalents ........................................................... $ 4,401 $ 7,741 Short-term investments .............................................................. 18,512 20,238 Accounts receivable, net ............................................................ 6,747 7,044 Inventories ......................................................................... 4,915 6,816 Deferred income taxes ............................................................... - 4,040 Income taxes receivable ............................................................. 218 192 Due from Axel Johnson Inc ........................................................... 315 72 Prepaid expenses and other current assets ........................................... 1,591 4,082 -------- -------- Total current assets ............................................................. 36,699 50,225 Property and equipment, net .............................................................. 3,787 4,111 Deferred income taxes .................................................................... - 11,750 Other non-current assets, net ............................................................ 122 234 -------- -------- Total assets ..................................................................... $ 40,608 $ 66,320 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................................................... $ 3,195 $ 4,482 Accrued expenses and other current liabilities ...................................... 11,656 8,348 -------- -------- Total current liabilities ........................................................ 14,851 12,830 Other non-current liabilities ............................................................ 350 448 -------- -------- Total liabilities ................................................................ 15,201 13,278 -------- -------- Stockholders' equity: Class A Common Stock ................................................................ 88 87 Class B Common Stock ................................................................ 100 100 Additional paid-in capital .......................................................... 82,919 82,598 Accumulated other comprehensive income/(loss) ....................................... (1) Accumulated deficit ................................................................. (57,701) (29,742) -------- -------- Total stockholders' equity ....................................................... 25,407 53,042 -------- -------- Total liabilities and stockholders' equity ....................................... $ 40,608 $ 66,320 ======== ========
The accompanying notes are an integral part of these financial statements. 3 LARSCOM INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- -------------------------- 2001 2000 2001 2000 --------- -------- -------- -------- Revenues ................................................... $ 11,272 $ 14,802 $ 23,486 $ 27,838 Cost of revenues ........................................... 9,178 6,969 15,772 12,961 --------- -------- -------- -------- Gross profit ......................................... 2,094 7,833 7,714 14,877 --------- -------- -------- -------- Operating expenses: Research and development ............................... 2,021 2,424 4,117 4,995 Selling, general and administrative .................... 5,633 6,096 11,697 11,996 Restructuring .......................................... 4,761 -- 4,761 -- --------- -------- -------- -------- Total operating expenses ............................. 12,415 8,520 20,575 16,991 --------- -------- -------- -------- Loss from operations ...................................... (10,321) (687) (12,861) (2,114) Interest and other income ................................. 364 435 773 836 --------- -------- -------- -------- Loss before income taxes ................................... (9,957) (252) (12,088) (1,278) Income tax provision (benefit) ....................... 16,505 (82) 15,870 (378) --------- -------- -------- -------- Net loss ................................................... $ (26,462) $ (170) $(27,958) $ (900) ========= ======== ======== ======== Basic and diluted net loss per share ....................... $ (1.41) $ (0.01) $ (1.49) $ (0.05) ========= ======== ======== ======== Basic and diluted weighted average shares .................. 18,804 18,556 18,789 18,513 ========= ======== ======== ========
The accompanying notes are an integral part of these financial statements. 4 LARSCOM INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended June 30, --------------------------------- 2001 2000 ---------- ----------- Cash flows from operating activities: Net loss ......................................................................... $ (27,958) $ (900) Depreciation and amortization .................................................... 1,163 1,294 Non-cash restructuring and cost of revenues charges .............................. 2,280 -- Increase/(decrease) in deferred income taxes ..................................... 15,790 (173) Net decrease in other working capital accounts ................................... 4,631 708 ---------- ----------- Net cash (used in)/provided by operating activities .................................. (4,094) 929 ---------- ----------- Cash flows from investing activities: Purchases of property and equipment .............................................. (1,097) (589) Purchases of short-term investments .............................................. (14,021) (14,348) Sales and maturities of short-term investments ................................... 15,747 21,003 ---------- ----------- Net cash provided by investing activities ............................................ 629 6,066 ---------- ----------- Cash flows from financing activities: Repayments to Axel Johnson Inc ................................................... (244) (747) Increase/(decrease) in capital lease obligations ................................. 45 (45) Proceeds from issuances of Class A Common Stock .................................. 322 341 ---------- ----------- Net cash provided by/(used in) financing activities .................................. 123 (451) ---------- ----------- Effect of foreign exchange rates on cash ............................................. 2 2 ---------- ----------- (Decrease)/increase in cash and cash equivalents ..................................... (3,340) 6,546 Cash and cash equivalents at beginning of period ..................................... 7,741 7,009 ---------- ----------- Cash and cash equivalents at end of period ........................................... $ 4,401 $ 13,555 ========== =========== Supplemental disclosure of cash flow information Interest paid ........................................................................ $ 2 $ 4 ---------- ----------- Income taxes paid .................................................................... $ 67 $ 64 ---------- -----------
The accompanying notes are an integral part of these financial statements. 5 LARSCOM INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1--Basis of Presentation: The condensed consolidated financial statements for the three months and six months ended June 30, 2001 and 2000, presented in this Quarterly Report on Form 10-Q, are unaudited. In the opinion of management, these statements include all adjustments necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Larscom Incorporated ("Larscom") Report on Form 10-K for the year ended December 31, 2000. The results of operations for the three months and six months of 2001 are not necessarily indicative of the results to be expected for the full year. Note 2--Inventories: Inventories consist of the following (in thousands): June 30, December 31, 2001 2000 ----------------- ------------- Raw materials ......................... $ 2,333 $ 3,470 Work-in-process ....................... 777 747 Finished goods ........................ 1,805 2,599 ----------------- ------------- $ 4,915 $ 6,816 ================= ============= Note 3--Restructuring and Cost of Revenues Charges: On June 22, 2001, we announced a corporate restructuring program in response to our own reduced revenues, negative macro-economic conditions and declining demand in our markets. This initiative is focused on improving operating performance by reducing expenses. The restructuring program includes a workforce reduction of approximately 25%, the closing of our facility in North Carolina and a write-down of fixed assets due primarily to the workforce reduction and facility closing. The effect of implementing this program was a one-time charge to results in the second quarter of $4,761,000. Because of the decline in business conditions, we reassessed the realizable value of certain prepaid royalties in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of." As a result, we recorded a second-quarter 2001, non-cash charge to cost of revenues of $1,912,000. This charge was derived by measuring the amount by which the carrying value of the prepaid royalties exceeded the net present value of the estimated future cash flows from the associated products. During the second quarter of 2001, we recorded a $1,093,000 charge to cost of sales for excess inventory. This additional inventory reserve was due to a sudden and significant decrease in our forecasted revenue, and was calculated consistent with our policy for providing reserves for inventory in excess of twelve months of projected demand. 6 Details of the restructuring and cost of revenues charges are as follows: Restructuring Cost of Revenues Total -------------- ------------------ ---------- (in thousands) Employee termination costs $ 2,293 $ - $2,293 Real estate lease reserve 2,080 - 2,080 Fixed asset write-down 388 - 388 Prepaid royalty impairment - 1,912 1,912 Inventory reserve - 1,093 1,093 -------------- ------------------ ---------- Total $ 4,761 $ 3,005 $7,766 ============== ================== ========== Cash expenditures for the employee termination costs will be substantially paid out in 2001. Amounts related to the expense due to the closing of the North Carolina facility will be paid over the term of the lease that expires in January, 2007. We anticipate substantially completing the implementation of our restructuring program by the end of September, 2001. The following table provides details on the activity and remaining balances of the restructuring charges as of June 30, 2001: Reserve Total Cash Non-Cash June 30, Charges Charges Charges 2001 ------------ ---------- ---------- ---------- (in thousands) Employee termination costs $ 2,293 $ (160) $ (40) $2,093 Real estate lease reserve 2,080 - - 2,080 Fixed asset write-down 388 - (368) 20 ------------ ---------- ---------- ---------- Total $ 4,761 $ (160) $ (408) $4,193 ============ ========== ========== ========== Note 4--Deferred Tax Assets: At June 30, 2001, we had total gross deferred tax assets of $20,209,000, consisting of $16,450,000 from prior quarters and $3,759,000 from the second quarter of 2001. These assets included temporary differences related to intangible assets associated with the acquisition of NetEdge Systems Inc. in 1997, inventory reserves, accrued expenses and net operating losses which carry forward. During the second quarter ended June 30, 2001, we concluded that a deferred tax asset valuation allowance should be established due to the uncertainty of realizing the tax loss carry-forwards and other deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Accordingly, we recorded a non-cash charge of $20,209,000 to provide a full valuation allowance for the U.S. deferred tax assets. Our assessment was based principally on the historical losses experienced by the Company in the U.S., lower than expected operating results in the second quarter of 2001, unfavorable macro-economic conditions and capital expenditure reductions announced by several network service providers. The establishment of the deferred tax asset valuation allowance is the reason for the reduction in the deferred tax assets line items on the accompanying condensed consolidated balance sheets for the period ended June 30, 2001. SFAS No. 109, "Accounting for Income Taxes," requires the establishment of a valuation allowance for deferred tax assets when it is more likely than not that these assets will not be realized. The deferred tax assets will be recognized in future periods to the extent that we can reasonably expect such assets to be realized. We will evaluate the probability of realizing our deferred tax assets on a quarterly basis. If we determine that a portion or all of the deferred tax assets are realizable, we will reduce the income tax provision accordingly. 7 Note 5--Net Loss Per Share: Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares outstanding and the dilutive effect of options to purchase common shares. The effect of options to purchase common shares is excluded from the computation as their effect is antidilutive. The following table shows how basic and diluted net loss per share are computed (in thousands, except per share data):
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Net loss............................................ $(26,462) $ (170) $(27,958) $ (900) ======== ======== ======== ======== Weighted average Class A and B Common Stock outstanding....................... 18,804 18,556 18,789 18,513 Basic and diluted loss per share.................... $ (1.41) $ (0.01) $ (1.49) $ (0.05) ======== ======== ======== ======== Weighted average Class A Common Stock diluted options outstanding excluded from the basic and diluted loss per share calculation........ 207 1,307 339 1,574
Note 6--Comprehensive Income: "Comprehensive Income" includes all changes in equity from non-owner sources during the period. The only item of adjustment from net loss to comprehensive loss for the periods presented related to foreign currency translation adjustments. Such amounts were immaterial for the periods presented. Note 7--Commitments and Contingencies: Because of component obsolescence involving some of our suppliers, we have been required to place last-time-buy purchase orders to cover the expected demand for these components. These purchase commitments generally cover between one and two years of expected demand. As of June 30, 2001, we were obligated to purchase $359,000 of these components by December 31, 2001. We plan to redesign some of our products, if required by customer demand, as supplies of obsolete components dwindle. In our distribution agreements, we typically agree to indemnify our customers for any expenses or liabilities resulting from claimed infringements of patents, trademarks or copyrights of third parties. We made no material payments for indemnification of customers under these agreements for the second quarter and first six months of 2001. Note 8--Geographic Information: 8 Revenue and long-lived assets related to operations in the United States and other countries for the three and six months ended and as of June 30, 2001 and 2000 are as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, ---------------------------- --------------------------- 2001 2000 2001 2000 ------------- ------------- ------------ ------------- United States...... 8,853 $13,164 $19,088 $24,254 Other countries.... 2,419 1,638 4,398 3,584 ------------- ------------- ------------ ------------- Total.............. 11,272 $14,802 $23,486 $27,838 ============= ============= ============ ============= (a) Revenues are reported by shipment to the final destination as determined by records required to comply with US Department of Commerce regulations. As of June 30, ---------------------------- 2001 2000 ------------- ------------- United States...... $ 3,897 $ 4,543 Other countries.... 12 15 ------------- ------------- Total.............. $ 3,909 $ 4,558 ============= ============== Note 9--Recent Accounting Pronouncements: In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141 ("SFAS 141"), "Business Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 addresses financial accounting and reporting for business combinations and supersedes APB16, "Business Combinations." The provisions of SFAS 141 are required to be adopted July 1, 2001. The most significant changes made by SFAS 141 are: (1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) establishing specific criteria for the recognition of intangible assets separately from goodwill and (3) requiring unallocated negative goodwill to be written off immediately as an extraordinary gain. SFAS 142 primarily addresses accounting for goodwill and intangible assets subsequent to their acquisition and supersedes APB 17, "Intangible Assets." The provisions of SFAS 142 are required to be adopted in fiscal years beginning after December 15, 2001. However, early adoption of SFAS 142 will be permitted for companies with a fiscal year beginning after March 15, 2001, provided their first-quarter financial statements have not been previously issued. In all cases, SFAS 142 must be adopted at the beginning of a fiscal year. The most significant changes made by SFAS 142 are: (1) goodwill and indefinite-lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting-unit level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. We adopted SFAS 141 effective July 1, 2001, which will result in our accounting for any business combination consummated on or after that date under the purchase method of accounting. The adoption of SFAS 141 will not change the method of accounting used in previous business combinations. We will adopt SFAS 142 effective January 1, 2002 and, at that date, we do not expect to have any goodwill remaining on our books. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Generally our business is suffering due to the slowdown in the telecommunications equipment business. To respond to the business slowdown, we significantly restructured our business operations at the 9 end of the second quarter. As a result, we recognized employee termination costs, North Carolina real estate lease reserves, inventory reserves, reserves for the impairment of prepaid royalties and other restructuring charges for a total of $7,766,000. We also took a 100% reserve against the net operating loss carry-forward and other deferred tax assets on our balance sheet, totaling $20,209,000. Results of Operations Revenues. Our consolidated revenues of $11,272,000 for the second quarter ended June 30, 2001 declined 24% from 2000's second quarter revenues of $14,802,000. Our Multiplexer and Inverse Multiplexer product lines accounted for the major portion of the decrease from last year with a combined revenue reduction of $3,221,000. For the six months ending June 30, 2001, revenues totaled $23,486,000, which was 16% below the comparable six-month period of 2000 when total revenues were $27,838,000. The Multiplexer and Inverse Mutiplexer product groups were also the primary contributors to the lower revenues in the first six months of 2001 versus 2000. By channel of distribution, the bulk of the revenue reduction for the second quarter and first six months of 2001 versus the comparable period of 2000 was attributable to lower direct sales to network service providers ("NSPs") and domestic distributors. Shipments to international locations represented 21% of total revenues during the second quarter of 2001 and, contrary to the domestic trends, were 48% ahead of the same period of 2000, mainly due to a large order from an NSP for some of its overseas locations. For the six-month period, international revenues were 19% of total revenues and 23% ahead of the same period of last year. The combined revenues from WorldCom, Inc. and AT&T, our two largest customers, accounted for 44% of the total revenues for the first six months of 2001 versus 36% for the first six months of 2000. Gross Profit. As a percentage of revenues, gross profit for the three months ended June 30, 2001 dropped by 34 percentage points to 19%, as compared to 53% for the same period of 2000. Gross profits for the six months were 33% for 2001 versus 53% for 2000. The percentage point decline in gross profits for both the second quarter and six month comparatives was primarily attributed to higher expenses related to excess and obsolete inventory, asset impairment charges and the impact of lower sales volume on overhead per unit cost. Research and Development. Research and development expenses totaled $2,021,000 for the second quarter of 2001, which was $403,000 or 17% below the second quarter 2000 spending of $2,424,000. So far this year, research and development costs totaled $4,117,000 as compared to last year's spending of $4,995,000 for an 18% decline. The reduction in both the second quarter and six- month comparatives were mainly due to lower staffing levels, lower software expenses and a decline in material cost. The June 2001 restructuring program is expected to lower our research and development expenses for the remainder of this year. Selling, General and Administrative. Selling, general and administrative expenses decreased 8% to $5,633,000 during the three months ended June 30, 2001, as compared to $6,096,000 in 2000. Year to date, selling, general and administrative expenses were $11,697,000, compared to $11,996,000 for the same period of 2000, which represents a $299,000 or 2% reduction from last year. The reduced spending level was due primarily to lower employee benefits cost, commission expense, advertising expense and tax and license expense. We expect to report lower selling, general and administrative costs for the rest of the year due to the effects of the June 2001 restructuring program. Selling, general and administrative expenses include charges from Axel Johnson Inc. ("Axel Johnson") for legal, accounting, tax, treasury, human resources and administrative services of $117,000 for the second quarter and $233,000 for the first six months of 2001, as compared to $113,000 for the second quarter and $226,000 for the first six months of 2000. Restructuring. On June 22, 2001, we announced a corporate restructuring program in response to our own reduced revenues, negative macro-economic conditions and declining demand in our markets. This initiative will focus our business on improving operating performance by reducing expenses. The 10 restructuring program includes a workforce reduction of approximately 25%, the closing of our facility in North Carolina and a write-down of fixed assets largely due to the workforce reduction and facility closing. The effect of implementing this program was a one-time charge to results in the second quarter of $4,761,000, consisting of: $2,293,000 for employee termination costs, $2,080,000 for the closing of our facility in North Carolina and $388,000 for a fixed asset write-down. Interest and Other Income. Interest and other income amounted to $364,000 and $773,000 for the second quarter and first six months of 2001 as compared to $435,000 and $836,000 for the same periods of 2000, respectively. Interest income, which is the major component of Interest and Other Income, was $358,000 for the second quarter of 2001, as against $452,000 for the same period in 2000. For the first six months of 2001, interest income was $786,000 versus $877,000 for the first six months of 2000. The lower interest income for the three-month and six-month periods was primarily the result of reduced average investment balances. Our investment portfolio generally is comprised of commercial paper rated A1/P1; bank certificates of deposit rated A+ or better and corporate bonds and medium-term notes rated A- or better. Provision for Income Taxes. In June 2001, we recorded a non-cash charge of $20,209,000 to provide a full-valuation allowance against the deferred tax assets in compliance with SFAS No.109 "Accounting for Income Taxes." SFAS 109 requires the establishment of a valuation allowance for deferred tax assets when it is more likely than not that these assets will not be realized. We will continue to review whether a valuation allowance is warranted. Liquidity and Capital Resources Operating activities used cash of $4,094,000 in the first six months of 2001 primarily due to our net loss. Partially offsetting the impact of our net loss were non-cash items consisting of write-downs in pre-paid royalties and property and equipment, as well as the deferred tax asset valuation allowance, a reduction in working capital, depreciation and amortization. Capital expenditures in the first six months were $1,097,000. These expenditures consisted principally of the purchase of computers, software and test equipment. We anticipate capital expenditures to total $1,700,000 for 2001. We have a revolving line of credit of $15,000,000 under a credit agreement with Axel Johnson (the "Credit Agreement"). The Credit Agreement expires in December 2001. This agreement contains various representations, covenants and events of default typical for financing a business of a similar size and nature. Upon an event of default, any borrowings under the line of credit shall become payable in full. To date we have not found it necessary to use this line of credit. In addition to the Credit Agreement, Larscom Incorporated and Axel Johnson have an administrative service agreement and a tax-sharing agreement for the purposes of defining the on-going relationship between the two entities. At June 30, 2001, we had cash and cash equivalents of $4,401,000 and short-term investments of $18,512,000. We believe our liquidity position is currently adequate. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141 ("SFAS 141"), "Business Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 addresses financial accounting and reporting for business combinations and supersedes APB16, "Business Combinations." The provisions of SFAS 141 are required to be adopted July 1, 2001. The most significant changes made by SFAS 141 are: (1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) establishing specific criteria for the recognition of intangible assets separately from goodwill and (3) requiring unallocated negative goodwill to be written off immediately as an extraordinary gain. SFAS 142 primarily addresses accounting for goodwill and intangible assets subsequent to their acquisition and supersedes APB 17, "Intangible Assets." The provisions of SFAS 142 are required to be adopted in fiscal years beginning after December 15, 2001. However, early adoption of SFAS 142 will be permitted for companies with a fiscal year beginning after 11 March 15, 2001, provided their first-quarter financial statements have not been previously issued. In all cases, SFAS 142 must be adopted at the beginning of a fiscal year. The most significant changes made by SFAS 142 are: (1) goodwill and indefinite-lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting-unit level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. We adopted SFAS 141 effective July 1, 2001, which will result in our accounting for any business combination consummated on or after that date under the purchase method of accounting. The adoption of SFAS 141 will not change the method of accounting used in previous business combinations. We will adopt SFAS 142 effective January 1, 2002 and, at that date, we do not expect to have any goodwill remaining on our books. Certain Factors Affecting Future Operating Results This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results may differ materially from those indicated in any forward-looking statements, due to the risks and uncertainties set forth below as well as other risks and uncertainties we may describe from time to time in other filings with the Securities and Exchange Commission. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Readers are urged to review carefully and consider the various risks and uncertainties described in this report and in other reports filed with the Securities and Exchange Commission On June 22, 2001, we announced a corporate restructuring plan. The restructuring included a workforce reduction of approximately 25% and the closure of our North Carolina facility. There can be no assurance that we will not lose employees in the future as a result of the restructuring, or that we will be able to recruit suitable replacements, particularly since the demand for such employees is high. We believe that our relationships with large customers, particularly NSPs and ISPs, will be critical to our future success. A small number of customers have accounted for a majority of our revenues in each of the past several years. During 2000, 1999 and 1998, two customers, WorldCom, Inc. and its subsidiaries and AT&T, together accounted for 39%, 41% and 44% of our revenues, respectively. We are vulnerable to industry-wide downturns such as the one occurring now. Loss of, or a material reduction in, orders from one or more of our major customers could have a material adverse effect on our business and operating results. The absence of long-term backlog makes us vulnerable in periods of weak demand. None of our customers is contractually obligated to purchase any quantity of products in any particular period, and product sales to major customers have varied widely from quarter-to-quarter and from year-to-year. Our current customers might not continue to place orders with us, orders from existing customers might not continue at the levels of previous periods and we might not be able to obtain orders from new customers. Recently, there has been a reduction of equipment demand throughout the telecommunications industry. Because of our limited backlog, this has an essentially immediate negative effect on our operations, which we cannot fully offset on a timely basis by implementing reductions in expenses. Various factors cause fluctuations in our quarterly operating results. Our operating results have fluctuated significantly in the past and may fluctuate in the future on a quarterly and annual basis as a result of a number of factors, many of which are beyond our control. A small number of customers have accounted for a significant percentage of our sales. Therefore, sales for a given quarter generally depend to a significant degree upon orders received from and product shipments to a limited number of customers. Sales to individual large customers are often related to the customer's specific equipment deployment projects, the timing of which is subject to change on limited notice, in addition to the ebbs and flows in our customers' business conditions and the effect of competitors' product offerings. We have experienced both accelerations and slowdowns in orders related to such projects, causing changes in the sales level of a given quarter relative to both the preceding and subsequent quarters. Since most of our sales are in the form of 12 large orders with short delivery times to a limited number of customers, our backlog and consequent ability to predict revenues will continue to be limited. In addition, announcements by us or our competitors of new products and technologies could cause customers to defer, limit, or end purchases of our existing products. In the event that we lose one or more large customers, anticipated orders from major customers fail to materialize, or delivery schedules are deferred or canceled as a result of the above factors or other unanticipated factors, our business and operating results would be materially adversely affected. Consequently, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indicative of future performance. Results in any period could also be affected by changes in market demand, competitive market conditions, market acceptance of new or existing products, increasing sales channel development costs, the cost and availability of components, the mix of our customer base and sales channels, the mix of products sold, our sales promotion activities, our ability to expand our sales and marketing organization effectively, our ability to attract and retain key technical and managerial employees and general economic conditions. We established our expense levels for product development and other operating expenses based on projected sales levels and margins, but expenses are relatively fixed in the short term. Accordingly, when sales are below expectations in any given period, our inability to adjust spending proportionally in the short term may exacerbate the adverse impact of a revenue shortfall on our operating results. Because of all of the foregoing factors, our operating results in one or more future periods may be subject to significant fluctuations. In the event these factors result in our financial performance being below the expectations of public market analysts and investors, the price of our Class A Common Stock could be materially adversely affected. Gross profits will not attain earlier levels. We do not expect our gross profit percentage to reach the levels achieved before 1998, primarily because of increased competition. In addition, we have developed an indirect distribution channel, which typically yields lower margins on sales than direct sales. A number of additional factors could cause gross profits to fluctuate as a percentage of revenue, including changes in product mix, price discounts given, costs of components, manufacturing costs and production volume. We are experiencing current losses as we implement our growth initiatives. The Board of Directors, on November 17, 1999, approved funding for an aggressive program to develop new products and expand into new markets. We reported operating losses for 2000 partly as a result of these strategic initiatives. As a result of unfavorable macro-economic conditions and decreases in demand in our markets, we restructured our operations in June 2001, which has led us to reduce our investment in new products and markets. Although the restructuring actions taken will lower our expense base in the future, we expect losses for the remainder of 2001, and potentially, continued losses into 2002. In addition, our June 2001 workforce reduction may deprive us of the human capital we would need to take full advantage of any upturn in the business cycle in our industry. We depend on recently-introduced products and products under development. We expect sales of our established products to decline over time. Therefore, our future operating results are highly dependent on market acceptance of our recently-introduced products and products that may be introduced in the future. These include, for example, the Larscom 3000, the Larscom 6000, the Orion 5000 and the Larscom 4800, which have only recently been introduced, and our proposed future "intelligent access" products. There can be no assurance that such products will achieve widespread market acceptance, and, in fact, some other products we introduced in recent years have failed to meet our sales expectations. In addition, we have, in the past, experienced delays and changes in course in the development of new products and the enhancement of existing products, and such delays and changes in course may occur in the future. Inability to develop and introduce new products or product versions in a timely manner, due to resource constraints or technological or other reasons, or to achieve timely and widespread market awareness and acceptance of our new products or releases, would have a material adverse effect on our business and operating results. We depend heavily on component availability and key suppliers. On-time delivery of our products depends upon the availability of components and subsystems used in our products. We depend upon our 13 suppliers to manufacture, assemble and deliver components in a timely and satisfactory manner. We obtain components and license certain embedded software from numerous single sources. We do not believe we would be able to develop alternative sources for certain essential components used in our products. In addition, while we believe we would be able to develop alternative sources for most of the other components and software used in our products without incurring substantial additional costs, there can be no assurance that we would be able to do so, if required. Any inability by our suppliers to meet our demand or any prolonged interruption in supply, or a significant increase in the price of one or more components or in the price of software, would likely have a material adverse effect on our business and operating results. We generally do not have any long-term contracts with our suppliers. It is possible that our suppliers will not continue to be able and willing to meet our future requirements. Rapid technological change could hurt our ability to compete. The telecommunications equipment industry is characterized by rapidly-changing technologies and frequent new product introductions. The rapid development of new technologies increases the risk that current or new competitors could develop products that would reduce the competitiveness of our products. Our success will depend to a substantial degree upon our ability to respond to changes in technology and customer requirements. This will require the timely development and marketing of new products and enhancements on a cost-effective basis. There can be no assurance that we will be successful in developing, introducing or managing the transition to new or enhanced products or that any such products will be responsive to technological changes or will gain market acceptance. For example, we are aware of a competing technology with network monitoring capabilities that can be used instead of the Split-T product that we sell primarily to WorldCom, Inc. If WorldCom Inc. customers were to opt for the alternative technology as part of their services, our business and operating results would be materially adversely affected. Our business could be materially and adversely affected by the integration and functionality of switches and routers. New technologies are displacing some parts of the T1/E1 CSU/DSU product lines, the Inverse Mutiplexer product lines and the Mutiplexer product lines. For example, symmetrical and high bit rate digital subscriber line ("SDSL" and "HDSL") are subscriber loop technologies that enable service providers to deploy high bandwidth services that replace more traditional T1/FT1 services, upon which most of our products are based. We are controlled by Axel Johnson. Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to four votes per share, subject to adjustment to preserve the initial voting ratio. Axel Johnson is the sole holder of the Class B Common Stock. As a result, Axel Johnson has sufficient combined voting power to control the direction and policies of Larscom absolutely, including mergers, the payment of dividends, consolidations, the sale of all or substantially all of the assets of Larscom and the election of the Board of Directors of Larscom and to prevent or cause a change in control of Larscom. It is difficult to hire all the qualified personnel we need. To grow our business, we must continue to attract, train, motivate and manage new employees successfully, integrate new management and employees into our overall operations and continue to improve our operational, financial and management systems. Availability of qualified sales and technical personnel is limited, and competition for experienced sales and technical personnel in the telecommunications equipment industry is intense during times when business in the telecommunications equipment industry is strong. In the past, particularly in Northern California, we have had difficulty in filling all of our hiring requisitions. In addition, we are currently searching for a permanent chief executive officer, which could cause uncertainty and delay in the hiring of essential personnel. Our failure to manage any expansion or contraction effectively could have a material adverse effect on our business and operating results. We are trying to enter more international markets, U.S. which results in operational difficulties and risks. Sales outside the US approximated 19% of our revenues for the first six months of 2001. The conduct of business outside the U.S. is subject to certain customary risks, including unexpected changes in regulatory requirements and tariffs, difficulties in staffing and managing foreign operations, longer payment cycles, greater difficulty in accounts receivable collection, currency fluctuations, expropriation and potentially adverse tax consequences. In addition, to sell our products internationally, we must meet standards established by telecommunications authorities in a variety of countries, as well as recommendations of the International Telecommunications Union. A delay in obtaining, or the failure to obtain, certification of our 14 products in countries outside the U.S. could inhibit or preclude our marketing and sales efforts in such countries, which could have a material adverse effect on our business and operating results. We have developed an indirect distribution channel for sales to domestic customers. This channel consists primarily of a small group of master distributors, such as Tech Data, and a number of authorized resellers. (Sales to large NSPs and ISPs continue to be handled by our direct sales force.) As part of this strategy we have appointed certain sales people to sign up resellers and assist them in their sales efforts. There are a number of risks associated with an indirect distribution channel. The risks include a reduction in our ability to forecast sales, reduced average selling prices, management's inexperience in establishing and managing a distribution channel, potential reductions in customer satisfaction, loss of contact with users of our products, a potential build-up of inventories at resellers and new methods of advertising and promoting products which will result in additional expenses. We market our products internationally through non-exclusive distribution agreements with international distributors and systems integrators. To focus on sales to Europe, the Middle East and Africa, we have created a regional sales team, headquartered in the United Kingdom. The United Kingdom team focuses on direct sales to large NSPs while also supporting its distributors for sales to smaller customers. We have also established sales offices in Hong Kong, Singapore and Beijing to focus on the Asian market. If these initiatives are not successful, our results could be materially adversely affected. We must comply with regulations and evolving industry standards. The market for our products is characterized by the need to comply with a significant number of communications regulations and Internet Protocol ("IP") standards, some of which are evolving as new technologies are deployed. In the U.S., our products must comply with various regulations defined by the Federal Communications Commission and standards established by Underwriters Laboratories, as well as industry standards established by various organizations. As standards for services such as ATM, IP and DSL evolve, we may be required to modify our existing products or develop and support new versions of our products. The failure of our products to comply, or delays in compliance, with the various existing and evolving industry standards could delay introduction of or affect the marketability of our products, which in turn could have a material adverse effect on our business and operating results. We may not be able to protect our intellectual property and proprietary information. We rely upon a combination of trade secrets, contractual restrictions, copyrights, trademark laws and patents to establish and protect proprietary rights in our products and technologies. We have been issued only one U.S. patent to date, but we believe that the success of our business depends primarily on our proprietary technology, information, processes and expertise, rather than patents. Much of our proprietary information and technology is not patented and may not be patentable. There can be no assurance that we will be able to protect our technology or that competitors will not be able to develop similar technology independently. We have entered into confidentiality and invention assignment agreements with employees, and entered into non-disclosure agreements with suppliers, distributors and appropriate customers so as to limit access to and disclosure of our proprietary information. There can be no assurance that these statutory and contractual arrangements will deter misappropriation of our technologies or discourage independent third-party development of similar technologies. In the event such arrangements are insufficient, our business and operating results could be materially adversely affected. We have not conducted a formal patent search relating to the technology used in our products. From time to time, third parties may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies that are important to us. Since patent applications in the U.S. are not publicly disclosed until the patent is issued, applications may have been filed by competitors of ours that could relate to our products. Software comprises a substantial portion of the technology in our products. The scope of protection accorded to patents covering software-related inventions is evolving and is subject to uncertainty, which may increase the risk and cost to us if we discover third-party patents related to our software products or if such patents are asserted against us in the future. In the event of litigation to determine the validity of any third-party claims, such litigation, whether or not determined in favor of us, could result in significant expense to us and divert the efforts of our technical and management personnel. In the event of an adverse ruling in such litigation, we might be required to pay damages, discontinue the use and sale of infringing 15 products, and expend significant resources to develop non-infringing technology or obtain licenses from third parties. There can be no assurance that licenses from third parties would be available on acceptable terms, if at all. A successful claim against us and our failure to develop or license a substitute technology could have a material adverse effect on our business and operating results. We provide our customers a three-year product warranty. Complex products such as ours might contain undetected errors or failures when first introduced or as new versions are released. Although we believe that our reserves for estimated future warranty costs are adequate, our estimates, particularly those related to products that have been recently introduced, might not be correct. Warranty claims in excess of those expected could have a material adverse effect on our business and operating results. Item 3: Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk. We do not use derivative financial instruments in our investment portfolio. Our investment portfolio generally has been comprised of commercial paper rated A1/P1, bank certificates of deposit rated A+ or better and corporate bonds and medium-term notes rated A- or better. These securities mature within one year and are classified as available for sale in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At June 30, 2001, our investment portfolio included fixed-income securities, of the quality described above, with a fair-market value of approximately $18 million. These securities are subject to interest-rate risk, and will decline in value if interest rates rise. Due to the short duration of our investment portfolio, an immediate, hypothetical 10 percent decrease in interest rates would not have a material effect on our current year financial condition or results of operations. Because the securities are so short-term, their principal value would not be materially affected. The new securities we replace them with when they mature would yield us less interest income, but the amount of the reduction would not be material to us. If a 10% reduction occurred on July 1, 2001 and remained in effect throughout 2001, our interest income and our cash flow would be reduced by approximately $10,000 in 2001. We do not hold any long-term fixed instruments. Foreign Currency Exchange Rate Risk. Our international sales are typically made in U.S. dollars and are generally not subjected to foreign currency exchange rate risk. However, certain of our sales and marketing expenses are incurred in local currencies, principally the British Pound. Consequently, our international results of operations are subject to foreign exchange rate fluctuations. We do not currently hedge against foreign currency rate fluctuations. Gains and losses from such fluctuations have not been material to our consolidated results. The effect of an immediate, hypothetical 10 percent change in exchange rate for the British Pound or any other foreign currency would not be material to us. 16 Part II: Other Information Item 1: Legal Proceedings. We are not currently involved in any material legal proceedings. Item 2: Changes in Securities. Not Applicable. Item 3: Defaults upon Senior Securities. Not Applicable. Item 4: Submission of Matters to a Vote of Security Holders. The following matters were voted upon at the annual meeting on May 23, 2001. 1. Election of (6) directors of the Company. For Withheld ------------ ------------- Robert Coackley 46,772,131 1,572,440 Donald G. Heitt 48,323,331 21,420 Lawrence D. Milligan 46,771,327 1,573,244 Harvey L. Poppel 48,325,881 18,690 Richard E. Pospisil 48,327,926 16,645 Joseph F. Smorada 46,768,976 1,575,595 2. Ratification of the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company. For 48,322,850, Against 12,395, Abstain 9,326. Item 5: Other Information. Not Applicable. 17 Item 6: Exhibits and Reports on Form 8-K. a. Exhibits. *10.1 Original Equipment Manufacturing/Private Label Agreement by and between Larscom Incorporated and G3M Corporation dated January 4, 2001. *10.2 Non-Exclusive OEM Agreement by and between Larscom Incorporated and Oasys Telecom, Inc. dated May 1, 2001. b. Reports. We filed two reports on Form 8-K during the second quarter of 2001, for events of June 22 and June 26, 2001, respectively. The first report, which was filed June 22, 2001, disclosed that we restructured our organization in response to a recent and significant slowdown in business, reducing our workforce by 25%, closing our North Carolina facility and recognizing significant accounting charges in the second quarter of 2001. Separately, we announced that George Donohoe, executive vice president, had decided to retire and Rebecca Horn, vice president for marketing, located in North Carolina, would leave the Company. The second report, which was filed June 26, 2001, announced the resignation of Robert Coackley as President and Chief Executive Officer and the appointment of Richard E. Pospisil to replace him. * Confidential treatment has been requested as to certain portions of this agreement. Such omitted confidential information has been designated by an asterisk and has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, pursuant to an application for confidential treatment. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LARSCOM INCORPORATED Date August 13, 2001 By /s/ Richard E. Pospisil ------------------- ----------------------------------- Richard E. Pospisil President and Chief Executive Officer (Principal Executive Officer) By /s/ Donald W. Morgan ----------------------------------- Donald W. Morgan Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 19 EXHIBIT INDEX *10.1 Original Equipment Manufacturing/Private Label Agreement by and between Larscom Incorporated and G3M Corporation dated January 4, 2001. *10.2 Non-Exclusive OEM Agreement by and between Larscom Incorporated and Oasys Telecom, Inc. dated May 1, 2001. * Confidential treatment has been requested as to certain portions of this agreement. Such omitted confidential information has been designated by an asterisk and has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, pursuant to an application for confidential treatment. 20 EX-10.1 3 dex101.txt ORIGINAL EQUIPMENT MANUFACTURING/PRIVATE LABEL EXHIBIT 10.1 ORIGINAL EQUIPMENT MANUFACTURER/PRIVATE LABEL AGREEMENT CONFIDENTIAL TREATMENT Original Equipment Manufacturer/ Private Label Agreement This Agreement is made this 4/th/ day of January, 2001 by and between G3M Corporation, with its principal place of business at 4320 Stevens Creek Blvd, San Jose, CA 95129, (hereinafter "SELLER") and Larscom Incorporated, with its principal place of business at 1845 McCandless Drive, Milpitas, CA 95035, (hereinafter "BUYER"). This Agreement sets forth the terms and conditions for the sale of Products by SELLER, and the purchase of the same by BUYER. 1. DEFINITIONS 1.1 "SELLER's Products" shall mean all SELLERS hardware products set forth in Exhibit "A" hereto, including all firmware incorporated as part of the hardware, and all necessary Documentation relating thereto. 1.2 "SELLER's Software" shall mean all software incorporated in SELLER's Products which includes all software listed in Exhibit "A", all software upgrades, and all necessary Documentation relating thereto. 1.3 "Documentation" consists of all manuals, release notices, and other materials generally made available to the customers of SELLER with the sale of SELLER's Products and/or Software. 2. EFFECTIVE DATE OF AGREEMENT AND TERM This Agreement shall become effective as of the date set forth above and shall continue in full force and effect for ***** from such date. At the end of the initial ***** term, BUYER shall have the right to renew this Agreement, upon the same terms and conditions provided herein, for additional ***** terms. In the event BUYER does not wish to exercise its rights under the preceding sentence, BUYER shall provide written notice to SELLER not later than ***** prior to the end of the initial and/or subsequent term(s) of this Agreement. 3. PRICING AND DISCOUNTS 3.1 Pricing - The List Prices for the Products are set forth in ------- Exhibit "A" and shall not be increased during the ***** period. The List Prices may be increased by SELLER once at each ***** period provided that the List Price has changed for all customers and that SELLER provides BUYER with a ***** prior written notice of such proposed price increase. In the event that BUYER does not accept the increased prices, or that discounts offered are unacceptable to BUYER, BUYER shall have the right to terminate this Agreement, and/or any underlying purchase orders, without penalty. 3.2 Discounts - SELLER shall sell to BUYER the Products at the --------- List Prices less the applicable discounts specified in Exhibit "B" as ordered by BUYER on BUYER's purchase orders pursuant to this Agreement. Confidential treatment has been requested for portions of this exhibit. The copy herewith omits the information subject to the confidentially request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. 21 CONFIDENTIAL TREATMENT 3.3 ***** Customer - SELLER represents that the ***** are ***** by -------------- the SELLER to ***** in the ***** under similar terms and conditions. Should SELLER ***** to any *****, SELLER shall, at the same time, ***** for the ***** under *****. Such ***** shall apply to ***** shipped within thirty (30) days prior to the *****, and to ***** but not yet shipped, and to ***** thereafter purchased pursuant to this Agreement. 3.4 Taxes - Prices set forth in this Agreement are exclusive of ----- any and all Federal, state and local excise, sales, use or similar taxes. When applicable, such items shall appear as separate additional items on SELLER's invoices and shall be paid by BUYER. 4. TERRITORY This agreement provides for BUYER to sell Products on a ***** basis except for those countries listed in Exhibit E. 5. SPARE PARTS 5.1 Availability - SELLER shall maintain a supply of spares to ------------ perform warranty and out-of-warranty repairs to Products, or make such spares available for sale to BUYER as described below, for a period of seven (7) years after the delivery of the last unit of Product to BUYER under this Agreement, or discontinuation of such Product, whichever is later. 5.2 Purchase - BUYER may, at any time, opt to purchase spare parts -------- to directly support its installed customer base. SELLER agrees to make available to BUYER the spare parts as may be mutually agreed upon for specific items and prices. Emergency orders for spare parts placed as a result of a machine down condition shall be shipped within one business day, after receipt of BUYER's purchase order number, (transmitted by facsimile or e-mail), by SELLER. Routine orders for spare parts shall be shipped within thirty (30) days after receipt of BUYER's purchase order number by SELLER. In the event that SELLER cannot comply with the agreed to delivery schedules set forth above, Seller agrees to provide completed units of Product (versus individual spare parts) for use by BUYER for replacement of its customers' equipment, within the same time-frames. 6. TERMS OF PAYMENT Invoices shall be rendered by SELLER no earlier than the date of shipment of Products or completion of services rendered hereunder. Payment shall be made on undisputed invoices, in full, net thirty (30) days after receipt of invoice; provided however, that BUYER need not pay for unsatisfactory Products rejected under this Agreement and returned. Payment shall not constitute acceptance of any Products by BUYER. 7. ORDERING 7.1 Purchase Orders - SELLER agrees to be prepared to ship the --------------- Products listed in Exhibit "A". BUYER shall provide SELLER with purchase orders from time to time directed to the attention of Order Administration at SELLER's Principal location, and SELLER agrees to deliver said Products. Said purchase orders shall refer to and indicate that they are being submitted subject to the terms and conditions of this OEM Agreement between BUYER and SELLER. All purchase orders submitted under this Agreement shall be governed and controlled by the conditions of this Agreement, which shall take precedence over any conflicting terms and conditions contained in any purchase order or acknowledgement. Purchase orders submitted under this Agreement will specify: ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 22 CONFIDENTIAL TREATMENT a) identity of the Products ordered; b) the quantity of each such Product ordered; c) the discounted unit price for each such Product; d) shipping instructions; e) date of delivery at BUYER's or BUYER's Customer dock; and f) any other special information required by this Agreement or by the circumstances of the order. 7.2 Product Forecasts - At the request of the SELLER, BUYER will ----------------- provide monthly forecasts of Products which BUYER estimates it will need, for at least the subsequent six (6) month period; however, in no event shall BUYER be obligated to purchase the amounts of Products set forth in the forecast. 7.3 Quotas - There are no minimum quotas or quantities which BUYER ------ is required to purchase under this Agreement. 8. DELIVERY 8.1 Delivery/Shipping - All deliveries will be made F.O.B. ----------------- SELLER's factory at 4320 Stevens Creek Blvd, # 275, San Jose, CA 95129. SELLER agrees to drop-ship Products directly to BUYER's Customers in accordance with BUYER's instructions. Products shall be packed in accordance with SELLER's best standard commercial practices as approved by BUYER or in accordance with BUYER's instructions, if any are given, so as to prevent damage during shipment. 8.2 Title, Risk of Loss, Freight Charges - Title and risk of loss ------------------------------------ shall, subject to proper packing and proper delivery of the subject Products to the carrier, pass to BUYER upon delivery to the common carrier or BUYER's representative at the F.O.B. point. All transportation charges shall be freight collect unless otherwise specified. BUYER will notify SELLER relative to any shipment shortage within thirty (30) days from BUYER's receipt of the shipment. 8.3 Rescheduling - BUYER shall be entitled to, at any time between ------------ 31 and 90 days prior to the scheduled shipment date, reschedule and postpone up to ninety (90) days, Products having up to 50% of the dollar value of the Products scheduled for shipment. Buyer shall also be entitled to, at any time prior to 90 days before any scheduled shipment date, reschedule and postpone up to 90 days, the delivery of any products scheduled for shipment. 8.4 Lead Times - Purchase orders shall specify a mutually agreed ---------- to delivery lead time not to exceed thirty (30) days after receipt of BUYER's verbal purchase order. Reduced lead times may be requested by BUYER ("Expedited Orders") for reasonable quantities of Products. SELLER agrees to provide BUYER with timely notice of any delay in Product production or delivery. BUYER's knowledge of such delays is not a waiver, direct or implied, of SELLER's production or delivery obligations hereunder. 8.5 Safety Stock - SELLER agrees to maintain a safety stock equal ------------ to five percent (5%) of the total previously shipped units up to a maximum of twenty-five (25) units, but no less than five (5) units, in order to promptly support Expedited Orders and handle unforeseen BUYER requirements. 8.6 Late Deliveries - In the event SELLER does not ship Products --------------- within the agreed to time frame as shown on BUYER's purchase order(s), and if the shipment is more than five (5) days late, BUYER will advise Seller of requirements imposed by its customer. BUYER and SELLER will then use their best efforts to meet customer requirements and if these are not met in the next 30 days, then BUYER may cancel the order(s) without penalty. 23 CONFIDENTIAL TREATMENT 9. CHANGES BUYER may at any time request SELLER to make changes within the general scope of this Agreement in any of the following: (i) the Specification; (ii) SELLER's method of shipment or packing; (iii) the quantities of Products to be delivered hereunder; (iv) the place of delivery; and/or (v) the delivery schedule. If any such change causes an increase in the cost of, or time required for, performance under this Agreement, SELLER shall have ninety (90) days to submit a proposal detailing the adjustments in the price and/or delivery schedule for Products directly affected by requested BUYER's changes. 10. TESTING AND INSPECTION, ACCEPTANCE Payment for the Products delivered hereunder shall not constitute acceptance thereof. The BUYER may elect at anytime, and from time to time, to source inspect any and all of the Products for the BUYER in the SELLER's facility before shipment to the BUYER or BUYER's customers. The BUYER may, at its option, elect to either source inspect the Product, or waive source inspection in favor of in-house inspection for that shipment. BUYER shall have the right to reject any or all of said Products within thirty (30) days after BUYER'S receipt of the Products, which are, in BUYER's reasonable judgment defective or nonconforming. Products rejected and Products supplied in excess of quantities called for in BUYER's purchase order may be returned to SELLER at its expense. In the event BUYER or BUYER's customer receives Products whose defect or nonconformity are not apparent on inspection, BUYER reserves the right to require replacement. Nothing contained in this Agreement shall relieve in any way SELLER from the obligation of testing, inspection and quality control. 11. QUALITY ASSURANCE SELLER agrees to maintain a formal Quality Assurance Program which may be reviewed by BUYER for approval. On a periodic basis and/or upon determination of need based upon problems, SELLER shall be subject to a quality audit. These audits to be performed by BUYER's Quality Representative, shall serve to verify that SELLER is maintaining or improving quality and operational capabilities. 12. AGENCY APPROVALS SELLER agrees that all Products sold hereunder shall meet UL and CSA specifications and have been recognized and labeled accordingly. SELLER shall provide BUYER with a copy of the UL and CSA recognition/certification. SELLER agrees that all Products sold hereunder shall meet the FCC Part 15, Subpart J regulations for Class A computer devices and FCC Part 68, and any other applicable FCC regulations, and shall be labeled accordingly. SELLER shall provide BUYER with a copy of the FCC recognition/certifications. 13. WARRANTY 13.1 Warranty Coverage - SELLER warrants that the Products and/or ----------------- Software sold hereunder will conform to the applicable specifications (attached hereto as Exhibit "D") and will be free from defects in material and workmanship for a period of twenty four (24) months from the date of receipt of Product and/or Software at BUYER's facility or twenty four (24) months from the date of receipt of Product and/or Software at BUYER's customer facility if product is drop-shipped by SELLER. 13.2 Repair/Replacement - If any Products are defective in ------------------ materials or workmanship, or do not conform to specifications, BUYER or BUYER's customers shall have the right to return them to SELLER. The defective Products will be returned, with a description of the failure, freight prepaid. The defective Products will either be repaired or replaced at SELLER's option and at no charge to BUYER or BUYER's customer, within ten (10) working days of receipt, and returned freight prepaid to BUYER or BUYER's customer as directed by BUYER. SELLER shall notify BUYER if the Product will be replaced. In the event that the same unit of Product CONFIDENTIAL TREATMENT 24 is sent to SELLER for repair more than once due to the same mode of failure, then SELLER must replace the unit or defective components with new Product. 13.3 Dead On Arrival - If a product arrives "Dead on Arrival" --------------- (DOA), SELLER will, within twenty-four (24) hours from notification, ship a replacement unit to BUYER or BUYER's customer freight pre-paid. BUYER agrees to return DOA product to SELLER within 15 days, freight collect. 13.4 Breach of Warranty - Should SELLER, for any reason, fail to ------------------ honor the warranty provisions herein, SELLER shall be deemed in breach of this Agreement. BUYER may pursue any and all other remedies available as discussed in paragraph 46. Dispute Resolution. SELLER acknowledges that BUYER has an independent reputation with its customers which BUYER may desire to protect despite any breach by SELLER. 13.5 Out-of Warranty Repairs - SELLER shall provide out-of-warranty ----------------------- repair and replacement services for all Products furnished under this Agreement for a period of seven (7) years from date of discontinuation of the Product, or the date of delivery of the Product, whichever is later. Charges for such out-of-warranty repairs shall be at SELLER'S then current charges less any applicable discounts. 14. ***** 14.1 Grant *****- BUYER acknowledges that the software and firmware ----------- resident in the Products is confidential, proprietary and/or copyrighted by SELLER. SELLER hereby grants to BUYER a ***** and *****, under all patents and proprietary interests owned or controlled by SELLER and pertaining to the Products herein, to use ***** the Products. 14.2 Restrictions - The software and firmware provided hereunder, ------------ including any subsequent improvements or updates, are furnished to BUYER under a ***** and ***** for use in a *****. BUYER agrees that all software and firmware shall not be sold or distributed or otherwise made available to customers or other third parties separate from the Product in which it is resident, nor copied or tampered with, nor shall its removal be attempted, except for copies made for archival purposes. BUYER agrees that, in connection with the transfer of any Product to its customer and in connection with any subsequent transfer by its customer to a third party, it will contractually restrict all such transferees such that they shall: a) limit the use of the software and firmware thereof to that Product transferred by BUYER, and b) not reverse assemble or reverse compile any of the software or firmware. 15. EPIDEMIC OF FAILURES Notwithstanding the warranty provisions of this Agreement, or any other provision of this Agreement, if an epidemic of failures of functional specifications or nonconformity's of the Products occur, due to the same specifically identified symptom, at rate greater than five percent (5%), within any two (2) month period, of a five (5) year span, from date of shipment by SELLER regardless of whether the Products are in or out of warranty, SELLER agrees to use its best efforts (at its expense) to remedy the failed Products and to prevent the problem from occurring in future deliveries ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 25 CONFIDENTIAL TREATMENT In the event that SELLER is unable to remedy the problem in the Products, BUYER may, at its option, cancel any and all purchase orders or portions thereof for Products which are experiencing the epidemic failures and BUYER may return, for full credit, the Products which are under warranty and are experiencing the epidemic failures and which have already been received by BUYER or BUYER's Customers. BUYER may at its option, elect to replace said Products with products which fulfill BUYER's customer's needs and invoice SELLER for all reasonable expenses incurred. Further, BUYER may cancel any and all purchase orders or portions thereof for Products which were used in, or in conjunction with, the Products experiencing the epidemic of failures (e.g., spare parts, accessories, etc.), and BUYER may return freight collect and for full credit, such Products which have already been received. 16. EMERGENCY SUPPORT In the event of an emergency involving SELLER's Product at BUYER's facilities or BUYER's customer's site, SELLER will provide to BUYER qualified factory technical support when such assistance is required by BUYER within twenty-four (24) hours, not to exceed forty-eight (48) hours, upon notice given by the Manager or Director of Customer Service Operations, or other persons designated by BUYER. SELLER shall designate one or more contact persons who will be responsible for assuring that the emergency support is provided. Whether the cost of the emergency assistance shall be borne by SELLER or BUYER depends on whether the Products are under warranty and in compliance with SELLER's specifications. If the Product is in compliance with the specifications, or if the product is not under warranty, BUYER will bear the cost and will be billed (except in situations involving epidemic failures as described in Section 15, above) at SELLER's then prevailing published rates. If the Product is under warranty or not in compliance with SELLER's specifications, then SELLER shall bear the cost of the emergency assistance. 17. TECHNICAL SUPPORT AND DOCUMENTATION 17.1 Technical Support - SELLER will provide the following support ----------------- at BUYER's plant or BUYER's customer site: a) Engineering Support, *****, to BUYER's Engineering personnel in the form of telephone consultation by SELLER's Engineering personnel during normal work hours. b) Field Support, *****, to BUYER's Customer Service Engineering personnel in the form of telephone, facsimile or e-mail consultation by SELLER's support organization and technical assistance specialists on a 24 hour-a-day seven day-a-week basis. c) Emergency Support, *****, to BUYER's Customer Service Engineering personnel, to include appropriate escalation procedures, by SELLER'S support organization and technical assistance specialists on a 24 hour-a-day, seven day-a-week basis. 17.2 Documentation - Concurrent with the date of this Agreement, ------------- SELLER will provide BUYER with a list of all documentation/manuals available or planned for general information, training and for maintenance of the Products. Such documentation may include, but not be limited to, maintenance manuals (which typically include site preparation, installation, operation, functional description, preventative maintenance, maintenance procedures, logic block diagrams for the Products), logic card manuals which include card layout, technical memos or bulletin file, and copies of documentation covering any Product changes (as described in ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 26 CONFIDENTIAL TREATMENT paragraph 23, herein). SELLER hereby grants, at no charge to BUYER, the right to reproduce, translate into other languages, and prepare derivative works, distribute, sell, perform and display, in whole or in part, manuals and documentation specified herein. During the term of this Agreement, SELLER shall provide BUYER with written notification sixty (60) days or more prior to the general release of said documentation. BUYER may integrate such changes into its version of the documentation at BUYER's option. 18. TRAINING SELLER agrees to provide ***** training courses per year to BUYER *****. Additional training courses shall be provided at a cost to be mutually agreed upon. For training courses taught at locations other than SELLER's facilities, BUYER agrees to reimburse SELLER for reasonable travel and living expenses of the instructor. 19. ESCROW At BUYER's request and expense and at any time during the term of this Agreement, SELLER will be prepared to place in escrow all documentation necessary for the production and manufacture of Products covered under this Agreement, such as, but not limited to, engineering, manufacturing and software source code documentation ("Escrow Material"). The designated escrow agent will be instructed to deliver to BUYER said documentation and source code in the event of an arbitration event relating to a default by SELLER as outlined in Article 30 herein, so that BUYER may manufacture and support the Products and/or Software. All intellectual properties remain as property of SELLER. 20. CONFIDENTIAL INFORMATION Any knowledge or information which either party has disclosed or may hereafter disclose to the other, which is marked with a confidential or proprietary notice in connection with the purchases hereunder, shall not be disclosed, revealed, or transmitted to anyone by the other party nor shall either party permit such to be disclosed, revealed, or transmitted to any third party. This provision shall survive the expiration or termination of this Agreement. With the exception of software and firmware resident in the Products, SELLER agrees that it will not disclose to BUYER any information which it deems as confidential or proprietary unless BUYER agrees in advance to such disclosure and it is done pursuant to a separate Confidential Disclosure Agreement entered into by BUYER and SELLER which is part of this Agreement by an Addendum hereto as Exhibit D. 21. PATENT AND SIMILAR INDEMNITY Except as hereinafter limited, SELLER shall defend at its own expense and indemnify BUYER from and against any liability (including attorneys' fees and costs) arising out of any claim that any Product and/or Software purchased hereunder infringes a valid patent or is a violation of copyright, trade secret, or other proprietary rights of third parties, provided that, BUYER shall promptly give SELLER timely written notice thereof and reasonable cooperation, information and assistance in connection therewith, and SELLER shall have sole control and authority with respect to defense, settlement, or compromise thereof. Should Products delivered hereunder become or, in SELLER's opinion, be likely to become the subject of such a claim, SELLER may at its option, either procure for BUYER the right to continue using such Products, or replace or modify the Products so that they become non-infringing. ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 27 CONFIDENTIAL TREATMENT 22. INDEMNIFICATION SELLER shall defend, indemnify, and hold BUYER harmless from property damage, personal injury or expense, including attorneys fees and costs, incurred by any employee, agent, invitee or ***** of BUYER, or any other person, regardless of how caused if arising out of the use or possession of the Products and/or Software by BUYER or BUYER's customers unless such loss, property damage, personal injury, or expense, including attorneys fees, was caused solely by the gross negligence or willful misconduct of BUYER, its employees, its authorized agents or its customers. 23. PRODUCT CHANGES; DISCONTINUANCE 23.1 Product Changes - SELLER shall have certain rights, except as --------------- stated herein, to make changes to the Products. A "material change" is defined as one which affects the Products' specified performance, maintainability, operation, safety, reliability, backward compatibility, interface, form, fit, or function. A "minor change" is a change which would not be a "material change". SELLER shall have full freedom to make minor changes so long as such changes are not deemed to be material changes. Prior to instituting any change, whether minor or material, SELLER will provide BUYER with six (6) months advance notice of the proposed change. The notice shall include SELLER's change control forms for both hardware, software and firmware. In said notice, SELLER shall state whether it deems such proposed change to be minor or material. As to "material changes", SELLER shall work with BUYER to discuss the impact of such change and shall assist BUYER in minimizing the impact of such changes upon BUYER's customers. If it is determined that sample parts or Products are required to assess such impact, SELLER will provide at least two (2) sets of such parts or Products at no charge for evaluation. BUYER will either approve or reject, with just cause, all material changes within thirty (30) business days after receipt of written notification and/or required sample parts or Products from SELLER. If change for Product reliability is needed on an emergency basis, the change will be immediately sent to BUYER who will make best efforts to respond within seventy-two (72) hours. The SELLER will supply BUYER with upgrade kits to incorporate all field mandatory changes and retrofit all Products delivered to BUYER's customers prior to the change at no charge. Such upgrade kits may include hardware and/or software. In the event that BUYER rejects a material change, then BUYER may either, a) terminate any and all purchase orders or portions thereof for Products and/or spare parts affected by the change without cost or penalty, or b) request SELLER to continue manufacture and support the Products which are the subject of the proposed change, as it is then being manufactured, for so long as BUYER requires said Product and with no increase in the purchase price except as provided by 3.1 23.2 Discontinuance - SELLER agrees to notify BUYER in writing not -------------- less than six (6) months in advance of the discontinuance of any Product. SELLER agrees to support such discontinued Products for a period of seven (7) ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. CONFIDENTIAL TREATMENT 28 23.3 years from the date of notice of such discontinuance. For the purposes of this paragraph "support" shall mean supplying hardware, repair and replacement services, software systems, and supplying associated documentation, 23.4 and all that is required to maintain the Products. The support shall be furnished at SELLER's then current prices, less the same discount, which BUYER was receiving prior to the discontinuance. 24. PRODUCT ENHANCEMENT, UPGRADES AND NEW PRODUCTS SELLER shall provide BUYER with non-confidential information regarding future enhancements and upgrades to be made to the Products, as well as information regarding releases of new Products. These enhancements, upgrades, and new Products will, at BUYER's option and under mutually agreed terms, be included in this Agreement as "Products", when released. As soon as reasonably possible after each phase of testing of enhancements, upgrades, or new Products, SELLER agrees to make such enhancements, upgrades, or new Products and/or information regarding the testing performed with such, available to BUYER for analysis and review; the purpose of this provision is to allow BUYER to be aware of, and familiar with, Product enhancements, upgrades, and new Products prior to their release. SELLER agrees that prices for the upgrades, enhancements, and new Products will be consistent with SELLER's OEM pricing policies in this Agreement. 25. REPAIRS 25.1 Repairs - SELLER shall establish a repair service for Products ------- in or out-of-warranty. SELLER will have the option to repair or replace components of the returned Product. SELLER shall ensure that the replacement or repair turnaround will not exceed ten (10) working days from the time the Product is received at SELLER's repair facility. Furthermore, in the event that SELLER is consistently late in repairing or replacing Products, SELLER shall be deemed in breach of this Agreement, and in such event, BUYER shall give SELLER notice and a thirty (30) day period of time in which to cure such breach. SELLER agrees to notify BUYER immediately of any replacement or repair which is likely to exceed the ten (10) day turn-around time. SELLER agrees to provide BUYER with a monthly report of all repair and/or replacement activities on SELLER's products received from BUYER or BUYER's customer for servicing. SELLER agrees to make all necessary repairs to parts and/or components of Products at the mandatory revision level or equivalent for a period of seven (7) years after the last delivery of such Products under this agreement or seven (7) years from the date of discontinuance of any Products from the product line of SELLER, whichever is later. SELLER agrees to supply spare parts during the periods described above for delivery within thirty (30) days of placement of the order by BUYER; prices for such spare parts shall be at SELLER's then current prices less the same discounts which BUYER was receiving prior to the end of this Agreement. In the event of unavailability of any spare part or suitable substitute which is interchangeable and backward compatible, SELLER shall make available to BUYER, SELLER's manufacturing drawings and specifications for the parts, tools or test equipment which are unavailable for purchase from SELLER or its vendor. In addition, SELLER shall also grant to BUYER and/or BUYER'S vendors, such manufacturing rights as SELLER may have and be able to convey to be used by BUYER or BUYER's vendors at no additional charge. Prior to the discontinuance of production, BUYER and SELLER will work together to establish a plan to support BUYER's installed base. 29 CONFIDENTIAL TREATMENT 25.2 Emergency Repairs - During the warranty period, SELLER agrees to ----------------- provide a twenty-four (24) hour turn around time for emergency out of service conditions, at no additional cost to BUYER or BUYER'S Customer. For out-of-warranty emergency service, SELLER agrees to provide expedited repair services at a mutually agreed cost. 26. PRIVATE LABELING/DOCUMENTATION 26.1 Private Labeling - The parties agree that Product may be ---------------- distributed under BUYER's private label. SELLER agrees to fill all orders under this Agreement with unique "Larscom" labeling as requested by BUYER, unless otherwise specified on the order. Products designated with Larscom labeling shall only be supplied by SELLER to BUYER or such third parties as BUYER may specifically designate in writing. SELLER agrees to affix any labels, numbering, or symbols to the products, packaging, software, and documentation accompanying the Products, as reasonably requested by BUYER. BUYER will provide the art work and instructions as required by SELLER's manufacturer. BUYER shall have the opportunity to approve the first faceplate with affixed labeling.. BUYER agrees to pay SELLER upon the signing of this Agreement, a one time private labeling charge of _____ for each faceplate labeled. BUYER's purchase orders must specify that products be so labeled. 26.2 Documentation - BUYER may edit or create documentation (i.e., ------------- manuals, data sheets, product brochures) by substituting the "Larscom" name for that of SELLER, and may make any other changes as necessary to indicate private labeling. SELLER will provide the documentation to BUYER in suitable form for the editing as the parties may reasonably agree. BUYER will supply SELLER with sufficient quantities of such manuals to accommodate drop-ship requirements. SELLER shall enclose one (1) set of manuals with each system drop-shipped to BUYER's Customers. 27. CUSTOM FEATURES/FUNCTIONALITY BUYER may request that SELLER develop additional features and/or functions that will be unique to the private labeled products purchased by BUYER under this Agreement where such features are not contemplated by SELLER for inclusion in its standard product range. SELLER agrees that such custom features and/or functionality will be available for distribution by BUYER on an exclusive basis, and that said custom features and/or functionality will not be integrated into SELLER's standard products, or the products which SELLER sells, distributes, private labels or furnishes to any of its other Customers. SELLER agrees that all interest, right and title in and to such custom features and/or functionality shall remain in BUYER. Design specifications, cost and development schedules for such custom features/functionality will be negotiated by the parties on a case-by-case basis. 28. COMPETITIVE RESTRICTION SELLER agrees that, during the term of this Agreement and any extensions thereof, it will not enter into any other Reseller or OEM agreement, directly or indirectly, with any of BUYER's competitors, specifically: ADC, Verilink, Quick Eagle, or Adtran. 29. PACKAGING SELLER agrees to package all orders in plain boxes with clear tape, or as otherwise reasonably instructed by BUYER. This will be done at no additional cost. 30 CONFIDENTIAL TREATMENT 30. TERMINATION OF AGREEMENT 30.1 This Agreement may be terminated by either party, at anytime during the initial and any renewal term hereof, upon the occurrence of certain events of default by the other party. The following events shall constitute an event of default by a party: (a) if either party hereto applies for or consents to the appointment of a receiver, trustee or liquidator of itself or any of its property; (b) if either party hereto makes a general assignment for the benefit of creditors; (c) if either party hereto is adjudicated as bankrupt or insolvent; (d) if either party hereto files a voluntary petition in bankruptcy or a petition or answer seeking reorganization or an arrangement with the creditors or seeks to take advantage of any insolvency law or in an answer admits the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceeding, or an order, judgment or decree is entered without the application, approval or consent of the party, by any court or governmental agency of competent jurisdiction, approving a petition seeking reorganization of such party, or of all or a substantial part of such party's assets, and such order, judgment or decree continues unstayed and in effect for any period of sixty (60) consecutive days; (e) In the event of breach of any term or condition of this Agreement, the non-defaulting party shall give written notice to the defaulting party of the defaulting conditions and of its intention to terminate the Agreement at some future date not earlier than ninety (90) days from the mailing date of said notice. Unless such default is corrected by the defaulting party, as evidenced by the concurrence of the non-defaulting party, prior to said future date, the termination shall be effective as of said future date. 30.2 BUYER or SELLER may elect to continue to make or receive shipments of SELLER Products and/or Software despite a default by the other party. Such election shall not constitute a waiver of the default by BUYER or SELLER for any such default. 31. COOPERATION SELLER agrees that it will fully cooperate with BUYER by executing and preparing any and all documents necessary in order to allow BUYER to have the Products included in the GSA schedule or equivalent government schedules. Further, in the event that BUYER becomes aware of and desires to participate in a project which is out of the ordinary course of business hereunder or one that has requirements which differ from usual application of SELLER's Products, then SELLER agrees to, in a timely manner, provide all reasonable and necessary information and assistance to BUYER which would allow BUYER to adequately respond to the opportunity. Examples of such projects include Requests for Proposals (RFP) and Requests for Information (RFI) issued by Service Providers. Where any United states government contract of BUYER's requires the inclusion of certain provisions in subcontracts, BUYER and SELLER agree to consult and reasonably cooperate relative to same. 32. TRADEMARKS, TRADE NAMES SELLER recognizes the right of BUYER to the name "Larscom", and other BUYER symbols, trademarks, trade names, logos and any variance thereof ("BUYER's Marks") and SELLER agrees not to use BUYER's Marks without the express written consent of BUYER. SELLER agrees not to raise or 31 CONFIDENTIAL TREATMENT cause to be raised any question concerning the validity of BUYER's Marks, and to notify BUYER promptly of any unauthorized use of BUYER's Marks by a third party. BUYER recognizes the right of G3M Corporation, to the name " Panthera", and other SELLER symbols, trademarks, trade names, logos and any variance thereof ("SELLER's Marks"). BUYER agrees not to use SELLER's marks without the express written consent of SELLER. 33. FORCE MAJEURE The obligations of the parties hereunder shall be suspended by the occurrence of any unforeseeable event beyond the control of the parties which renders performance impossible or onerous, such as acts of God, or, riot, sabotage, fire, explosion, flood, casualty, inability to obtain suitable and sufficient labor or materials, or law or regulation restricting performance. 34. PRESS RELEASES No press release or any other announcement will be made by either party regarding this Agreement unless both parties agree to its content in writing. SELLER will not, without the prior written consent of BUYER, in any public matter refer to the BUYER'S purchase and resale of SELLER's Products hereunder. 35 NO WAIVER OF CONDITIONS Failure of either party to insist upon strict performance of any of the terms and conditions hereunder, or the delay in exercising any of its remedies, shall not constitute a waiver of such terms and conditions nor a waiver of any default nor a waiver of any remedy. 36. COMPLIANCE WITH LAWS SELLER shall comply with all applicable Federal, State and Local laws including, but not limited to, those which specifically represent that any product to be delivered hereunder will be produced and sold in compliance with the requirements of the Fair Labor Standards Act of 1938, the Occupational Safety & Health Act, Federal Communication Commissions Act and the Consumer Products Safety Act, and all regulations issued pursuant to such statutes, as amended and applicable. 37. EXPORT AUTHORIZATION AND TERRITORY Unless otherwise agreed to by SELLER in writing, BUYER shall assume all responsibility of obtaining any required export authorizations necessary to export from the United States any Products purchased hereunder or technical data or documents to be supplied hereunder by SELLER. BUYER shall not re- export Products or technical data or documentation supplied by SELLER, directly or through others, or the product of such data, to the prescribed countries for which such prohibition exists pursuant to sections of the U.S. Export Administration Regulations unless properly authorized by the U.S. Government. 38. RELATIONSHIP OF THE PARTIES The relationship of the parties under this Agreement shall be and shall at all times remain one of independent contractor only. Neither party is an employee, agent, or joint venture partner of the other party. Neither party shall have the authority to assume or create obligation on behalf of the other party with respect to the Products or otherwise, and shall not take any action which has the effect of creating the appearance of its having such authority. 39. TERMS AND CONDITIONS OF SALE All purchase orders and acknowledgements for Products of SELLER shall be subject to the terms and conditions of this Agreement. No other conditions or modifications of terms and conditions of this 32 CONFIDENTIAL TREATMENT Agreement shall be effective unless specifically agreed to in writing by an authorized representative of both parties. Failure of either party to object to provisions contained in any purchase order, acknowledgement or other communication from the other party shall not be construed as a waiver of these terms nor an acceptance of any such provision. 40. SEVERABILITY If any one or more of the provisions, or portions of provisions of this Agreement shall be deemed by any court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions, or portion of provisions contained herein, shall not in any way be affected or impaired thereby, so long as the Agreement still expresses the intent of the parties. If the intent of the parties cannot be preserved, this Agreement shall either be renegotiated or rendered null and void. 41. NOTICES All notices from one party to the other shall be in writing and either personally delivered or sent via certified mail, postage prepaid and return receipt requested to: SELLER: G3M Corporation 4320 Stevens Creek Blvd #275 San Jose, CA 95129 BUYER: Contracts Administration Larscom Incorporated 1845 McCandless Drive Milpitas, CA 95035 or to such persons or places as either party may designate from time to time by notice hereunder. Such notices shall be deemed effective upon personal delivery or deposit in the mails in accordance herewith. 42. AWARENESS It is understood by SELLER that BUYER and its affiliates are designers, manufacturers and distributors and are now in the market selling telecommunications products. Further, it is understood that this Agreement is for the purpose of supplementing BUYER's current product line and that some time in the future BUYER may cease to purchase SELLER's Products and offer only BUYER and/or associated companies' products, and/or other company's products. SELLER understands that BUYER may in the future, design, manufacture, and sell products equivalent or similar to those on Exhibit "A" hereto. However, this agreement may not be considered a license or permit to copy SELLER's proprietary intellectual property, except as provided for by this agreement and in the normal course of business. 43. LIMITATION OF LIABILITY NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS OR REVENUE, LOSS OF USE OF THE EQUIPMENT OR ANY ASSOCIATED EQUIPMENT, OR COST OF SUBSTITUTED FACILITIES, EQUIPMENT OR SERVICES WHICH ARISE OUT OF PERFORMANCE OR FAILURE TO PERFORM ANY OBLIGATION CONTAINED WITHIN THIS AGREEMENT, WHETHER THE CLAIM IS IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE EXCEPT AS PROVIDED UNDER ARTICLE 21 OR 22 OF THIS AGREEMENT. 33 CONFIDENTIAL TREATMENT 44. HEADINGS The section headings in this Agreement are for reference only and shall have no substantive effect. 45. ASSIGNMENT Neither party shall delegate any duties nor assign any rights or claims under this Agreement, without prior written consent of the other party, such consent not to be unreasonably withheld; and any such attempted delegation or assignment without consent shall be of no effect. 46. DISPUTE RESOLUTION Seller and Buyer will attempt to settle any claim or controversy through consultation and negotiation in good faith and a spirit of mutual cooperation. If those attempts fail, then the dispute will be mediated by a mutually-acceptable mediator to be chosen by Seller and Buyer within 45 days after written notice by a party demanding mediation. In the event that any dispute or disagreement under this Agreement, cannot be resolved mutually between the parties, such dispute or disagreement shall be submitted to arbitration in San Francisco, California under the rules of the American Arbitration Association. Any award or decision made in such arbitration process shall be final, binding upon the parties and enforceable through application to any court of competent jurisdiction. Each party shall bear its own costs in connection with such proceeding, except that the prevailing party in any arbitration shall be reimbursed by the other party for any reasonable expenses, including legal fees. No arbitration award shall include punitive damages. 47. GOVERNING LAW The laws of the State of California shall govern the construction and performance of this Agreement. 48. ENTIRE AGREEMENT This Agreement, together with material incorporated herein by reference, sets forth the entire and only agreement between BUYER and SELLER concerning the subject matter hereof. No provisions of this Agreement can be modified except by a written amendment signed by both parties. 49. AUTHORITY BUYER and SELLER each represent to the other that it has due and proper authority to make and perform all duties and obligations set forth and contemplated by this Agreement. This Agreement shall be construed as containing, as part of it, the following enclosures: Exhibit A - Products / List Prices Exhibit B - Discounts Exhibit C - Product Specifications Exhibit D - Confidentiality Agreement Exhibit E Territory 34 CONFIDENTIAL TREATMENT IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set forth below their respective signatures. ACCEPTED BY: G3M Corporation LARSCOM INCORPORATED By: /s/ Gary Beeson By: /s/ Robert Coakley Name: Gary Beeson Name: Robert Coackley Title: President Title: President & Chief Executive Officer Date: 1/4/2001 Date: 1/4/2001 35 CONFIDENTIAL TREATMENT EXHIBIT A PRODUCTS / LIST PRICES G3M Corporation Price List (FOB San Jose, CA) - ----------------------------------------------------------------------------------------- Panther Optical Matrix Basic OC-48 Chassis with PM 50-HR Power Module and Management ***** Module. - ------------------------------------------------------------------------------------------- Catalog PM 50-HR High Reliability Dual Feed Power ***** 1291 Supply. Up to two Power modules may be used for applications that require full redundancy. Each PM power module may be driven with 48VDC or standard AC voltages [A single unit is included with the basic Panthera] - ------------------------------------------------------------------------------------------- PM-48VDC Power Module. Provides filtering, switching, Catalog and SNMP monitoring for power management where -48VDC 1292 is provided. Can be used where the dual voltage ***** PM-50HR is not required - ------------------------------------------------------------------------------------------- Management Module Allows configuration and SNMP management of the system. Allows automatic configuration of the Panthera Catalog modules. 1201 Console(RS-232) and LAN (10Base-T) Interfaces ***** [The Management Module is included with the basic Panthera] - ------------------------------------------------------------------------------------------- DS3 Module Catalog 1231 Supports Voice and Packet data ***** 75 Ohm BNC - -------------------------------------------------------------------------------------------
36 - ------------------------------------------------------------------------------------------- Quad 100Base-TX Each module includes four separate 100Base-TX Ethernet connections that are ***** mapped to the STS payloads 4 RJ-45 - ------------------------------------------------------------------------------------------- OC-3 mm Optical Module Catalog Multi-Mode ***** 1211 Dual SC connector - ------------------------------------------------------------------------------------------- OC-3 sm Optical Module Catalog Single Mode ***** 1212 Dual SC connector - ------------------------------------------------------------------------------------------- OC-12 mm Optical Module Catalog Multi-Mode ***** 1213 Dual SC connector - ------------------------------------------------------------------------------------------- OC-12 sm Optical Module Catalog Single Mode ***** 1214 Dual SC connector - ------------------------------------------------------------------------------------------- Catalog Quad T1 Interface Module ***** 1232 4 RJ-45 - -------------------------------------------------------------------------------------------
***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 37 CONFIDENTIAL TREATMENT EXHIBIT B DISCOUNTS BUYER has the right under the terms of this agreement to purchase the products shown in Exhibit A, together with such other products as may be added to BUYER's catalog and price list, at a discount of ***** from BUYER's list prices. ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 38 CONFIDENTIAL TREATMENT EXHIBIT C PRODUCT SPECIFICATIONS 39 CONFIDENTIAL TREATMENT EXHIBIT D CONFIDENTIALITY AGREEMENT This Agreement is made and entered into effective this 1st day of September, 2000, (hereinafter "Effective date"), by and between Larscom Incorporated a Delaware corporation, having its principal office at 1845 McCandless Drive, Milpitas, CA 95035 and G3M Corporation, a California corporation, having its principal office at 4320 Stevens Creek Blvd., San Jose, CA 95129. Confidential Information in the form of trade secrets, plans, know-how, corporate procedures and programs, specifications, software, prototypes, and/or other business, technical, confidential and proprietary information may be disclosed under this Agreement. A party to this Agreement who receives the Confidential Information of another party to this Agreement agrees to not use or disclose to others such Confidential Information subject to the terms and conditions herein. Permitted Use of Confidential Information: Until the period of the time that the Confidential Information is held in confidence expires, a party who has received Confidential Information of another party will use the information only as permitted by the disclosing party. Duty of Care: A recipient of Confidential Information shall protect its confidentiality by using the same degree of care, but no less than reasonable care, to prevent the unauthorized use, dissemination, or publication as the recipient uses to protect its own confidential information of a like nature. Accordingly, the recipient agrees not to reproduce, disclose to any third party, or use for any purpose not authorized by the disclosing party, any Confidential Information or materials which (a) are disclosed to the recipient as being confidential, or (b) bearing the designation "PROPRIETARY AND CONFIDENTIAL INFORMATION" or similar designation in writing. Exceptions to the Duty of Confidentiality: This Agreement imposes no obligations with respect to proprietary information which: a) was in recipient's possession before receipt from the disclosure; b) is now or later becomes public knowledge through no fault of the recipient; c) is known to the recipient prior to the effective date of this Agreement as substantiated by documentation; d) is rightfully received from a third party without any accompanying secrecy obligation; e) is independently developed by the recipient; f) disclosing party expressly gives receiving party written permission to disclose or otherwise use; or g) is disclosed under operation of law. No Additional Rights or Obligations: No party listed herein will acquire any intellectual property rights of the other under the terms of this Agreement. Neither party under this Agreement has an obligation to purchase any service or item, nor does any party have the obligation or the right to make, use, or sell products or processes incorporating Confidential Information disclosed under this Agreement. Term and Termination: Disclosure of Confidential Information under this Agreement may take place for a period of two (2) years from the Effective Date. The confidentiality obligations of the receiving party shall survive and continue beyond the expiration of the Information disclosure period for three (3) years from the date of disclosure. General: No party intends that any partnership, joint venture, or agency be created by this Agreement. No party will publicly announce or otherwise disclose to parties not subject to this Agreement the existence of this Agreement, its purpose, or any of its terms and condition. Any additional or modifications to this Agreement must be made in writing and signed by the parties to be bound by the additions or modifications. This Agreement is made under and will be construed in accordance with the laws of the State of California, U.S.A. This Agreement shall not be assigned by either party without the written consent of the other. 40 CONFIDENTIAL TREATMENT This Agreement is the entire agreement between the parties concerning the Confidential Information and supersedes all prior oral and written agreements between them. This Agreement inures to the benefit of and binds the parties and their successors, assigns or other legal representatives. No waiver, alteration or cancellation of any of the provisions of this Agreement shall be binding unless made in writing and signed by the party to be bound. The undersigned warrants that he or she has the authority to enter into this Agreement on behalf of the person or entity identified above his or her signature. IN WITNESS HEREOF, the parties have executed this Agreement on the date first written above. Larscom Incorporated G3M Corporation By:______________________________ By:______________________________ Print Name:______________________ Print Name:_______________________ Title:____________________________ Title:____________________________ 41 CONFIDENTIAL TREATMENT EXHIBIT E TERRITORY Countries not included in this ***** agreement are: ***** ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 42 EX-10.2 4 dex102.txt NON-EXCLUSIVE OEM AGREEMENT BY AND BETWEEN LARSCOM EXHIBIT 10.2 NON-EXCLUSIVE OEM AGREEMENT CONFIDENTIAL TREATMENT NON-EXCLUSIVE OEM AGREEMENT THIS NON-EXCLUSIVE OEM AGREEMENT is entered into on May 1, 2001 (the "Effective Date") between Oasys Telecom, Inc., a California corporation with offices at 7060 Koll Center Parkway, Pleasanton, CA 94566 ("Oasys"), and Larscom Incorporated, a Delaware corporation with offices at 1845 McCandless Drive, Milpitas, CA 95035 ("Larscom"). R E C I T A L S - - - - - - - - A. Oasys has developed and manufactures telecommunications equipment, including products known as EXchange Mux(R) and EXchange Mux(R) II, as more particularly described on Exhibit A to this Agreement. --------- B. Larscom desires to market and distribute the Oasys Product, either separately or as bundled with its own telecommunications equipment (collectively, the "Larscom Equipment"), on a private label basis. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereby agree as follows: 1. DEFINITIONS The following capitalized terms shall have these meanings throughout this Agreement. 1.1 "Customer Documentation" shall mean the user and technical manuals and other documentation that Oasys will make available with the Oasys Product and all updates thereof. 1.2 "Intellectual Property Rights" shall mean all patents, trade names, trade secrets, trademarks, service marks, copyrights, mask work rights, trade dress rights and other similar proprietary rights. 1.3 "Order" shall mean a written or electronic purchase order placed by Larscom to Oasys for purchase of the Oasys Product. 1.4 "Software" shall mean the software and firmware developed or licensed by Oasys and included in the Oasys Product as listed in Exhibit A. --------- 1.5 "Specifications" shall mean the operating requirements and functionality of the Oasys Product as attached hereto as Exhibit ------- B attached hereto and incorporated herein by this reference. - 1.6 "Oasys Product" shall mean the private label version of each product developed by Oasys listed on Exhibit A and all related --------- Customer Documentation. 1.7 "Technical Information" shall mean manufacturing drawings, specifications, schematics or other drawings pertinent to the most current revision level of manufacturing of the Oasys Product; copies of all inspection, manufacturing, test and quality control procedures and any other work processes; tooling and tooling designs; Oasys history files; and all other information and/or technology deemed necessary by Oasys to allow Larscom to exercise any manufacturing rights provided under this Agreement. 43 CONFIDENTIAL TREATMENT 1.8 "Larscom Equipment" shall mean the telecommunications equipment manufactured, marketed and/or distributed by Larscom at any time during the Term (as defined below). 1.9 "Term" shall mean the time period commencing upon the Effective Date and, unless earlier terminated hereunder, continuing for a ***** period thereafter. 1.10 "Territory" shall mean the *****. 2. SCOPE OF AGREEMENT 2.1 General. This Agreement sets forth the terms and conditions ------- under which Oasys shall sell, license and support the Oasys Product. The Oasys Product shall be regarded as "Original Equipment Manufacturer" products that shall either be sold separately or bundled with Larscom Equipment for resale solely by or on behalf of Larscom, whether directly or through its distributors, resellers or independent sales representatives. Larscom may not distribute, resell or sublicense the Oasys Product or any portion thereof for distribution by or through any other OEM manufacturer. The Oasys Product shall be marketed, serviced and supported by Larscom's field organization or Larscom's affiliates or agents, subject to the marketing, service and support obligations of Oasys hereunder. 2.1.1 Restrictions. Larscom may not modify the Oasys ------------ Product in any way or add any functionality's thereto. 2.1.2 Ownership. Except for the limited rights expressly --------- granted herein, as between the parties, Oasys retains all right, title and interest in and to the technology and all related Intellectual Property Rights and proprietary information incorporated into the Oasys Product or any other hardware or software product otherwise distributed or licensed to Larscom hereunder. 2.2 Appointment. Oasys hereby appoints Larscom to act as a ----------- non-exclusive distributor of the Oasys Product within the Territory (including distribution through Larscom's distributors, resellers or independent sales representatives); provided that (i) Oasys may continue to market, sell and distribute the Oasys Product in the Territory on its own behalf, either directly through its own sales force or indirectly through independent sales representatives, and (ii) Oasys may, at its option, distribute the Oasys Product on a private label basis through other companies. 2.3 Channel Conflict Management. If either party becomes aware of --------------------------- any channel conflict hereunder, that party shall promptly notify the other party and both parties shall work cooperatively to offer the best solution for that customer. During the Term, the parties shall work together proactively to minimize the risk of channel conflict. 2.4 Other Products. Other products may be added to this Agreement -------------- from time to time on the mutual agreement of the parties. 2.5 Enhancement Requests. Larscom may from time to time request an -------------------- enhancement to the Oasys Product. Oasys shall consider each such enhancement request and respond to Larscom within 30 days of the possibility of developing such enhancement. If Oasys, in its sole and absolute discretion, determines to incorporate such enhancement into the Oasys Product, the parties shall negotiate in good faith the terms of the proposed enhancement within 30 days after Oasys' acceptance of Larscom's proposal. ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 44 CONFIDENTIAL TREATMENT 2.6 Condition of Products. All Oasys Products shall be new except --------------------- as otherwise provided by the parties. 3. SHIPMENT AND DELIVERY OF OASYS PRODUCTS 3.1 Orders. Each delivery of Oasys Products shall be initiated by ------ an Order which must be accepted by Oasys to be effective; provided that, if Oasys fails to respond to an Order within 10 business days, such order shall be deemed accepted. 3.2 Delivery Dates. Each Order shall specify the date on which the -------------- Oasys Products or Parts must be received by Larscom (the "Delivery Date"). Larscom may schedule regular intervals for deliveries by an appropriate Order setting forth the intervals. At Larscom's sole expense, Larscom may utilize drop shipment options to any designation specified by Larscom and agreed upon by Oasys. 3.3 Shipment Requirements and Risk of Loss. All shipments of Oasys -------------------------------------- Products hereunder shall be F.O.B. Oasys' place of shipment. Title to Oasys Products ordered hereunder shall pass from Oasys to Larscom upon Oasys' delivery to Larscom's designated delivery location. Oasys shall immediately advise Larscom of any prospective failure to timely ship the specified quantity of Oasys Products. Each delivery of Oasys Products to Larscom shall include a packing list which contains at least: (a) the Order number and applicable Larscom part numbers; (b) the quantity of Oasys Products shipped; and (c) the date of shipment. 3.4 Lead Time. The maximum lead time for the Delivery Date of any --------- Oasys Products ordered by Larscom is 30 business days. Oasys shall, for any proposed variance of the lead time, give Larscom no less than 20 days' advance notice. 3.5 Packaging. Oasys shall preserve, package, handle and pack all --------- Oasys Products so as to protect the Oasys Products from loss or damage, in conformance with good commercial practice, government regulations and other applicable standards. Static protection shall be provided for Oasys Products requiring such packaging. Normal Oasys Products will be packaged in appropriate containers labeled with the Larscom mark pursuant to Section 11.3 below. Each package label shall include the following data: (i) quantity; (ii) assembly number; (iii) serial number; and (iv) revision of products in package. 4. PRICES, PAYMENTS, AND FORECASTS 4.1 Initial Fee. Larscom will pay a ***** fee of ***** to Oasys ----------- upon the execution of this agreement. However, if Oasys Telecom terminates this agreement during the first ***** of the initial term, except for breach, according to Section 13.2, Oasys will reimburse to Larscom a prorated amount of this initial fee based on the number of months the Agreement was effective. 4.2 *****. Upon execution of this Agreement, Larscom will place an ----- initial order to Oasys consisting of ***** (or any configurations of equivalent value) of Oasys Equipment (any mix of Oasys Equipment indicated in Exhibit A). At this time Oasys will invoice Larscom and Larscom will ***** Oasys for this initial equipment. Delivery to Larscom of Oasys Equipment specified in this initial order will be evenly spread over a ***** ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 45 CONFIDENTIAL TREATMENT period beginning immediately for ***** equipment as indicated in Exhibit A or over a ***** period beginning from the date of availability for ***** unless mutually agreed to otherwise by the parties. 4.3 List Prices. The list price for the Oasys Product is set forth ----------- in Exhibit A attached hereto and incorporated herein by this --------- reference and shall remain in effect during the Term. All costs of transportation and handling, including freight and insurance, and all taxes, duties and other governmental charges applicable to Larscom's purchase of Oasys Products hereunder shall be billed to and paid by Larscom or Larscom shall provide Oasys or the appropriate taxing authority with an exemption certificate therefor. 4.3.1 Discounts. Oasys shall extend discount pricing to --------- Larscom as set forth in Exhibit C, which discounts --------- shall remain in effect during the ***** and any ***** (as defined below) and Larscom's sales volume for purposes of calculating the applicable discount shall be ***** over the ***** and any *****. 4.3.2 Changed Prices. If, during the Term or any Renewal ------------- Term, changed prices are put in effect by Oasys, such prices shall apply to all Orders issued by Larscom after the effective date of such price change. 4.4 Payment Procedure. Payment for Oasys Products shall be net 30 ----------------- days of shipment. Invoices outstanding 45 days after shipment shall be subject to a late charge equal to the lesser of 1.5% per month or the maximum amount permitted by law. 4.5 Rolling Forecast. Larscom shall furnish Oasys with a rolling ---------------- six-month forecast on the first day of each calendar month during the Term. 5. RETURN OF PRODUCTS 5.1 Return Materials Authorization. If any Oasys Product is ------------------------------ defective or otherwise not in conformity with the requirements of this Agreement (a "Noncomplying Oasys Products"), in addition to its other rights and remedies hereunder, Larscom may return the Noncomplying Oasys Products for replacement or repair at Oasys's expense. All Oasys Products returned by Larscom to Oasys, including Noncomplying Oasys Products, shall be accompanied by a Return Materials Authorization ("RMA"). Unless further verification is reasonably required by Oasys, Oasys shall supply an RMA within three business days of Larscom's request. If Oasys fails to timely provide the RMA, Larscom may return the Oasys Products without an RMA. 5.2 Return Charges. All Noncomplying Oasys Products returned by -------------- Larscom to Oasys, and all replacement or repaired Oasys Products shipped by Oasys to Larscom to replace Noncomplying Oasys Products, shall be shipped each way at Oasys' expense, including transportation charges (round trip charges for replacement or reworked Oasys Products). Notwithstanding the foregoing, if Oasys determines that Oasys Products returned hereunder do not constitute "Noncomplying Oasys Products," Larscom shall reimburse Oasys for any and all its shipping and handling costs hereunder. 5.3 Repair Period. Oasys shall return the replacement or reworked ------------- Oasys Products as soon as possible but in no event later than 15 business days after receipt of the Noncomplying Oasys Products from Larscom. If Oasys fails to return the replacement or repaired Oasys ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 46 CONFIDENTIAL TREATMENT Products to Larscom in a timely manner, Larscom may reject the Noncomplying Oasys Products and obtain a full refund of all costs paid by Larscom for the Oasys Products, without any deductions. 5.4 Duty To Remove Marks. Oasys shall remove from all Oasys -------------------- Products rejected, returned or not purchased by Larscom, Larscom's name or any of Larscom's trademarks, tradenames, insignia, part numbers, symbols or decorative designs prior to any other sale, use, or disposition of such Oasys Products by Oasys. 6 PROCESS OR DESIGN CHANGES 6.1 Notice Of Change. Oasys shall give Larscom at least 60 days' ---------------- prior written notice of any change to the Oasys Product or its Specifications affecting the form, fit and function of the Oasys Product. On Larscom's reasonable request, Oasys shall provide evaluation samples and other appropriate information to Larscom. 6.2 Safety Standard Changes. Oasys shall immediately give notice ----------------------- to Larscom if any change, upgrade, or substitution is required to make the Oasys Products meet applicable safety standards or specifications, excluding any changes which do not affect the Oasys Product's form, fit or function. 7. QUALITY AND WARRANTY 7.1 Quality Program. Oasys shall maintain an objective quality --------------- program for all Oasys Products supplied pursuant to this Agreement. Oasys shall, upon Larscom's request, provide to Larscom copies of Oasys' program and supporting factory test documentation. 7.2 Larscom's Right To Inspect. Larscom shall have the right to -------------------------- inspect, at Oasys' plant, the Oasys Products and associated nonproprietary manufacturing processes. Any inspection of Oasys Products shall be prior to shipment. Manufacturing processes may be inspected at any time during the Term. 7.3 Product Warranty. Oasys warrants for a period of ***** after ---------------- shipment thereof that each Oasys Product, including the associated embedded software, shall: (a) Be manufactured, processed and assembled by Oasys or by companies under Oasys' direction; (b) Conform materially to its Specifications; (c) Comply with governmental and industry certification requirements, including UL, NEBS, FCC, CSA, and CE Mark (where applicable) certifications, and all other applicable federal, state and local laws and regulations; (d) Be free from material defects in material and workmanship; and (e) Be free and clear of all liens, encumbrances, restrictions and other claims against title or ownership. (f) Be Year 2000 compliant. 7.4 Exceptions to Warranty Coverage. This warranty is contingent ------------------------------- upon proper use of the Oasys Products in the application for which they were intended as indicated in the Documentation, and Oasys makes no warranty (express, implied or statutory) for Oasys Products that are modified or subjected to accident, misuse, neglect, unauthorized repair or improper testing or storage. ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 47 CONFIDENTIAL TREATMENT 7.5 Software Warranty. Oasys warrants that it owns or has the ----------------- necessary licenses to use the Software incorporated in the Oasys Products, free of any and all restrictions, settlements, judgments or adverse claims. Oasys warrants it has full power and authority to grant Larscom the rights granted herein on a worldwide basis. 7.6 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, OASYS MAKES NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING ANY OASYS PRODUCT, INCLUDING AS TO ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. 8. SERVICE AND SUPPORT 8.1 Customer Support. Larscom shall provide all direct first-tier ---------------- and second-tier support to its customers. Oasys shall support Larscom by telephone from 8:00 a.m. through 5:00 p.m., p.t., including direct dial into the equipment of any Larscom customer at any location. On Larscom's reasonable request, Oasys shall travel with Larscom to a Larscom customer site and, if there proves to be a defect in the Oasys Product, each of Oasys and Larscom shall bear their own travel and service costs for such on-site call. If the Oasys Product is shown not to be defective in any way, Larscom shall pay Oasys at Oasys' then-current consulting rate for all time spent by Oasys personnel and shall reimburse Oasys for its personnel's reasonable travel and living expenses during that on-site visit. The current consulting rate as of the effective date of this Agreement is ***** + expenses (M-F, 8:00 am to 5:00 pm) and ***** + expenses (Nights and weekends). 8.2 Defect Reports. Oasys shall notify Larscom of the resolution -------------- of any defects discovered in the Oasys Product and shall provide Larscom with the necessary data, equipment and/or software to allow Larscom to distribute the solution to its customers. Larscom shall periodically supply Oasys with available repair data or defect reports, including field failure rate data, inspection tests and strife tests. On Larscom's request, Oasys shall supply to Larscom available repair data from Oasys' service facilities. 8.3 Continued Supply. Subject to Section 8.4 below, Oasys shall ---------------- provide Larscom with a continuous supply of Oasys Products for the Term and any Renewal Term, as well as functionally-equivalent spares, for no less than five years after any termination of this Agreement. 8.4 Lifetime Buy Rights. If Oasys determines to discontinue any ------------------- Oasys Product, Oasys shall give notice to Larscom no less than 90 days written advance notice of the last Order date thereof. After receipt of notice of discontinuance, Larscom may purchase from Oasys such quantity of the discontinued Oasys Product as Larscom deems necessary for its future requirements. Alternatively, on Larscom's request, Oasys shall grant Larscom a license to manufacture only that discontinued product pursuant to Section 11.5 below. 9. COUNTRY OF MANUFACTURE 9.1 Country Of Origin Certification. Upon Larscom's request, Oasys ------------------------------- shall provide Larscom with an appropriate certification stating the country of origin for Oasys Products, sufficient to satisfy the requirements of (a) the customs authorities of the country of receipt and (b) any applicable export licensing regulations, including those of the United States. ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 48 CONFIDENTIAL TREATMENT 9.2 Country Of Origin Marking. If and as required, Oasys shall ------------------------- mark each Oasys Product, or the container if there is no room thereon, with the country of origin. Oasys shall, in marking Oasys Products, comply with the requirements of the customs authorities of the country of receipt. 10. TRAINING 10.1 Technical Training. Oasys shall provide ***** training classes ------------------ during the ***** of the Agreement, with no more than ***** per quarter, on the Oasys Products at Oasys' Pleasanton facility for up to ***** people each at ***** to Larscom, excluding Larscom's responsibility for the compensation, travel and living expenses for any Larscom personnel. Training of any additional people or training outside Oasys' Pleasanton facility shall be at Larscom's expense. At a mutually-agreeable time, location and cost, Oasys shall provide additional training to inform Larscom personnel of upgraded, enhanced or new versions of the Oasys Products. Larscom may duplicate and use, either internally or for Larscom's customers, all training classes, methods and materials supplied or developed by Oasys pursuant to this Agreement at no additional charge. 11. MARKETING AND LICENSING 11.1 Marketing and Sales Authority. Subject to Section 2 above, ----------------------------- Larscom shall market, sell and distribute the Oasys Products and the Larscom Equipment as it deems appropriate in its sole discretion and on its own business terms. 11.2 Retention of Copyright Notices. Larscom shall retain all ------------------------------ copyright notices on the Oasys Products, including in the Software, and in the Customer Documentation therefor. Larscom shall do nothing to infringe any rights of Oasys in its trademarks, copyrights or trade names. 11.3 Private Labeling. At Oasys' sole cost and expense, Oasys shall ---------------- design and manufacture the Oasys Products, including the Customer Documentation, ordered by Larscom hereunder as Larscom private label versions, bearing the trademarks, trade names and logos (the "Larscom Marks") and labeling and packaging specified by Larscom and conforming to Larscom specifications for external appearance (which shall not require any material change in form or dimensions of the Products or require commercially unreasonable actions). Neither party is granted any right or interest to the trademarks, marks or trade names of the other party. However, Oasys may use and reproduce Larscom's Marks, as provided by Larscom, as necessary to fulfill its obligations hereunder. Within 15 days after the Effective Date, Larscom shall deliver to Oasys the Larscom Marks, in camera-ready format, and all other requisite labeling and packaging specifications. 11.4 Software and Customer Documentation License. Oasys hereby ------------------------------------------- grants to Larscom ***** license to use, reproduce, sell and distribute the Software and Customer Documentation incorporated into or accompanying the Oasys Products, whether directly or through its third party channels of distribution, provided that "sell" means (in any tense or form) the license or sub-license of the software in accordance with the terms hereof. ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 49 CONFIDENTIAL TREATMENT 11.5 Manufacturing License. Subject to the terms of this Section --------------------- 11.5, Oasys hereby grants to Larscom a ***** license to manufacture, have manufactured and sell and sublicense the Oasys Products, such license to be effective only on the happening of the following events; (i) Oasys liquidates its business, dissolves, ceases business operations or becomes the subject of any voluntary or involuntary Chapter 7 bankruptcy proceeding; or (ii) one or more of the specific Oasys Products as listed in Exhibit A is discontinued (in which case the manufacturing license is granted only for the discontinued items). Within sixty (60 days of the Effective Date, at Larscom's request, Oasys shall establish an escrow account with a mutually satisfactory agent and deposit the Technical Information in that account. Oasys will update the Technical Information in the escrow account upon the release of any major design changes to the Oasys Product and at least every 6 months. The expense for such escrow account will be shared equally by Oasys and Larscom. The Technical Information will be released to Larscom from the escrow account in accordance with this Section 11.5. The Technical Information is deemed Confidential Information as governed by Section 14.8 and will only be used for the purpose of manufacturing the Oasys Product. Larscom shall not communicate to third parties any Technical Information released from the escrow account except to Larscom's subcontractors, if applicable, without Oasys' prior written consent. 12. INTELLECTUAL PROPERTY RIGHTS 12.1 Infringement Indemnity. Oasys shall defend, indemnify and hold ---------------------- Larscom and its affiliates and customers harmless from all claims, actions, damages or other liabilities, including reasonable attorney's fees (collectively, "Damages") arising from any claim that any Oasys Product, any portion thereof or any related Intellectual Property Rights therein constitutes an infringement or unauthorized use of any third party's intellectual property rights (each, an "Infringement Action"). Notwithstanding the foregoing, Oasys shall have no obligation to indemnify Larscom against any Infringement Action arising out of (i) the Larscom Equipment, (ii) the combination of the Larscom Equipment and any Oasys Product or (iii) any modification of the Oasys Products by Larscom, its affiliates or its customers. 12.2 Duty To Notify. Larscom shall give Oasys prompt notice of any -------------- Infringement Action and shall give Oasys sole authority, information and assistance (at Oasys' expense) to defend against the Infringement Action 13. TERM AND TERMINATION 13.1 Term. Following the Term, this Agreement may be extended upon ---- mutual agreement of the parties for successive ***** periods (each, a "Renewal Term"). The use of "Term" in the Agreement, unless expressly indicated otherwise, shall refer to both the Term and any Renewal Term collectively. 13.2 Termination for Convenience. Either party may terminate this --------------------------- Agreement at any time for any reason on 90 days' prior written notice to the other party; provided that, if Larscom terminates this agreement, Larscom shall purchase Oasys' inventory on hand, specific to Larscom. Larscom will only be responsible for inventory and work in process material for which Oasys has received hard copy purchase orders from Larscom through the date of termination with payment therefor due net 15 days after termination. Larscom may at its option, require Oasys to provide products as per orders placed prior to termination. ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 50 CONFIDENTIAL TREATMENT 13.3 Termination for Breach. If either party materially breaches this ---------------------- Agreement, the other party may terminate this Agreement on 30 days' prior written notice to the other party unless such breach is cured within such 30-day notice period or, if such breach cannot be cured in 30 days, the breaching party has commenced good faith efforts to cure such breach. 13.4 Rights Upon Breach. If Larscom terminates this Agreement on Oasys' ------------------ breach, Larscom will not be required to purchase Oasys' inventory of Oasys Products or work in progress and Larscom may exercise it rights under Section 11.5. If Oasys terminates this Agreement on Larscom's breach, Larscom shall purchase Oasys' inventory on hand, specific to Larscom. Larscom will only be responsible for inventory and work in process material for which Oasys has received hard copy purchase orders from Larscom through the date of termination with payment therefor due net 15 days after termination. 13.5 Survival. The following Sections of this Agreement shall survive -------- any termination hereof: 2.1.2, 7.3 through 7.6, 8.1, 12, 13.4 and 14. In addition, this Agreement shall govern all Orders transmitted to Oasys prior to termination and to all Oasys Products shipped to Larscom thereunder. 14. MISCELLANEOUS 14.1 Entire Agreement. This Agreement, including its Exhibits, ---------------- constitutes the entire agreement between the parties, supersedes all prior communications, representations, negotiations and agreements, whether oral or written and may only be modified in a writing signed by an authorized representative of each party. If any provision of this Agreement is held to be invalid or unenforceable for any reason, the remaining provisions will continue in full force without being impaired or invalidated in any way. Larscom and Oasys agree to replace any invalid provision with a valid provision which most closely approximates the intent and economic effect of the invalid provision. The waiver by either party of a breach of any provision of this Agreement by the other party will not operate or be interpreted as a waiver of any other or subsequent breach by such other party. 14.2 Independent Contractors. The parties are entering into this ----------------------- Agreement as independent contractors and nothing herein shall be construed to establish a partnership, joint venture, agency or other similar relationship between the parties. 14.3 No Assignment. No party hereto shall assign this Agreement without ------------- the other party's prior written consent except in conjunction with a merger or sale of substantially all its assets; provided that the assigning party shall give the other party written notice of such merger or sale. 14.4 Publicity. No press releases shall be made by one party hereto --------- without the prior written consent of the other party. 14.5 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with California law as applied to transactions taking place in California between California residents. All disputes between the parties arising out of or relating to this Agreement (other than actions seeking only equitable remedies) shall be settled by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association by an arbitrator who is knowledgeable about telecommunications equipment. The arbitrator may award any legal or equitable remedy and may, in his discretion, require one party to pay the costs of the arbitration as well as the fees and expenses, including reasonable attorneys' fees, of the other party. In the absence of any such 51 CONFIDENTIAL TREATMENT ruling, each party shall bear its own costs in connection with an arbitration proceeding hereunder and the parties shall share the costs of the arbitration equally. 14.6 Notices. Notices given hereunder shall be effective on receipt and ------- shall be sufficient if given in writing, hand-delivered, sent by telefax with confirmation of receipt, sent by First Class Mail, return receipt requested (for all types of correspondence), postage prepaid, or sent by overnight courier service and addressed as follows: Oasys Telecom, Inc. Larscom Incorporated 7060 Koll Center Parkway 1845 McCandless Drive Pleasanton, CA 94566 Milpitas, CA 95035 Attn: Mr. Gerard Miille, President Attn: Shan Varaitch 14.7 Insurance. Prior to the delivery of the Oasys Product, Oasys shall --------- procure and thereafter maintain, with insurers acceptable to Larscom, the following minimum insurance protecting Oasys and Larscom against liability from damages because of injuries, including death, suffered by persons including employees of Larscom, and liability from damages to property arising from or growing out of Oasys' operations in connection with the performance of this Agreement:
------------------------------------------------------------------------------------- COVERAGE LIMITS ------------------------------------------------------------------------------------- Commercial General Liability ***** General/Aggregate ***** Products/Completed Operations Aggregate ***** Combined Limit/Each Occurrence ------------------------------------------------------------------------------------- Product Liability ***** General Aggregate -------------------------------------------------------------------------------------
Oasys shall provide certificates evidencing such insurance prior to beginning delivery of Oasys Product on a form reasonably required by Larscom. Larscom shall be listed as an additional insured under the foregoing Commercial General Liability insurance policies, and Oasys shall cause its insurance carrier to waive all rights of subrogation against Larscom on the policies listed above. 14.7 Force Majeure. Neither party shall be liable to the other for its ------------- failure to perform any obligations under this Agreement during any period in which such performance is rendered impracticable or impossible due to circumstances beyond its reasonable control, including acts of God, floods, earthquakes, riots or other hostilities, strikes or government actions, provided that the party experiencing the delay promptly notifies the other of the delay. 14.8 Confidential Information. Each party acknowledges that all ------------------------ information relating to the business, products and operations of the other party which it learns or has learned during or prior to the Term is the valuable, confidential and proprietary information of the disclosing party. The receiving party shall maintain all confidential information disclosed hereunder by the disclosing party in confidence and shall not disclose such information to any third party other than those of its employees or contractors with a ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 52 CONFIDENTIAL TREATMENT need to know such information; provided that each such employee or contractor must have executed a confidentiality agreement or be otherwise bound by the obligations of the receiving party hereunder. The receiving party shall safeguard the confidential information with the same degree of care which it uses to protect its own confidential information. This Section shall not apply to any information which (i) is already lawfully in the receiving party's possession (unless received pursuant to a nondisclosure agreement); (ii) is or becomes generally available to the public through no fault of the receiving party; (iii) is disclosed to the receiving party by a third party who may transfer or disclose such information without restriction; (iv) is required to be disclosed by the receiving party as a matter of law, governmental order or judicial mandate; provided that the receiving party will use all reasonable efforts to provide the disclosing party with prior notice of such disclosure; (v) is disclosed by the receiving party with the disclosing party's approval; and (vi) is independently developed by the receiving party without any use of confidential information. In all cases, the receiving party will use all reasonable efforts to give the disclosing party ten days' prior written notice of any disclosure of information hereunder. Each party acknowledges that any breach of this Section by a receiving party will irreparably harm the disclosing party. Accordingly, on any such breach, the disclosing party shall be entitled to promptly seek injunctive relief in addition to any other remedies which it may have at law or in equity. The parties will maintain the confidentiality of all confidential and proprietary information learned hereunder for a period of five years from the date of termination of this Agreement. 14.9 Limitation of Liability. EXCEPT ON ONE PARTY'S MISAPPROPRIATION OF ----------------------- THE OTHER PARTY'S CONFIDENTIAL INFORMATION OR INTELLECTUAL PROPERTY OR ON LARSCOM'S BREACH OF SECTIONS 2.1.1 OR 2.1.2, NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS OR COST OF PROCUREMENT OF SUBSTITUTE GOODS) ARISING OUT OF THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON TORT, WARRANTY, CONTRACT OR ANY OTHER LEGAL THEORY EVEN IF THE DEFAULTING PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 14.10 Product Liability Indemnification. Subject to Section 14.9 above, --------------------------------- Oasys shall defend, indemnify and hold Larscom harmless against any Damages (as defined in Section 12.1 above) specifically resulting from the injury to or death of any person or damage to, or loss or destruction of, any real property or tangible personal property and arising out of any claim that any Oasys Product hereunder is defective in design or manufacture. Larscom shall give Oasys prompt notice of any action hereunder and shall give Oasys sole authority, information and assistance (at Oasys' expense) to defend against or settle such action in Oasys' sole discretion. However, Oasys shall have no indemnification obligation or liability under this Section 14.10 for damages based on (a) any party's use of an Oasys Product in a manner other than for which it was intended, (b) any party's modification of an Oasys Product, (c) the misuse, neglect, damage, unauthorized repair or improper testing or storage of any Oasys Product, (d) any party's use of the Larscom Equipment, or (e) Oasys' adherence to 53 CONFIDENTIAL TREATMENT Larscom's designs, instructions or directions, in which case Larscom shall indemnify, defend and hold Oasys harmless from any Damages on the basis set forth above. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. OASYS TELECOM, INC. ARSCOM INCORPORATED By: /s/ Gerard Miille By: /s/ Bob Coackley ----------------- ---------------- Gerard Miille, President and CEO Bob Coackley, President and CEO 54 CONFIDENTIAL TREATMENT ***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. EXHIBIT A OASYS PRODUCT
- ---------------------------------------------------------------------------------------------------------------------- Part Number Item List Price - ---------------------------------------------------------------------------------------------------------------------- General & International M13 Items (PM13E, E1-to-T3) - ---------------------------------------------------------------------------------------------------------------------- 815-00063-001 EXchange Mux(R) II Rack Mount Assembly, 23" (Shelf & backplane) ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00073-001 EXchange Mux(R) II Rack Mount Assembly, 19" (Shelf & backplane) ***** - ---------------------------------------------------------------------------------------------------------------------- 700-00052-003 EXchange Mux(R) II 23" Starter Kit (Shelf, Bkplane, 2 MPUs) ***** - ---------------------------------------------------------------------------------------------------------------------- 700-00053-001 EXchange Mux(R) II 19" Starter Kit (Shelf, Bkplane, 2 MPUs) ***** - ---------------------------------------------------------------------------------------------------------------------- 890-00009-001 EXchange Mux(R) II Basic Software ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00062-003 Module, MPU, (Exchange Mux(R) II Use Only), -48V ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00070-001 Module, Field Programmable M13 Multiplexer, Int'l (PM13E), -48V ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00065-002 Output Redundancy Interface Module (RIM), Exchange Mux(R) II PM13E ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00066-002 Input Redundancy Interface Module (RIM), Exchange Mux(R) II PM13E ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00050-003 Module, Blank, 1-Slot Wide ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00071-001 RIM, Blank, EXM II (Covers 1 set of Input and Output RIM slots) ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00064-002 Cable, 28 DS1/E1, RIM-to-Champ Plug, 10' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00011-001 Cable, Craft, Modular-to-DB9, 6' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00011-002 Cable, Craft, Modular-to-DB9, 15' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00011-003 Cable, Craft, Modular-to-DB9, 30' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00011-004 Cable, Craft, Modular-to-DB9, 50' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00055-001 Cable, Null Modem, 6' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00055-002 Cable, Null Modem, 15' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00055-003 Cable, Null Modem, 30' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00055-004 Cable, Null Modem, 50' ***** - ---------------------------------------------------------------------------------------------------------------------- 835-00075-001 Air Baffle, 1 Mounting Space ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00056-001 DS3/STS-1 Connector Panel ***** - ---------------------------------------------------------------------------------------------------------------------- 890-00007-001 Manual, Operations, Exchange Mux(R) II ***** - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Domestic M13 Items (PM13, T1-to-T3) - ---------------------------------------------------------------------------------------------------------------------- 810-00068-001 Module, Field Programmable M13 Multiplexer (PM13), -48V ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00065-001 Output Redundancy Interface Module (RIM), Exchange Mux(R) II PM13 ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00066-001 Input Redundancy Interface Module (RIM), Exchange Mux(R) II PM13 ***** - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- OC-3/STM-1 Items - ---------------------------------------------------------------------------------------------------------------------- 810-00067-001 OC-3/STM-1 OMux Module, -48V ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00069-001 Output Redundancy Interface Module, EXchange Mux(R) II OC-3/STM-1 ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00069-002 Input Redundancy Interface Module, EXchange Mux(R) II OC-3/STM-1 ***** - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Misc Items - ---------------------------------------------------------------------------------------------------------------------- 820-00072-001 Ethernet Daughter Board for EXM Transmux or EXMII MPU ***** - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- EXchange Mux Transmux Items - ----------------------------------------------------------------------------------------------------------------------
55 - ---------------------------------------------------------------------------------------------------------------------- 815-00034-001 EXchange Mux(R) Transmux Basic Rack Mount Assy, 23" (Shelf & Bkplane) ***** - ---------------------------------------------------------------------------------------------------------------------- 890-00002-001 EXchange Mux(R) Transmux Basic Software ***** - ---------------------------------------------------------------------------------------------------------------------- 890-00002-003 EXchange Mux(R) Transmux Extended Feature Group #1 Upgrade (Test) ***** - ---------------------------------------------------------------------------------------------------------------------- 890-00002-004 EXchange Mux(R) Transmux SNMP Upgrade (requires MPU Daughter Bd.) ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00063-001 EXchange Mux(R) Transmux 1X6 Redundancy Interface Module (RIM) ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00062-001 Module, MPU (EXchange Mux(R) Transmux use only), -48V ***** - ---------------------------------------------------------------------------------------------------------------------- 810-00061-001 T3-to-STS-1 Transmux Module (ST3), -48V ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00050-003 EXchange Mux(R) Module Blank, 1 slot wide ***** - ---------------------------------------------------------------------------------------------------------------------- 835-00075-001 Air Baffle, 1 Mounting Space ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00056-001 DS3/STS-1 Connector Panel ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00026-002 Cable, DS3/STS-1, Rt. Angle SMB-to-Male BNC, 3.5' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00052-001 Cable, DS3/STS-1, Rt. Angle SMB-to-Female BNC, 3' ***** - ---------------------------------------------------------------------------------------------------------------------- 128-00010-001 Connector, BNC, 75-ohm, Hand Crimp ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00060-001 Cable, DS3/STS-1, 12 Conductor, 50' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00011-001 Cable, Craft, EXchange Mux(R) User Interface, 6' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00011-002 Cable, Craft, EXchange Mux(R) User Interface, 15' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00011-003 Cable, Craft, EXchange Mux(R) User Interface, 30' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00011-004 Cable, Craft, EXchange Mux(R) User Interface, 50' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00055-001 Cable, Null Modem, 6' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00055-002 Cable, Null Modem, 15' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00055-003 Cable, Null Modem, 30' ***** - ---------------------------------------------------------------------------------------------------------------------- 815-00055-004 Cable, Null Modem, 50' ***** - ---------------------------------------------------------------------------------------------------------------------- 940-00007-001 Manual, Operations, Exchange Mux(R) Transmux ***** - ----------------------------------------------------------------------------------------------------------------------
***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 56 CONFIDENTIAL TREATMENT EXHIBIT B [SEE ATTACHED PRODUCT DATA SHEETS] 57 CONFIDENTIAL TREATMENT EXHIBIT C DISCOUNT STRUCTURE
- ---------------------------------------------------------------------------------------------------------------------- Item Discount from List - ---------------------------------------------------------------------------------------------------------------------- All Items in Exhibit A except cables *****, increasing to *****after reaching a ***** of ***** or immediately if an ***** spanning ***** is made. - ---------------------------------------------------------------------------------------------------------------------- Cables ***** - ----------------------------------------------------------------------------------------------------------------------
***** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 58 -----END PRIVACY-ENHANCED MESSAGE-----