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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXTENDED SYSTEMS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3577 82-0399670
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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5777 NORTH MEEKER AVENUE
BOISE, IDAHO 83713
(208) 322-7575
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN D. SIMPSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXTENDED SYSTEMS INCORPORATED
5777 NORTH MEEKER AVENUE
BOISE, IDAHO 83713
(208) 322-7575
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JEFFREY D. SAPER, ESQ. MICHAEL J. SULLIVAN, ESQ.
PATRICK J. SCHULTHEIS, ESQ. LANA K. HAWKINS, ESQ.
DANIEL F. VAUGHN, ESQ. ALEXIS RONDELL RHORER, ESQ.
SHAWN J. LINDQUIST, ESQ. KATHRYN A. WALKER, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD LLP
PROFESSIONAL CORPORATION FIVE PALO ALTO SQUARE
650 PAGE MILL ROAD 3000 EL CAMINO REAL
PALO ALTO, CALIFORNIA 94304 PALO ALTO, CALIFORNIA 94306
(650) 493-9300 (650) 843-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per share................. $27,600,000 $8,142
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(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DECEMBER 19, 1997
SHARES
LOGO
COMMON STOCK
------------------------
Of the shares of Common Stock offered hereby, shares are
being offered by Extended Systems Incorporated ("Extended Systems" or the
"Company") and shares are being offered by certain selling stockholders
(the "Selling Stockholders"). The Company will not receive any proceeds from the
sale of the shares by the Selling Stockholders. See "Principal and Selling
Stockholders." Prior to this Offering, there has been no public market for the
Common Stock of the Company. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. Application
has been made to have the Common Stock approved for listing on the Nasdaq
National Market under the symbol "XTND."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 6 THROUGH 14.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=========================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY (2) STOCKHOLDERS
- ---------------------------------------------------------------------------------------------------------
Per Share............................ $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company and certain Selling Stockholders have granted the Underwriters a
45-day option to purchase up to additional shares of Common Stock
on the same terms and conditions as set forth above solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
certificates for the shares of Common Stock will be available for delivery at
the offices of Volpe Brown Whelan & Company, LLC, One Maritime Plaza, San
Francisco, California on or about , 1998.
VOLPE BROWN WHELAN & COMPANY NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1998
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[GRAPHICS -- SEE APPENDIX A]
Connect with the Beam(R), ExtendHub(R), ExtendNet(R), Extended Systems(R),
JetEye(R), MultiSpool(R), OpenSystems(R), ShareLink(R), ShareSpool(R) and
TruePort(R) are registered United States trademarks of the Company. This
Prospectus also contains additional trademarks and tradenames of the Company and
of other companies.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's consolidated financial
statements and the notes thereto, appearing elsewhere in the Prospectus. In this
Prospectus, the words "expects," "anticipates," "believes," "intends," "will"
and similar expressions identify forward-looking statements, which are based
upon information currently available to the Company, speak only as of the date
hereof and are subject to certain risks and uncertainties. The Company assumes
no obligation to update any forward-looking statements. The Company's actual
results may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed in "Risk Factors." Unless otherwise indicated, (i)
the information contained in this Prospectus assumes no exercise of the
Underwriters' over-allotment option and reflects a two-for-three reverse split
of the Company's Common Stock effected in January 1998 and (ii) all share
numbers contained in this Prospectus assume that no stockholder receiving the
Rescission Offer, which Rescission Offer will be made following the closing of
the Offering, exercises such right to rescind its purchase of shares of the
Company's Common Stock (see "Rescission Offer").
THE COMPANY
Extended Systems provides distributed and mobile computing solutions that
address the needs of the virtual enterprise. The Company designs, develops,
markets and sells two product families: distributed connectivity products and
mobile systems products. The Company's distributed connectivity products include
a virtual private networking server, an Internet access server, network print
servers and a database management system with remote access capabilities. The
Company's mobile systems products include wireless connectivity products that
comply with the standards of the Infrared Data Association ("IrDA"), infrared
software and port replicators that connect portable computers to desktop
peripherals and the network.
During the last decade, businesses and other organizations have moved from
centralized computer systems to distributed local and wide area networks based
on client/server architectures. The proliferation of these distributed networks
has enabled the enterprise-wide deployment of mission-critical applications
beyond
the traditional on-site facilities of the organization. As a result, both mobile
and local employees have greater access to business-critical information. The
corporation has evolved into a "virtual enterprise" characterized by resource
and information sharing among employees, suppliers, distributors and customers
throughout the world.
As the mobile workforce continues to grow, there is increasing demand to
access business networks from multiple locations, including different locations
within the organization's main office, remote offices and various locations
while traveling, such as hotels and airports. International Data Corporation
("IDC") forecasts that the market for remote access servers will increase from
$1.9 billion in 1996 to $7.6 billion in 2001, and IDC expects the installed base
of remote access server ports to increase from 4.2 million in 1996 to 60.5
million in 2001. Increased demand for mobile connectivity has been driven by
higher demand for access to communication and mission-critical applications
across the network, as well as by the proliferation of notebook computers and
other innovative mobile computing devices. PC manufacturers have introduced
notebook computers with powerful new features and computing power comparable to
desktop computers. IDC reported that in 1997 74% of all notebook computers sold
served as the user's primary computer. In addition, a majority of the notebook
computer models sold today by major PC manufacturers contain an infrared port,
based upon the IrDA standard, that enables wireless connectivity to the network,
other computers, printers and other devices through an infrared connection.
The Company's products provide a number of advantages to the virtual
enterprise. The distributed connectivity products include ExtendNet VPN,
ExtendNet IAS, ExtendNet print servers and Advantage Database Management
Servers. ExtendNet VPN enables a business to extend its network environment
beyond physical connections to the LAN or WAN, permitting seamless, secure
access to the network by mobile users over the Internet and eliminating the need
for multiple modems and telephone lines. ExtendNet IAS provides remote offices
and small businesses with Internet connectivity, allowing multiple users to
easily access a single Internet connection while intelligently managing usage to
reduce costs. The ExtendNet print
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server products enable the effective deployment of complex printing applications
across distributed networks worldwide. The Advantage Database Server is a
scalable, high performance database management system that enables organizations
to extend applications and databases across the distributed network and, when
coupled with the Advantage Internet Server, over the Internet. The mobile
systems products include the JetEye infrared wireless connectivity products,
IrDA connectivity software and port replicators. The JetEye infrared wireless
connectivity products enable mobile users to easily access networks or
peripherals while moving between offices and conference rooms without the need
for bulky cables and wired connections. The QuickBeam, JetBeam and IrLite
software products enable infrared communications in mobile computing devices.
The port replicator products provide notebook computers quick, cost-effective
access to desktop peripherals and the network.
The Company's objective is to be a leading supplier of distributed and
mobile computing solutions that meet the needs of the virtual enterprise. The
Company leverages its expertise in distributed and mobile computing to provide
networking solutions that meet the evolving needs of the virtual enterprise. The
Company is committed to developing, introducing and manufacturing new products
and enhancing existing products by expanding and leveraging its core
technologies. In addition, the Company intends to pursue strategic acquisitions
of, or investments in, companies with complementary products, technologies or
distribution networks in order to broaden its product lines and to provide a
more complete virtual enterprise networking solution.
The Company markets and sells its products worldwide primarily through
distributors, OEMs and resellers. The Company has distribution agreements with
companies located in more than 28 countries, including with key distributors
such as Ingram Micro and Tech Data. The Company intends to establish additional
distribution relationships to strengthen its geographic reach. The Company's
in-house sales and marketing staff actively supports the sales efforts of
distributors and resellers and is largely responsible for generating end user
demand by soliciting prospective customers and providing technical support.
Extended Systems was founded in 1984 and reincorporated in Delaware in
1985. The Company's principal offices are located at 5777 North Meeker Avenue,
Boise, Idaho 83713, and its telephone number at that location is (208) 322-7575.
References in this Prospectus to "Extended Systems" and the "Company" refer to
Extended Systems Incorporated and its subsidiaries.
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THE OFFERING
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Common Stock offered by the Company..................... shares
Common Stock offered by the Selling Stockholders........ shares
Common Stock to be outstanding after the Offering....... shares(1)
Use of proceeds......................................... For general corporate purposes,
including working capital and
potential acquisitions.
Proposed Nasdaq National Market symbol.................. XTND
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
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1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue..................... $23,104 $29,607 $28,588 $34,670 $39,535 $ 8,943 $11,152
Gross profit.................... 14,309 17,809 16,687 19,841 24,248 5,430 6,723
Income from operations.......... 4,652 7,400 3,456 4,199 5,308 1,314 1,213
Net income...................... 2,194 4,290 1,798 2,279 2,676 632 641
Earnings per share.............. $ 0.30 $ 0.62 $ 0.26 $ 0.32 $ 0.37 $ 0.09 $ 0.09
Weighted-average number of
common shares outstanding..... 6,025 6,433 6,362 6,826 6,871 6,869 6,865
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SEPTEMBER 30, 1997
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ACTUAL AS ADJUSTED(2)
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 7,951 $
Working capital....................................................... 13,875
Total assets.......................................................... 27,237
Long-term debt........................................................ 7,342
Total stockholders' equity............................................ 14,665
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(1) Based upon shares outstanding as of September 30, 1997. Excludes 2,195,308
shares issuable upon exercise of stock options outstanding as of September
30, 1997 with a weighted-average exercise price of $7.75 per share,
2,550,000 shares of Common Stock reserved for future issuance under the
Company's stock option, director option and stock purchase plans, and
557,787 shares of Common Stock issuable upon conversion of promissory notes.
See "Capitalization," "Management -- Stock Plans," "Description of Capital
Stock" and Note 8 of Notes to Consolidated Financial Statements.
(2) Adjusted to give effect to the receipt of the estimated net proceeds from
the sale of shares of Common Stock offered by the Company at an
initial public offering price of $ per share. See "Use of
Proceeds."
------------------------
The Company's fiscal year ends on June 30 of each year. References herein
to "fiscal 1998" refer to the fiscal year ending June 30, 1998. References
herein to "fiscal 1997," "fiscal 1996" and "fiscal 1995" refer to the fiscal
years ended June 30, 1997, June 30, 1996 and June 30, 1995, respectively.
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RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The cautionary statements made in this Prospectus should be read
as being applicable to all related forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of a
number of factors, including those set forth in the following risk factors and
elsewhere in this Prospectus. In evaluating the Company's business, prospective
investors should consider carefully the following factors in addition to the
other information set forth in this Prospectus.
Potential Fluctuations in Operating Results. The Company's operating
results have fluctuated significantly in the past and are likely to fluctuate
significantly in the future on a quarterly and an annual basis. Prior growth
rates that the Company has experienced in net revenue and net income should not
be considered indicative of future growth rates. Factors that could cause the
Company's future operating results to fluctuate include the level of demand for
the Company's products, the Company's success in developing new products, the
timing of new product introductions and product enhancements by the Company and
its competitors, market acceptance of the Company's new and enhanced products,
the emergence of new industry standards, the timing of customer orders, the mix
of products sold, competition, the mix of distribution channels through which
the Company's products are sold and general economic conditions. Many of such
factors are beyond the Company's control.
The Company typically operates with a relatively small order backlog. As a
result, quarterly sales and operating results depend in large part on the volume
and timing of orders received within the quarter, which are difficult to
forecast. A significant portion of the Company's expense levels is fixed in
advance, based in large part on the Company's forecasts of future revenue. If
revenue is below expectations in any given quarter, the adverse impact of the
shortfall on the Company's operating results may be magnified by the Company's
inability to adjust spending to compensate for the shortfall. Therefore, a
shortfall in actual revenue as compared to estimated revenue could have a
material adverse effect on the Company's business and results of operations.
A substantial majority of the Company's net revenue results from the sale
of products to distributors and original equipment manufacturers ("OEMs") ,
which sales are difficult to predict and may have lower margins than sales
through other channels. Sales through such channels may contribute to increased
fluctuations in operating results. A significant portion of the Company's
revenue in any quarter is typically derived from sales to a limited number of
distributors. Any significant deferral of purchases of the Company's products by
its distributors could have a material adverse effect on the Company's business
and results of operations in any particular period.
The Company has experienced some degree of seasonality of net revenue, and
the Company expects to continue to experience seasonality in the future. Net
revenue in the first fiscal quarter typically is lower than net revenue in the
fourth fiscal quarter, reflecting lower sales in Europe and certain other
regions in the summer months when business activities are reduced.
As a result of the foregoing factors, the Company's operating results may
be subject to significant volatility. It is likely that in a future period the
Company will fail to achieve anticipated operating results. Any shortfall in net
revenue, gross margin or net income from levels expected by securities analysts
in any period could have an immediate and significant adverse effect on the
trading price of the Company's Common Stock.
Dependence on Recently Introduced Products. The Company's future results of
operations will be highly dependent upon the success of recently introduced
products, including the ExtendNet VPN, the ExtendNet IAS, the Advantage Internet
Server and the port replicators. Newly introduced products are subject to a
number of risks, including failure to achieve market acceptance and poor product
performance. The Company is unable to predict with any degree of certainty the
rate of market acceptance of these newly introduced products. No assurance can
be given that any of such products will not require additional development work,
enhancement, testing or refinement before they achieve market acceptance. If
such new and recently introduced products have performance, reliability, quality
or other shortcomings, then such products could fail
6
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to achieve market acceptance and the Company may experience reduced orders,
higher manufacturing costs, delays in collecting accounts receivable and
additional warranty and service expenses, which in each case could have a
material adverse effect on the Company's business and results of operations.
Risks Associated With New and Evolving Markets. The markets for distributed
and mobile network connectivity products are still emerging, and there can be no
assurance that they will continue to grow or that, even if the markets grow, the
Company's products that address these markets will be successful. The Company's
success in generating significant revenue in these evolving markets will depend
upon, among other things, its ability to demonstrate the benefits of its
technology to potential distributors, OEMs and end users, to maintain and
enhance its relationships with leading distributors and to expand successfully
its distribution channels. The success of the ExtendNet VPN and ExtendNet IAS
products will rely, to a large degree, on the increased use of the Internet by
businesses as replacements for, or enhancements to, their private networks.
There can be no assurance that businesses will develop sufficient confidence in
the Internet to deploy the Company's products to a significant degree. The
inability of the Company to continue to penetrate the existing markets for
distributed and mobile network connectivity products or the failure of current
markets to grow or new markets to develop or be receptive to the Company's
products could have a material adverse effect on the Company's business and
results of operations. The emergence of markets for the Company's products will
be affected by a number of factors beyond the Company's control. For example,
the Company's products are designed to conform to certain standard infrared and
networking specifications. There can be no assurance that these specifications
will be widely adopted or that competing specifications will not emerge which
will be preferred by the Company's customers. In addition, there can be no
assurance that infrared technology itself will be adopted as the standard or
preferred technology for wireless connectivity or that manufacturers of personal
computers will elect to bundle the infrared technology in their products. The
emergence of markets for the Company's products is critically dependent upon
continued expansion of the market for mobile computing devices and the timely
introduction and successful marketing and sale of mobile computing products such
as notebook computers and personal digital assistants, of which there can be no
assurance.
Product Concentration. In fiscal 1997 and the first three months of fiscal
1998, 64% and 58%, respectively, of the Company's net revenue was derived from
sales of ExtendNet print servers. The Company believes that this product line
will continue to account for a significant portion of the Company's net revenue
and gross profit. The Company expects that its gross margin on sales of
ExtendNet print servers will decline as a result of a shift in product mix
toward lower priced print servers and competitive pricing pressures. The
Company's future operating results, particularly in the near term, are dependent
upon the continued market acceptance of ExtendNet print servers. There can be no
assurance that ExtendNet print servers will continue to meet with market
acceptance or that the Company will be successful in developing, introducing or
marketing new or enhanced products. A decline in the demand for ExtendNet print
servers, as a result of competition, technological change or other factors, or
the failure to successfully develop, introduce or market new or enhanced
products could have a material adverse effect on the Company's business and
results of operations. The life cycle of ExtendNet print servers is difficult to
estimate because of, among other factors, the presence of strong competitors in
the market and the likelihood of future competition.
Reliance on Distribution Channels. The Company sells its products,
domestically and internationally, primarily to distributors and resellers, and
to a lesser extent to OEM customers. The Company's success depends on the
continued sales efforts of its network of distributors and resellers. The
Company's key distributors include Ingram Micro Inc. ("Ingram Micro") and Tech
Data Corporation ("Tech Data"). In fiscal 1997, sales to Ingram Micro accounted
for 19% of the Company's net revenue. In the first three months of fiscal 1998,
sales to Ingram Micro and Tech Data accounted for 22% and 10%, respectively, of
the Company's net revenue. The loss of, or reduction in sales to, any of the
Company's key customers could have a material adverse affect on the Company's
business and results of operations.
The Company provides most of its distributors and resellers with limited
product return rights for stock rotation. There can be no assurance that the
Company will not experience significant returns in the future or that it will
have made adequate allowances to offset such returns. The Company also provides
most of its distributors and resellers with price protection rights. Price
protection rights require that the Company grant retroactive price adjustments
for inventories of the Company's products held by distributors or resellers if
the
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Company lowers its prices for such products. The short life cycles of the
Company's products and the difficulty in predicting future sales increase the
risk that new product introductions, price reductions by the Company or its
competitors or other factors affecting the markets in which the Company competes
could result in significant product returns. In addition, new product
introductions by competitors or other market factors could require the Company
to reduce prices in a manner or at a time which has a material adverse impact
upon the Company's business and results of operations.
The Company intends to continue to enhance and diversify its international
and domestic distribution channels. None of the Company's distributors or OEMs
is obligated to purchase the Company's products except pursuant to current
purchase orders. The Company's ability to achieve future revenue growth will
depend in large part on its success in recruiting and training sufficient sales
personnel, distributors, value added resellers ("VARs") and OEM customers.
Certain of the Company's existing distributors currently distribute, or may in
the future distribute, the product lines of the Company's competitors. There can
be no assurance that the Company will be able to attract, train and retain a
sufficient number of its existing or future third-party distributors or direct
sales personnel, that such third-party distributors will recommend, or continue
to recommend, the Company's products or that the Company's distributors will
devote sufficient resources to market and provide the necessary customer support
for such products. The Company's OEM customers may in the future incorporate
competing products into their systems or internally develop competing solutions.
In the event that the Company's OEM customers reduce their purchases of the
Company's products, the Company's future growth would be adversely affected. All
of these factors could have a material adverse effect on the Company's business
and results of operations.
Competition. The markets for the Company's products are intensely
competitive, and are characterized by frequent new product introductions,
rapidly changing technology and standards, constant price pressure and
competition for distribution channels. The principal competitive factors in the
Company's markets include product performance, reliability, price, breadth of
product line, sales and distribution capability and technical support and
service. Certain of these factors are outside the Company's control. There can
be no assurance that the Company will be able to compete successfully in the
future with respect to these or any other competitive factors or that
competition will not have a material adverse effect on the Company's business
and results of operations.
The Company's principal competitors in the market for print servers include
Hewlett-Packard Company ("Hewlett-Packard"), Intel Corporation, Lexmark
International, Inc. and Emulex Corporation. In the market for infrared mobile
computing products, the Company's competitors include a number of companies
which have hardware or software solutions. As the market for infrared
connectivity matures, the Company may face increased competition from the major
PC manufacturers, who may choose to develop infrared solutions for use with
their own products. The Company currently faces limited direct competition from
major applications and operating systems software vendors who may choose to
incorporate infrared connectivity functionality into their software, thereby
potentially reducing the need for OEMs to include the Company's products in
their notebook and desktop PCs. The Company's ExtendNet IAS product currently
competes with the product offerings of Bay Networks, Inc., as well as those of a
number of smaller companies. The Company's ExtendNet VPN product currently
competes with software-based solutions offered by Microsoft Corporation and
others. As the market for these distributed connectivity products matures, the
Company expects to face direct competition from other large computer networking
companies. The Company's Advantage Database Server product currently competes
with low-end database products from companies such as Microsoft Corporation and
Oracle Corporation, in addition to smaller competitors offering data management
software. The Company faces indirect competition from existing and potential
customers that provide internally developed solutions. As a result, the Company
must demonstrate to prospective customers the advantages of the Company's
products over internally developed solutions.
In addition to direct competition, the Company's products face competition
from alternative technological solutions. For example, the Company's IrDA mobile
computing products face indirect competition from alternatives such as radio
frequency connectivity and non-IrDA infrared solutions. The Company's ExtendNet
VPN products face indirect competition from the major computer networking
companies which provide extended Ethernet solutions for wide area and local area
networks.
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Many of the companies with which the Company competes or may in the future
compete, including the internal development groups of its current and potential
customers, have substantially greater financial, marketing, technical, sales and
support resources and may have more brand name recognition than the Company. The
Company expects that, in order to remain competitive, it may have to decrease
its sales prices on certain products, which could materially and adversely
affect the Company's business and results of operations. There can be no
assurance that the Company will be able to compete effectively in the future.
Risks of International Sales and Operations. The Company derives a
substantial portion of its net revenue from international sales, principally
through its international sales subsidiaries and a limited number of
distributors. In fiscal 1996, fiscal 1997 and the first three months of fiscal
1998, international sales represented 38%, 44% and 44%, respectively, of net
revenue and the Company expects that international sales will continue to
represent a substantial portion of its net revenue for the foreseeable future.
If any significant international distributor were to cease purchasing products
or were to significantly reduce its orders from the Company for any reason, the
Company's business and operating results could be materially and adversely
affected. International sales are subject to a number of risks, including
changes in foreign government regulations, export license requirements, tariffs
and taxes, other trade barriers, fluctuations in currency exchange rates,
difficulty in collecting accounts receivable, difficulty in staffing and
managing foreign operations and political and economic instability.
A substantial portion of the Company's international sales are typically
denominated in U.S. dollars. As a result, fluctuations in currency exchange
rates could cause the Company's products to become relatively more expensive to
customers in a particular country, leading to a reduction in sales or
profitability in that country. The Company operates sales subsidiaries in
France, Germany and the United Kingdom. The sales made through these
subsidiaries are primarily denominated in local currencies. Accordingly, the
Company's international operations impose a risk upon its business as a result
of exchange rate fluctuations. There can be no assurance that exchange rate
fluctuations will not have a material adverse effect on the Company's business
and results of operations. Payment cycles for international customers are
typically longer than those for customers in the United States. There can be no
assurance that foreign markets will continue to develop or that the Company will
receive additional orders to supply its products for use in foreign markets.
Risks Associated With New Product Development. The markets for the
Company's products are characterized by rapidly changing technologies, evolving
industry standards, frequent new product introductions and short product life
cycles. The Company's future success will depend to a substantial degree upon
its ability to enhance its existing products and to develop and introduce, on a
timely and cost-effective basis, new products and features that meet changing
customer requirements and emerging and evolving industry standards. The Company
budgets research and development expenses based on planned product introductions
and enhancements; however, actual expenses may significantly differ from budget.
The product development process involves a number of risks. The development of
new, technologically advanced hardware and software products is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. The introduction of new or
enhanced products also requires the Company to manage the transition from older
products in order to minimize disruption in customer ordering patterns, to avoid
excessive levels of older product inventories and to ensure that adequate
supplies of new products can be delivered to meet customer demand. There can be
no assurance that the Company will successfully develop, introduce or manage the
transition to new products. The Company has in the past experienced, and is
likely in the future to experience, delays in the introduction of new products,
due to factors internal and external to the Company. Any future delays in the
introduction or shipment of new or enhanced products, the inability of such
products to achieve market acceptance or problems associated with new product
transitions could adversely affect the Company's business and results of
operations.
Risks Associated With Third-Party Manufacturers and Suppliers. The
Company's future success will depend, in significant part, on its ability to
continue to have third parties manufacture its products successfully,
cost-effectively and in sufficient volumes to meet customer demand. The Company
maintains a limited in-house manufacturing capability for performing materials
procurement, final assembly, testing, quality assurance and shipping. The
Company relies primarily on independent subcontractors to manufacture its
products, and the Company intends to increase its reliance upon third-party
manufacturers in the future.
9
<PAGE> 11
Certain of the Company's products are manufactured in their entirety by third
parties. For example, the ExtendNet IAS is manufactured by Apexx Technology,
Inc. In addition, the Company's port replicator and in-air and in-car charger
products are manufactured by Mobility Electronics. The reliance on third-party
manufacturers involves a number of risks, including the potential inability to
obtain an adequate supply of products and reduced control over delivery
schedules, product quality and product cost. Because the manufacturing of the
Company's products can involve long lead times, in the event of unanticipated
increases in demand for the Company's products, the Company could be unable to
manufacture certain products in a quantity sufficient to meet its customers'
demands. The Company also relies on third party suppliers for components used in
its products. Certain of the components used in the Company's products,
including certain semiconductor components and infrared transmission components,
are currently available from a limited number of suppliers. Any inability to
obtain adequate deliveries or other circumstances that would require the Company
to seek alternative manufacturers could affect the Company's ability to ship its
products on a timely basis, which could damage relationships with current and
prospective customers and end users and could therefore have a material adverse
affect on the Company's business and results of operations.
Dependence on Licensed Technology. The Company licenses technology on a
non-exclusive basis from several companies for use with its products and
anticipates that it will continue to do so in the future. The inability of the
Company to continue to license this technology or to license other necessary
technology for use with its products, or substantial increases in royalty
payments pursuant to third-party licenses, could have a material adverse effect
on the Company's business and results of operations. In addition, the effective
implementation of the Company's products depends upon the successful operation
of this licensed software in conjunction with the Company's products, and
therefore any undetected errors in products resulting from such software may
prevent the implementation or impair the functionality of the Company's
products, delay new product introductions and injure the Company's reputation.
Such problems could have a material adverse effect on the Company's business and
results of operations.
Product Errors; Product Liability. Software and hardware products as
complex as those offered by the Company typically contain undetected errors when
first introduced or as new versions are released. Testing of the Company's
products is particularly challenging because it is difficult to simulate the
wide variety of computing environments in which the Company's customers may
deploy these products. Accordingly, there can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found after commencement of commercial shipments. Any such errors, or "bugs,"
could result in dissatisfied customers and the loss of or delay in market
acceptance of the new product, any of which could have a material adverse effect
upon the Company's business and results of operations. Although to date the
Company has not experienced any product liability claims, there can be no
assurance that the Company will not face product liability claims in the future.
A successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business and results of operations.
Management of Growth. Any future growth experienced by the Company is
likely to place a significant strain on the Company's administrative,
operational and financial resources and to increase demands on the Company's
systems and controls. Future growth may also result in an increase in the scope
of responsibility for management personnel. The Company anticipates that growth
and expansion will require it to recruit, hire, train and retain a substantial
number of new engineering, executive, sales and marketing personnel. As is the
case with many technology companies, in the current employment environment the
Company has experienced difficulty in recruiting qualified personnel, and
continued difficulty in this regard could limit the Company's ability to grow.
In order to manage its growth successfully, the Company will continue to expand
and improve its operational, management and financial systems and controls.
There can be no assurance that the Company will successfully implement such
systems and controls on a timely basis. If the Company's management is unable to
manage growth effectively, the Company's business and results of operations
could be materially adversely affected.
Risks Associated With Acquisitions by the Company. In April 1997, the
Company acquired Counterpoint Systems Foundry, Inc. ("Counterpoint"), a provider
of advanced infrared connectivity software. As part of its growth strategy, the
Company intends to pursue the acquisition of other companies that either
complement or expand its existing business. The Company is continually
evaluating potential acquisition
10
<PAGE> 12
opportunities, which may be material in size and scope. Acquisitions involve a
number of risks and difficulties, including the expansion into new markets and
business areas, the diversion of management's attention to the assimilation of
the operations and personnel of the acquired companies, the integration of the
acquired companies' management information systems with those of the Company,
potential adverse short-term effects on the Company's operating results, the
amortization of acquired intangible assets and the need to present a unified
corporate image. In addition, acquisitions could result in the need to expend
substantial amounts of cash. While the Company believes that the net proceeds of
this offering, together with existing liquidity sources and funds generated from
operations, will provide the Company with sufficient funds to finance its
operations for at least the next twelve months, to the extent that such funds
are insufficient to fund the Company's activities, including any potential
acquisitions, the Company may need to raise additional funds through public or
private equity or debt financing or from other sources. The sale of additional
equity or convertible debt may result in additional dilution to the Company's
stockholders and such securities may have rights, preferences or privileges
senior to those of the Common Stock. There can be no assurance that additional
equity or debt financing will be available or that, if available, it can be
obtained on terms favorable to the Company or its stockholders.
There can be no assurance that the Company will be successful in
identifying acquisition candidates, that the Company will have adequate
resources to consummate any acquisition, that any acquisition by the Company
will or will not occur, that if any acquisition does occur it will not have a
material adverse effect on the Company's business and results of operations or
that any such acquisition will be successful in enhancing the Company's
business.
Proprietary Rights and Risks of Infringement. The Company relies on a
combination of patent, copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
intellectual property rights. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Company currently has six issued
United States patents that expire in 2006 and beyond and has four patent
applications pending. The Company has registered nine trademarks in the United
States, including "JetEye" and "ExtendNet." The Company's future success is
dependent in part upon its proprietary technology. There can be no assurance
that any patent, trademark or copyright owned by the Company will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the
claims sought by the Company, if at all. Further, there can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology, duplicate the Company's technology or design around the
patents owned by the Company. Effective intellectual property protection may be
unavailable or limited in certain foreign countries. There can be no assurance
that the steps taken by the Company will prevent misappropriation of its
technology by foreign companies.
The Company has entered into source code and design document escrow
agreements with a limited number of its customers requiring release of design
details in certain circumstances. Such agreements generally provide that such
parties will have a limited, non-exclusive right to use such code in the event
that there is a bankruptcy proceeding by or against the Company, if the Company
ceases to do business or if the Company fails to meet its support obligations.
The Company also provides its source code to foreign language translation
service providers and consultants to the Company in limited circumstances. The
provision of source code to third parties may increase the likelihood of
misappropriation.
As is common in its industry, the Company has from time to time received
notification from other companies of intellectual property rights held by those
companies upon which the Company's products may infringe. If the Company were
found to be infringing on the intellectual property rights of any third party,
the Company could be subject to liabilities for such infringement, which could
be material. As a result, the Company could be required to seek licenses from
other companies or to refrain from using, manufacturing or selling certain
products or using certain processes. Although holders of patents and other
intellectual property rights often offer licenses to their patent or other
intellectual property rights, no assurance can be given that licenses would be
offered, that the terms of any offered license would be acceptable to the
Company or that the failure to obtain a license would not adversely affect the
Company's business and results of operations.
11
<PAGE> 13
In order to protect its proprietary rights, the Company may in the future
initiate proceedings against third parties. Any litigation, whether brought by
or against the Company, could result in the incurrence of significant expenses
by the Company. In addition, any such litigation could result in a diversion of
management's time and efforts. A claim by the Company against a third party
could prompt a counterclaim by the third party against the Company, which could
have an adverse effect on the Company's intellectual property rights. Any of the
foregoing could result in a material adverse effect on the Company's business
and results of operations.
Rescission Offer. Approximately thirty days after the effectiveness of this
Offering, the Company intends to commence a rescission offer (the "Rescission
Offer") pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act") and pursuant to the securities laws of
the states of Idaho, California, Montana and New York, covering shares of Common
Stock which may have been sold in violation of the registration requirements of
applicable federal and state securities law, which represented an aggregate of
220,992 shares as of September 30, 1997 (the "Rescission Stock"). Because of the
frequency and number of sales, including the number of persons who received
offers and who purchased shares, the private placement exemption under the
Securities Act may not have been available for the Company's prior sales of the
Rescission Stock. The Company will offer to rescind such prior sales by
repurchasing the Rescission Stock at the price per share paid therefor (a range
of $0.15 per share to $8.76 per share) plus interest thereon at various
statutory rates in effect for the applicable states from the date of purchase by
each purchaser to the expiration of the Rescission Offer. The Rescission Offer
will expire approximately thirty days after the effectiveness of the
registration statement with respect to the Rescission Stock. If all offerees
accept the Rescission Offer, the Company would be required to make an aggregate
payment of approximately $684,000 (including $84,000 of interest thereon as of
September 30, 1997). Offerees who do not accept the Rescission Offer will, for
purposes of applicable federal and state securities laws, be deemed to hold
registered shares under the Securities Act which will be freely tradeable in the
public market as of the effective date of the registration statement with
respect to the Rescission Stock, subject to any lockup agreements entered into
by such stockholders. The Securities Act does not expressly provide that a
Rescission Offer will terminate a purchaser's right to rescind a sale of stock
which was not registered under the Securities Act as required. However, federal
law does provide that a stockholder may lose any rescission rights under federal
securities laws one year from the date of purchase of such stockholders shares.
Accordingly, should the Rescission Offer be rejected by any or all offerees, the
Company may continue to have contingent liability under the Securities Act for
the purchase price of Rescission Stock up to an aggregate amount of
approximately $94,000.
As of the date hereof, the Company is not aware of any claims for
rescission against the Company. While the Company will offer to rescind the
sales of the Rescission Stock, there can be no assurance that the Company will
not otherwise be subject to possible penalties or fines relating to these
issuances. The Company believes that the Rescission Offer will provide it with
additional meritorious defenses to any such future claims. See "Rescission
Offer," "Shares Eligible for Future Sale" and Note 11 of Notes to Consolidated
Financial Statements.
Shares Eligible For Future Sale. Sales of substantial amounts of Common
Stock in the public market after the Offering could adversely affect the
prevailing market price of the Common Stock. In addition to the shares
of Common Stock offered hereby (assuming no exercise of the Underwriters'
over-allotment option), as of the date of this Prospectus (the "Effective
Date"), there will be approximately shares of Common Stock outstanding,
all of which are "restricted" shares (the "Restricted Shares") under the
Securities Act. Of the Restricted Shares, the holders of shares have
agreed that they will not, directly or indirectly, sell such shares for a period
of 180 days following the date of this Prospectus. Beginning 180 days after the
Effective Date, such shares will first become eligible for sale in the public
market pursuant to Rule 144 promulgated under the Securities Act. In addition,
Restricted Shares are immediately available for sale in the public
market upon the date of this Prospectus without restriction. The remaining
Restricted Shares are available for sale in the public market beginning
90 days after the date of this Prospectus, subject to certain volume and other
resale restrictions pursuant to Rule 144. In addition, an aggregate of
approximately shares issuable upon the exercise of stock options will
first become eligible for sale in the public market upon the expiration of
lock-up agreements with the Company 180 days
12
<PAGE> 14
following the Effective Date and pursuant to a registration statement on Form
S-8, which the Company intends to file with the Securities and Exchange
Commission following the Effective Date. See "Shares Eligible for Future Sale."
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. Although the Company
believes that its products and internal systems are Year 2000 compliant, the
Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to upgrade their current software systems for Year 2000 compliance.
These expenditures may result in reduced funds available to purchase products
such as those offered by the Company, which could have a material adverse effect
on the Company's business and results of operations.
Dependence on Key Personnel. The Company's future success will depend to a
significant degree upon the continuing contributions of its key management,
engineering, sales and marketing personnel. The Company does not maintain any
key person life insurance policies. The loss of key management or technical
personnel could adversely affect the Company. The Company believes that its
future success will depend in large part upon its ability to attract and retain
highly-skilled management, engineering, sales and marketing personnel. In
particular, the Company is currently attempting to recruit new engineering
personnel; however, there can be no assurance that the Company will be
successful at hiring or retaining these personnel. Failure to recruit, hire,
train and retain key personnel would limit future growth and could have a
material adverse effect on the Company's business and results of operations. See
"Business -- Employees" and "Management."
Control by Officers, Directors and Principal Stockholders. Upon completion
of this Offering, the Company's executive officers, directors and principal
stockholders will beneficially own in the aggregate approximately % of the
issued and outstanding shares of Common Stock. Accordingly, such stockholders
will have sufficient voting power to substantially affect the outcome of all
matters (including the election of directors and any merger, consolidation or
sale of all or substantially all of the Company's assets) submitted to the
stockholders for approval. This may have the effect of making certain
transactions more difficult or impossible, absent the support of such
stockholders. Such transactions could include a proxy contest, mergers involving
the Company, tender offers and open market purchase programs involving Common
Stock that could give stockholders of the Company the opportunity to realize a
premium over the then prevailing market price for their shares of Common Stock.
See "Principal and Selling Stockholders" and "Description of Capital Stock."
Anti-Takeover Effects of Charter Provisions and Delaware Law. The Company's
Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock, $0.001 par value per share (the "Preferred Stock") and to
determine the price, rights, preferences and privileges of those shares without
any further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. While the Company has no present intention to issue shares of Preferred
Stock, such issuance, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. In addition, the Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which prohibits the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. The Company's Certificate of Incorporation (the "Certificate of
Incorporation") divides the Company's Board of Directors into three classes,
each serving a staggered three-year term, and does not permit action by written
consent of the stockholders or cumulative voting. These provisions and other
provisions of the Certificate of Incorporation and the Company's bylaws (the
"Bylaws") may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of the Company, including
13
<PAGE> 15
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices.
No Prior Market; Liquidity; Stock Price Volatility. Prior to the Offering,
there has been no public market for the Company's Common Stock. Consequently,
the initial public offering price will be determined by negotiations among the
Company and the representatives of the Underwriters. There can be no assurance
that an active public market for the Common Stock will develop or be sustained
after the Offering, that the market price of the Common Stock will develop or be
sustained after the Offering or that the market price of Common Stock will not
decline below the initial public offering price. The trading price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcements of
technological innovations or new products by the Company or its competitors,
general conditions in the computer industry, changes in earnings estimates or
recommendations by analysts, or other events or factors. In addition, the public
stock markets have experienced extreme price and trading volume volatility in
recent months. This volatility has significantly affected the market prices of
securities of many technology companies for reasons that may be unrelated to the
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. See
"Underwriting."
Management Discretion Over Proceeds of the Offering. The Company currently
has no specific plan for a significant portion of the net proceeds of the
Offering. As a consequence, the Company's management will have broad discretion
to allocate a large percentage of the Offering to uses which potential investors
may not deem desirable. There can be no assurance that the net proceeds can or
will be invested to yield significant return. See "Use of Proceeds."
Dilution. Purchasers of the Common Stock offered hereby will suffer
immediate and substantial dilution in the net tangible book value of the Common
Stock from the initial public offering price. To the extent that outstanding
options to purchase the Company's Common Stock are exercised or promissory notes
are converted into Common Stock, there could be further dilution. See
"Dilution."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be $ million, based upon an
assumed public offering price of $ per share and after deducting the
estimated underwriting discount and estimated offering expenses. The Company
will not receive any proceeds from the sale of the shares by the Selling
Stockholders.
The principal purposes of this offering are to create a public market for
the Company's Common Stock and to facilitate the Company's future access to
public equity markets. The Company expects to use the net proceeds of this
offering for working capital and general corporate purposes. A portion of the
net proceeds of the offering may also be used to acquire or invest in companies
with complementary products, technologies or distribution capability. However,
there are no current agreements or negotiations with respect to any acquisition,
investment or other transaction. See "Risk Factors -- Management Discretion Over
Proceeds of the Offering."
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its stock since
September 30, 1994. The Company currently anticipates that it will retain all
future earnings for use in the operation and expansion of its business and does
not anticipate paying any cash dividends in the foreseeable future.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, (i) on an actual basis, (ii) on a pro forma basis after
giving effect to the amendment of the Company's Certificate of Incorporation to
increase the authorized Common Stock to 75,000,000 shares, to change the par
value of the Common Stock to $0.001 per share and to authorize an undesignated
Preferred Stock and (iii) on an adjusted basis to reflect the sale of
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $ per share and after deducting the estimated
underwriting discount and estimated offering expenses) and the application of
the estimated net proceeds therefrom. The information set forth below should be
read in conjunction with the consolidated financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt............................................... $ 7,342 $ 7,342 --
-------- -------- -------
Stockholders' equity:
Preferred Stock, par value $0.001 per share:
Authorized: no shares actual and 5,000,000 shares pro forma
and as adjusted; issued and outstanding: no shares
actual, pro forma or as adjusted........................ -- -- --
Common Stock, par value $0.10 per share actual, $0.001 per
share pro forma and as adjusted:
Authorized: 13,333,333 shares actual and 75,000,000 shares
pro forma and as adjusted; issued: 6,874,765 shares
actual, 6,874,765 shares pro forma and shares as
adjusted................................................ 687 7 --
Additional paid-in capital................................... 344 1,024
Retained earnings............................................ 14,471 14,471 --
Treasury stock, 13,238 shares, at cost, actual, pro forma and
as adjusted................................................ (85) (85) --
Deferred compensation........................................ (719) (719) --
Incentive stock option plan receivables...................... (33) (33) --
-------- -------- -------
Total stockholders' equity................................. 14,665 14,665
-------- -------- -------
Total capitalization.................................... $22,007 $22,007 $
======== ======== =======
</TABLE>
- ---------------
(1) Excludes 2,195,308 shares issuable upon exercise of stock options
outstanding as of September 30, 1997 with a weighted average exercise price
of $7.75 per share, 2,550,000 shares of Common Stock reserved for future
issuance under the Company's stock option, director option and stock
purchase plans and 557,787 shares of Common Stock issuable upon conversion
of promissory notes. See "Management -- Stock Plans," "Description of
Capital Stock" and Note 8 of Notes to Consolidated Financial Statements.
16
<PAGE> 18
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
approximately $14.6 million, or $2.13 per share of Common Stock. The net
tangible book value per share represents the amount of total tangible assets of
the Company less total liabilities, divided by the number of shares of Common
Stock outstanding. After giving effect to the sale and issuance of
shares offered by the Company hereby at an assumed initial public offering price
of $ (after deducting the estimated underwriting discount and
commission and estimated offering expenses payable by the Company), the
Company's pro forma net tangible book value as of September 30, 1997 would have
been approximately $ million, or $ per share of Common Stock.
This represents an immediate increase in net tangible book value of
approximately $ per share to existing stockholders and an immediate
dilution of approximately $ per share to new investors purchasing
shares in this Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Net tangible book value per share before this offering........... $2.13
Increase in net tangible value attributable to new investors.....
-----
Pro forma net tangible book value per share after this offering....
----
Dilution per share to new investors................................ $
====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the differences in the total consideration paid and the average price per
share paid by the Company's existing stockholders and the new investors with
respect to the shares of Common Stock to be sold by the Company. The
calculations in this table with respect to shares of Common Stock to be
purchased by new investors in this offering reflect an assumed initial public
offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------ ----------- ------ ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 6,861,527 % $10,943,220 % $1.59
New investors........................ $
---------- ------ ------- ------
Total.............................. 100% $ 100%
========== ====== ======= ======
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to , or %, ( , or %
if the Underwriters' over-allotment is exercised in full), and will increase
the number of shares held by new investors to , or % ( ,
or % if the Underwriters' overallotment is exercised in full), of the
total number of shares of Common Stock outstanding after this offering. See
"Principal and Selling Stockholders."
The foregoing computations exclude (i) 2,195,308 shares of Common Stock
issuable upon the exercise of outstanding options, (ii) 1,600,000 shares of
Common Stock reserved for future issuance under the 1998 Stock Plan, (iii)
250,000 shares of Common Stock reserved for future issuance pursuant to the 1998
Director Option Plan, (iv) 700,000 shares of Common Stock reserved for future
issuance pursuant to the 1998 Employee Stock Purchase Plan and (v) 557,787
shares of Common Stock issuable upon the conversion of promissory notes. See
"Management -- Director Compensation," "Management -- Stock Plans," "Principal
and Selling Stockholders" and "Description of Capital Stock."
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The
consolidated statement of operations data for each of the three years in the
period ended June 30, 1997 and the consolidated balance sheet data as of June
30, 1997 and 1996 are derived from consolidated financial statements of the
Company that have been audited by Coopers & Lybrand L.L.P., independent
accountants, and are included elsewhere in this Prospectus. The consolidated
statement of operations data for the years ended June 30, 1993 and 1994 and the
consolidated balance sheet data as of June 30, 1993, 1994 and 1995 are derived
from audited consolidated financial statements not included herein. The
consolidated statements of operations data for the three months ended September
30, 1996 and 1997 and the consolidated balance sheet data as of September 30,
1997 are derived from unaudited consolidated financial statements of the Company
that include all adjustments consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the results of operations
for the period. Operating results for the three months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1998 or any future period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue............................... $23,104 $29,607 $28,588 $34,670 $39,535 $ 8,943 $11,152
Cost of net revenue....................... 8,795 11,798 11,901 14,829 15,287 3,513 4,429
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 14,309 17,809 16,687 19,841 24,248 5,430 6,723
Operating expenses:
Research and development................ 3,773 3,392 3,701 4,362 5,259 1,167 1,532
Marketing and sales..................... 4,393 4,571 7,114 9,007 10,802 2,281 3,223
General and administrative.............. 1,491 2,446 2,416 2,273 2,879 668 755
------- ------- ------- ------- ------- ------- -------
Income from operations................ 4,652 7,400 3,456 4,199 5,308 1,314 1,213
Other expense, net........................ 599 88 90 198 494 173 52
Interest expense.......................... 365 502 535 558 629 152 167
------- ------- ------- ------- ------- ------- -------
Income before income taxes................ 3,688 6,810 2,831 3,443 4,185 989 994
Provision for income taxes................ 1,494 2,520 1,033 1,164 1,509 357 353
------- ------- ------- ------- ------- ------- -------
Net income............................ $ 2,194 $ 4,290 $ 1,798 $ 2,279 $ 2,676 $ 632 $ 641
======= ======= ======= ======= ======= ======= =======
Earnings per share(1)..................... $ 0.30 $ 0.62 $ 0.26 $ 0.32 $ 0.37 $ 0.09 $ 0.09
======= ======= ======= ======= ======= ======= =======
Weighted-average number of common shares
outstanding(1).......................... 6,025 6,433 6,362 6,826 6,871 6,869 6,865
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................. $ 2,210 $ 3,490 $ 2,854 $ 5,729 $ 6,621 $ 7,951
Working capital........................... 5,845 8,845 8,571 11,433 13,627 13,875
Total assets.............................. 14,144 17,370 17,527 21,338 25,677 27,237
Long-term debt............................ 4,786 5,200 5,654 6,151 7,210 7,342
Total stockholders' equity................ 6,516 8,932 9,222 11,522 14,025 14,665
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used to compute earnings per
share.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of a
number of factors, including those set forth in "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
The Company provides distributed and mobile computing solutions that
address the needs of the virtual enterprise. The Company's distributed
connectivity products include a virtual private networking server, an Internet
access server, print servers and a database management system with remote access
capabilities. The Company's mobile systems products include IrDA-compliant
wireless connectivity products, infrared software and port replicators that
connect portable computers to desktop peripherals and the network.
The Company was founded in 1984. Its initial products consisted of
intelligent printer sharing devices that allowed PC users to share printers
before local area networks were widely used. In 1991, the Company began
introducing a series of products that addressed the distributed and mobile
computing needs of businesses. These products included the ExtendNet line of
print servers and the JetEye infrared wireless connectivity adapter. In 1993,
the Company further expanded its product offerings by introducing the Advantage
Database Server database management system. From 1993 to 1997, the Company
introduced enhanced versions of its existing products, adding to their
functionality and management capabilities and enabling their operation in
different network environments. In addition, the Company began the development
of a number of new products to address the distributed and mobile computing
needs of the emerging virtual enterprise. In 1997, the Company introduced three
new product lines: the ExtendNet VPN (Virtual Private Network), the ExtendNet
IAS (Internet Access Server) and a line of port replicator products.
In fiscal 1997 and the first three months of fiscal 1998, 64% and 58%,
respectively, of the Company's net revenue was derived from sales of ExtendNet
print servers. The Company believes that this product line will continue to
decline as a percentage of the Company's net revenue as the Company's recently
introduced products for distributed and mobile connectivity achieve market
acceptance. While the Company believes that sales of ExtendNet print servers
will continue to account for a significant portion of the Company's net revenue
and gross profit, the Company's future results of operations will be highly
dependent upon the success of its recently introduced products. See "Risk
Factors -- Product Concentration" and "Risk Factors -- Dependence on Recently
Introduced Products."
The Company markets and sells its products worldwide through multiple
indirect channels, primarily distributors and resellers. Certain of the
Company's products, in particular its ExtendNet print servers, JetEye IrDA
products and infrared software, are sold to OEMs, and the Company intends to
increase its sales to OEMs in the future. The Company supports its indirect
channels with its own sales and marketing organization. The Company's key
distributors include Ingram Micro and Tech Data. In fiscal 1997, sales to Ingram
Micro accounted for 19% of the Company's net revenue. In the first quarter of
fiscal 1998, sales to Ingram Micro and Tech Data accounted for 22% and 10%,
respectively, of the Company's net revenue. The loss of, or reduction in sales
to, any of the Company's key customers could have a material adverse affect on
the Company's business and results of operations. The Company provides price
protection rights and limited product return rights for stock rotation to most
of its distributors and resellers. See "Risk Factors -- Reliance on Distribution
Channels."
The Company recognizes revenue when products are shipped to customers.
Certain OEM and software licensing revenue is recognized when the product has
been delivered and there are no significant obligations remaining.
19
<PAGE> 21
The Company's cost of net revenue consists primarily of costs associated
with components, outsourced manufacturing of certain subassemblies, and in-house
labor associated with assembly, testing, shipping and quality assurance. The
Company's gross margin is affected by a number of factors, including product
mix, competitive product pricing pressures, manufacturing costs and component
costs. The Company anticipates that its gross margin may decline in the future
as a result of shifts in the Company's product mix and competitive pricing
pressure. In particular, the Company expects that its gross margin on sales of
ExtendNet print servers will decline as a result of a shift in product mix
toward lower priced print servers and competitive pricing pressures. The Company
seeks to mitigate the effects of declining prices by improving product design
and reducing costs, primarily manufacturing and component costs. See "Risk
Factors -- Potential Fluctuations in Operating Results" and "Risk
Factors -- Competition."
In April 1997, the Company acquired Counterpoint, a provider of advanced
infrared connectivity, by issuing 400,000 shares of the Company's Common Stock
in exchange for all of the outstanding common shares of Counterpoint. The
acquisition of Counterpoint enables the Company to offer vertically integrated
solutions for OEM customers. The merger was accounted for as a pooling of
interests. Accordingly, the Company's financial statements include Counterpoint
in 1996. Counterpoint had no material effect on the Company's 1995 financial
results. The Company intends to pursue additional strategic acquisitions of, or
strategic investments in, companies with complementary products, technologies or
distribution networks in order to broaden its product lines and to provide a
more complete virtual enterprise network solution.
The Company's operating results have fluctuated significantly in the past
and are likely to fluctuate significantly in the future on a quarterly and an
annual basis. Prior growth rates that the Company has experienced in net revenue
and net income should not be considered indicative of future growth rates.
Factors that could cause the Company's future operating results to fluctuate
include the level of demand for the Company's products, the Company's success in
developing new products, the timing of new product introductions and product
enhancements by the Company and its competitors, market acceptance of the
Company's new and enhanced products, the emergence of new industry standards,
the timing of customer orders, the mix of products sold, competition, the mix of
distribution channels through which the Company's products are sold and general
economic conditions. Many of such factors are beyond the Company's control. See
"Risk Factors -- Potential Fluctuations in Operating Results."
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
consolidated statement of operations expressed as a percentage of net revenue
for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED JUNE 30, (UNAUDITED)
----------------------------- -----------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenue........................ 41.6 42.8 38.7 39.3 39.7
----- ----- ----- ----- -----
Gross margin............................... 58.4 57.2 61.3 60.7 60.3
Operating expenses:
Research and development................. 12.9 12.6 13.3 13.0 13.7
Marketing and sales...................... 24.9 26.0 27.3 25.5 28.9
General and administrative............... 8.5 6.6 7.3 7.5 6.8
----- ----- ----- ----- -----
Income from operations................ 12.1 12.0 13.4 14.7 10.9
Other expense, net......................... 0.3 0.6 1.2 1.9 0.5
Interest expense........................... 1.9 1.6 1.6 1.7 1.5
----- ----- ----- ----- -----
Income before income taxes................. 9.9 9.9 10.6 11.1 8.9
Provision for income taxes................. 3.6 3.4 3.8 4.0 3.2
----- ----- ----- ----- -----
Net income............................ 6.3% 6.6% 6.8% 7.1% 5.7%
===== ===== ===== ===== =====
</TABLE>
20
<PAGE> 22
Comparison of the Three Months Ended September 30, 1997 and September 30,
1996
Net Revenue. Net revenue in the three months ended September 30, 1997
increased by $2.3 million, or 24.7%, to $11.2 million from $8.9 million in the
three months ended September 30, 1996. The increased revenue in the three months
ended September 30, 1997 was primarily attributable to revenue from the
Company's line of port replicator products, which were first introduced in
February 1997, and increased sales of ExtendNet print servers. Unit sales of
ExtendNet print servers increased in the three months ended September 30, 1997,
which was offset in part by a decline in the average selling price of these
products due to higher sales of lower priced print servers as a percentage of
sales.
Gross Profit. Gross profit for the three months ended September 30, 1997
increased by $1.3 million, or 23.8%, to $6.7 million from $5.4 million for the
three months ended September 30, 1996. Gross margin was 60.3% for the three
months ended September 30, 1997 compared to 60.7% for the three-month period
ended September 30, 1996. The decrease in gross margin was primarily
attributable to the lower gross margin associated with the newly introduced
ExtendNet IAS and port replicator products. This was offset in part by strong
royalty, license and non-recurring engineering ("NRE") revenue in the three
months ended September 30, 1997.
Research and Development. Research and development expenses generally
consist of salaries and other personnel costs of the Company's research and
development teams, facilities costs and travel expenses. Research and
development expenses in the three months ended September 30, 1997 increased by
$365,000, or 31.3%, to $1.5 million from $1.2 million in the three months ended
September 30, 1996. As a percentage of net revenue, research and development
expenses increased to 13.7% in the three months ended September 30, 1997
compared to 13.0% in the comparable period in fiscal 1996. The increase was
primarily attributable to increased staffing for the ExtendNet VPN and the
Counterpoint infrared development groups. The Company expects research and
development expenses to increase in the future, although such expenses may vary
as a percentage of net revenue.
Marketing and Sales. Marketing and sales expenses generally consist of
salaries, commissions and other personnel costs of the Company's sales,
marketing and support personnel, advertising, promotions and travel. Marketing
and sales expenses in the three months ended September 30, 1997 increased by
$942,000, or 41.3%, to $3.2 million from $2.3 million in the three months ended
September 30, 1996. As a percentage of net revenue, marketing and sales expenses
increased to 28.9% in the three months ended September 30, 1997 compared to
25.5% in the three months ended September 30, 1996. The increase was primarily
attributable to promotional costs associated with the introduction of ExtendNet
VPN, increased staffing in the Bozeman customer service organization and in OEM
sales, and increased staffing and general activity at Counterpoint. The Company
expects marketing and sales expenses to increase in the future, although such
expenses may vary as a percentage of net revenue.
General and Administrative. General and administrative expenses primarily
consist of salaries and other personnel costs of the Company's finance, MIS,
human resources and other administrative employees. General and administrative
expenses in the three months ended September 30, 1997 increased by $87,000, or
13.0%, to $755,000 from $668,000 in the three months ended September 30, 1996.
However, such expenses declined as a percentage of net revenue to 6.8% in the
three months ended September 30, 1997 from 7.5% in the three months ended
September 30, 1996. The increase in absolute dollars was primarily attributable
to increased administrative expenses at the Company's subsidiaries. The decrease
as a percentage of net revenue reflected increased net revenue. The Company
expects general and administrative expenses to increase in the future,
particularly as it incurs higher legal, accounting and other expenses associated
with being a public company, although such expenses may vary as a percentage of
net revenue.
Other Expense, Net. Other expense, net in the three months ended September
30, 1997 decreased by $121,000, or 69.9%, to $52,000 from $173,000 in the three
months ended September 30, 1996. The decrease in other expenses was attributable
to a $180,000 non-recurring write down of a minority investment in the three
months ended September 30, 1996, as well as by increased interest income and
decreased amortization in the three months ended September 30, 1997.
21
<PAGE> 23
Interest Expense. Interest expense in the three months ended September 30,
1997 increased by $15,000, or 9.9%, to $167,000 from $152,000 in the three
months ended September 30, 1996 as a result of an increase in the balance of the
Company's long-term debt.
Provision for Income Taxes. The provision for income taxes in the three
months ended September 30, 1997 decreased by $4,000 to approximately $353,000
from $357,000 in the three months ended September 30, 1996. This decrease was
due to a decrease in the effective tax rate from 36.1% to 35.5%.
Comparison of Fiscal 1997 and Fiscal 1996
Net Revenue. Net revenue in fiscal 1997 increased by $4.9 million, or
14.0%, to $39.5 million from $34.7 million in fiscal 1996. The increased net
revenue was primarily attributable to higher unit sales of ExtendNet print
servers, Advantage Database Servers and infrared connectivity devices, as well
as the introduction of the Company's port replicators in February 1997. The
Company also experienced increased royalty, license and NRE revenues in fiscal
1997. The higher unit sales of ExtendNet print servers were offset in part by a
decline in the average selling price of these products due to relatively higher
sales of lower priced print servers, as well as by declining unit sales in the
Company's printer sharing business.
Gross Profit. Gross profit in fiscal 1997 increased by $4.4 million, or
22.2%, to $24.3 million from $19.8 million in fiscal 1996. Gross margin was
61.3% in fiscal 1997 compared to 57.2% in fiscal 1996. The increase in gross
margin was primarily attributable to increased sales of higher margin products,
in particular, the Advantage Database Server, as well as higher royalty, license
and NRE revenue in fiscal 1997.
Research and Development. Research and development expenses in fiscal 1997
increased by $897,000, or 20.6%, to $5.3 million from $4.4 million in fiscal
1996. As a percentage of net revenue, research and development expenses
increased to 13.3% in fiscal 1997 from 12.6% in fiscal 1996. The increase was
primarily attributable to increased staffing for the ExtendNet VPN and
Counterpoint infrared software development groups.
Marketing and Sales. Marketing and sales expenses in fiscal 1997 increased
by $1.8 million, or 19.9%, to $10.8 million from $9.0 million in fiscal 1996. As
a percentage of net revenue, marketing and sales expenses increased to 27.3% in
fiscal 1997 from 26.0% in fiscal 1996. The increase was primarily attributable
to promotional costs associated with the introduction of ExtendNet VPN and
increased staffing in marketing and sales.
General and Administrative. General and administrative expenses in fiscal
1997 increased by $606,000, or 26.7%, to $2.9 million from $2.3 million in
fiscal 1996. As a percentage of net revenue, general and administrative expenses
increased to 7.3% in fiscal 1997 from 6.6% in fiscal 1996. The increase was
primarily attributable to increased administrative staffing and expenses
associated with the Company's subsidiaries.
Other Expense, Net. Other expense, net in fiscal 1997 increased by $296,000
to $494,000 from $198,000 in fiscal 1996. The increased other expenses were
primarily attributable to a $180,000 non-recurring write down of a minority
investment in fiscal 1997, as well as foreign currency losses experienced by the
Company's international sales subsidiaries in fiscal 1997.
Interest Expense. Interest expense in fiscal 1997 increased by $71,000, or
12.7%, to $629,000 from $558,000 in fiscal 1996 as a result of an increase in
the balance of the Company's long-term debt.
Provision for Income Taxes. The provision for income taxes in fiscal 1997
increased by $345,000, or 29.6%, to $1.5 million from $1.2 million in fiscal
1996 because of an increase in taxable income in fiscal 1997 and an increase in
the Company's effective tax rate in fiscal 1997 to 36.1% from 33.8% in fiscal
1996.
Comparison of Fiscal 1996 and Fiscal 1995
Net Revenue. Net revenue in fiscal 1996 increased by $6.1 million, or
21.3%, to $34.7 million from $28.6 million in fiscal 1995. The increase in net
revenue was primarily attributable to increased unit sales of ExtendNet print
servers, Advantage Database Servers and JetEye infrared connectivity devices.
The
22
<PAGE> 24
Company also recognized significant OEM royalty, license and NRE revenues. This
was partially offset by a decrease in unit sales of the Company's printer
sharing products.
Gross Profit. Gross profit in fiscal 1996 increased by $3.2 million, or
18.9%, to $19.8 million from $16.7 million in fiscal 1995. Gross margin was
57.2% in fiscal 1996 compared to 58.4% in fiscal 1995. The decrease in gross
margin was primarily the result of a lower gross margin on sales of the
Company's ExtendNet print server and JetEye infrared products, which was
partially offset by increased sales of higher margin products, in particular,
the Advantage Database Server and increased OEM royalty, license and NRE
revenues.
Research and Development. Research and development expenses in fiscal 1996
increased by $661,000, or 17.9%, to $4.4 million from $3.7 million in fiscal
1995. As a percentage of net revenue, research and development expenses
decreased to 12.6% in fiscal 1996 from 12.9% in fiscal 1995. The increase in
absolute dollars was primarily attributable to increased staffing for infrared
development activities. The decrease as a percentage of net revenue reflected
increased net revenue.
Marketing and Sales. Marketing and sales expenses in fiscal 1996 increased
by $1.9 million, or 26.6%, to $9.0 million from $7.1 million in fiscal 1995. As
a percentage of net revenue, marketing and sales expenses increased to 26.0% in
fiscal 1996 from 24.9% in fiscal 1995. The increase was primarily attributable
to increased staffing at the Company's subsidiaries and promotional expenses
related to the launch of the JetEye Net product.
General and Administrative. General and administrative expenses in fiscal
1996 decreased by $143,000, or 5.9%, to $2.3 million from $2.4 million in fiscal
1995. As a percentage of net revenue, general and administrative expenses
decreased to 6.6% in fiscal 1996 from 8.5% in fiscal 1995. The decrease was
primarily attributable to expenses incurred by the Company in fiscal 1995
related to the resignation of an officer and expenses incurred in recruiting
other key management employees.
Other Expense, Net. Other expense, net in fiscal 1996 increased by $108,000
to $198,000 from $90,000 in fiscal 1995 due to an increase in amortization
expense of intangible assets.
Interest Expense. Interest expense in fiscal 1996 increased by $23,000, or
4.3%, to $558,000 from $535,000 in fiscal 1995 as a result of an increase in the
balance of the Company's long term debt.
Provision for Income Taxes. The provision for income taxes in fiscal 1996
increased by $131,000, or 12.7%, to approximately $1.1 million from $1.0 million
in fiscal 1995, due to an increase in taxable income in fiscal 1996.
23
<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the five quarters ended September 30, 1997. The
unaudited data has been prepared on the same basis as the audited consolidated
financial statements appearing elsewhere in this Prospectus, and includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such information for the periods presented. Such data
should be read in conjunction with the Consolidated Financial Statements of the
Company and related Notes thereto appearing elsewhere in this Prospectus. The
operating results for any quarter are not indicative of the operating results
that may be achieved in any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------ --------- -------- -------------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............................ $ 8,943 $9,615 $ 9,465 $ 11,512 $11,152
Cost of net revenue.................... 3,513 3,734 3,528 4,512 4,429
------ ------ ------ ------- -------
Gross profit........................... 5,430 5,881 5,937 7,000 6,723
Operating Expenses:
Research and development............. 1,167 1,228 1,200 1,664 1,532
Marketing and sales.................. 2,281 2,657 2,720 3,144 3,223
General and administrative........... 668 694 692 825 755
------ ------ ------ ------- -------
Income from operations............ 1,314 1,302 1,325 1,367 1,213
Other expense, net..................... 173 39 193 89 52
Interest expense....................... 152 153 157 167 167
------ ------ ------ ------- -------
Income before income taxes............. 989 1,110 975 1,111 994
Provision for income taxes............. 357 400 352 400 353
------ ------ ------ ------- -------
Net income........................ $ 632 $ 710 $ 623 $ 711 $ 641
====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
-------------------------------------------------------------------
QUARTER ENDED
-------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------ --------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenue..................... 39.3 38.8 37.3 39.2 39.7
----- ----- ----- ----- -----
Gross margin............................ 60.7 61.2 62.7 60.8 60.3
Operating Expenses:
Research and development.............. 13.0 12.8 12.7 14.4 13.7
Marketing and sales................... 25.5 27.6 28.7 27.3 28.9
General and administrative............ 7.5 7.2 7.3 7.2 6.8
----- ----- ----- ----- -----
Income from operations............. 14.7 13.5 14.0 11.9 10.9
Other expense, net...................... 1.9 0.4 2.0 0.7 0.5
Interest expense........................ 1.7 1.6 1.7 1.5 1.5
----- ----- ----- ----- -----
Income before income taxes.............. 11.1 11.5 10.3 9.7 8.9
Provision for income taxes.............. 4.0 4.2 3.7 3.5 3.2
----- ----- ----- ----- -----
Net income......................... 7.1% 7.4% 6.6% 6.2% 5.7%
===== ===== ===== ===== =====
</TABLE>
The decline in net revenue from the quarter ended June 30, 1997 to the
quarter ended September 30, 1997 was primarily due to seasonal factors. The
Company's net revenue has experienced some degree of seasonality and the Company
expects to continue to experience seasonality in the future. Net revenue in the
first fiscal quarter typically is lower than net revenue in the fourth fiscal
quarter, reflecting lower sales in Europe and certain other regions in the
summer months when business activities are reduced. See "Risk
Factors -- Potential Fluctuations in Operating Results."
24
<PAGE> 26
The increase in gross margin from the quarter ended September 30, 1996 to
the quarter ended December 31, 1996 was primarily due to increased sales of
higher margin products, including the Advantage Database Server, and increased
OEM royalty, license and NRE revenue. The increase was partially offset by a
lower gross margin on sales of the ExtendNet print server and JetEye infrared
products. The decrease in gross margin from the quarter ended December 31, 1996
to the quarter ended March 31, 1997 and the quarter ended June 30, 1997 was
primarily due to a lower gross margin on sales of the ExtendNet print servers
and increased sales of lower gross margin products such as port replicators.
The increase in research and development expenses for the quarter ended
June 30, 1997 was primarily due to increased staffing for the ExtendNet VPN and
Counterpoint infrared software development groups, as well as tooling costs
associated with development of ExtendNet VPN.
The decrease in other expense from the quarter ended September 30, 1996 to
the quarter ended December 31, 1996 was primarily due to a $180,000
non-recurring write down of a minority investment. The increase in other expense
from the quarter ended March 31, 1997 to the quarter ended June 30, 1997 was
primarily due to foreign currency losses experienced by the Company's
international sales subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its operations primarily through cash
generated from operations. Net cash provided by operating activities was
approximately $2.1 million in the three months ended September 30, 1997. Net
cash provided by operating activities was $2.6 million in fiscal 1997. In fiscal
1997, decreased net cash provided by operating activities reflected increases in
accounts receivable and prepaid expenses, which were offset in part by increases
in accounts payable and deferred taxes and decreases in inventories.
Cash used in investing activities, which largely consisted of capital
expenditures, totaled $717,000 in the three months ended September 30, 1997.
Cash used in investing activities totaled $1.4 million in fiscal 1997. In the
three months ended June 30, 1997, the Company made significant investments in
the expansion of its Boise facilities and the replacement of internal
information systems. In addition, the Company made capital expenditures for
equipment and related software associated with increased staffing.
Net cash used in financing activities was $81,000 in the three months ended
September 30, 1997. Net cash used by financing activities was $281,000 in fiscal
1997.
The Company has a $5.0 million uncollateralized bank revolving line of
credit that expires on March 31, 1999. Interest on borrowings is at the bank's
prime rate. There were no borrowings under this line as of September 30, 1997.
The Company issued zero coupon promissory notes to certain investors on
September 30, 1992 for $4,000,000. The notes have a maturity value in September
1999 of $7,625,000 and may be converted at any time at the option of the holder
into a total of 495,810 shares of Common Stock. If held to maturity, the notes
would yield 9.25%. The Company also issued 10% promissory notes in the principal
amount of $500,000 to the same investors on September 30, 1992 that may be
converted at any time prior to maturity in September 1999 at the option of the
holders into a total of 61,977 shares of Common Stock. Interest on the 10%
promissory notes is paid annually in arrears.
Both the zero coupon and the 10% promissory notes (the "Notes") are
subordinated in right of payment to future senior indebtedness of the Company.
In the event of a change in control, as defined in the Notes, or the sale of
substantially all of the assets of the Company, the holders may require
redemption of the Notes at the issue price plus accrued original issue discount.
The Company has a right of first refusal to purchase the Notes or, if converted,
the stock.
The Company believes that its existing working capital and borrowing
capacity, coupled with the funds generated from the Company's operations and the
net proceeds from the Offering, will be sufficient to fund its anticipated
working capital, capital expenditures and debt payment requirements for at least
the next 12 months. In the longer term, the Company may require additional
sources of liquidity to fund future growth.
25
<PAGE> 27
Such sources of liquidity may include additional equity offerings or debt
financings. In the normal course of business, the Company evaluates acquisitions
of businesses, products and technologies that complement the Company's business.
The Company has no present commitments or agreements with respect to any such
transaction. However, the Company may acquire businesses, products or
technologies in the future. In addition, the Company may be obligated to
repurchase shares tendered in connection with the Recission Offer for a maximum
liability of approximately $684,000 (including $84,000 of interest thereon as of
September 30, 1997). See "Recission Offer" and Note 11 of Notes to Consolidated
Financial Statements. There can be no assurance that the Company will not
require additional financing in the future or, if the Company were required to
obtain additional financing in the future, that sources of capital will be
available on terms favorable to the Company, if at all.
EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES
The Company derives a substantial portion of its revenue from international
sales, principally through its international subsidiaries in France, Germany and
the United Kingdom, and to a limited number of independent distributors. Sales
made by the Company's foreign subsidiaries are denominated in the foreign
country's currency. Fluctuations in exchange rates between the U.S. dollar and
other foreign currencies could materially affect the Company's results of
operations. The Company recognized foreign exchange losses of $15,000 in the
three months ended September 30, 1997, $275,000 in fiscal 1997 and $37,000 in
fiscal 1996. The Company has not engaged in significant exchange rate hedging
activities. To the extent that the Company implements hedging activities in the
future with respect to foreign currency transactions there can be no assurance
that the Company will be successful in such hedging activities. "Risk
Factors -- Risks of International Sales and Operations."
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<PAGE> 28
BUSINESS
OVERVIEW
Extended Systems provides distributed and mobile computing solutions that
address the needs of the virtual enterprise. The Company designs, develops,
markets and sells two product families: distributed connectivity products and
mobile systems products. The Company's distributed connectivity products include
a virtual private networking server, an Internet access server, network print
servers and a database management system with remote access capabilities. The
Company's mobile systems products include wireless connectivity products that
comply with IrDA standards, infrared software and port replicators that connect
portable computers to desktop peripherals and the network.
INDUSTRY BACKGROUND
During the last decade, businesses and other organizations have moved from
centralized computer systems to distributed local and wide area networks based
on client/server architectures. The proliferation of these distributed networks
has enabled the enterprise-wide deployment of mission-critical applications
beyond the traditional on-site facilities of the organization. As a result, both
mobile and local employees have greater access to business-critical information.
The corporation has evolved into a "virtual enterprise" characterized by
resource and information sharing among employees, suppliers, distributors and
customers throughout the world. The challenges faced by the virtual enterprise
include providing reliable and secure network connectivity to an increasingly
mobile workforce, ensuring that mobile connectivity is cost-effective and
effectively managing its increasingly complex distributed network.
As the mobile workforce continues to grow, there is increasing demand to
access business networks from multiple locations, including different locations
within the organization's main office, remote offices and various locations
while traveling, such as hotels and airports. International Data Corporation
("IDC") forecasts that the market for remote access servers will increase from
$1.9 billion in 1996 to $7.6 billion in 2001, and IDC expects the installed base
of remote access server ports to increase from 4.2 million in 1996 to 60.5
million in 2001. Increased demand for mobile connectivity has been driven by
higher demand for access to communication and mission-critical applications
across the network, as well as by the proliferation of innovative mobile
computing devices. As PC manufacturers have introduced notebook computers with
powerful new features and computing power comparable to desktop computers, many
organizations have replaced desktop systems with notebook computers as the
primary computer for employees. IDC reported that in 1997, 74% of all notebook
computers sold served as the user's primary computer. In addition, small devices
such as personal digital assistants ("PDAs"), pagers and organizers with
advanced communications capabilities are becoming commonplace among today's
workforce.
As the number of mobile computing devices has increased, the speed and
reliability of network connections for such devices have significantly improved.
Infrared technology has emerged as a cost-effective method of providing wireless
network connectivity for notebook computers without the need for bulky cables
and wired connections. The Infrared Data Association ("IrDA"), a consortium of
more than 160 companies that includes most computer industry leaders, has
developed a single, international standard for infrared connectivity. A majority
of the notebook computer models sold today by major PC manufacturers contains an
infrared port, based upon the IrDA standard, that enables the wireless
connectivity of the computer to the network, other computers, printers and other
devices through an infrared connection.
The emergence of mobile computing presents a number of challenges for
businesses. Mobile users wish to connect to the network from many locations,
including those within an organization's facilities such as conference rooms,
shared offices and warehouses. Providing flexible network access for mobile
users in these locations typically requires that users physically connect their
mobile computer to the network in every location at which they desire network
access, which is cumbersome and error-prone. Providing network access to remote
users who dial in to the network may also be very expensive, as businesses must
maintain large numbers of dedicated modems and telephone lines and often incur
substantial long distance and other telephone toll charges. In addition, the
quality and speed of the telephone lines used by remote users are often
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inconsistent, particularly when connecting across international boundaries.
Finally, as organizations permit mobile access to their networks, network
security becomes critically important.
In recent years, the Internet has significantly affected the way in which
organizations communicate, both externally with other organizations and
internally within organizations. Numerous Internet service providers ("ISPs")
have made access to the Internet by businesses and individuals easy and
cost-effective throughout the world. Large enterprises are increasingly
incorporating "intranets" that employ Internet data formats and communications
protocols into their private networks to connect geographically dispersed
networks or users. Businesses have begun to use the Internet as a "virtual"
private network ("VPN") to link remote locations and as a substitute for
expensive wide area networks that use private, leased telephone lines. The use
of VPNs is expected to grow significantly in the future. Infonetics Research
forecasts that the market for VPN products and services will grow from $205
million in 1997 to $11.9 billion in 2001. The security issues initially faced by
organizations when enabling remote network access become more acute when the
Internet serves as a gateway for the organization's network.
As the dependence on networks to provide access to mission-critical
applications increases and the scale and complexity of networks grow, effective
network management becomes an increasingly difficult, yet crucial, task. The
organization must effectively coordinate the various hardware and software
components to effectively manage devices such as PCs, notebook computers,
printers, servers and personal digital assistants that communicate within the
network. Organizations seek hardware and software solutions that provide a high
degree of functionality, conform to standard industry specifications and
integrate easily into the network environment. In addition, mobile connectivity
provides an added degree of complexity which the organization must effectively
manage to ensure the success of the "virtual enterprise."
THE EXTENDED SYSTEMS SOLUTION
Extended Systems provides distributed and mobile computing solutions that
address the needs of the virtual enterprise. The Company's distributed
connectivity products include a virtual private networking server, an Internet
access server, print servers and a database management system with remote access
capabilities. The Company's mobile systems products include IrDA-compliant
wireless connectivity products, infrared software and port replicators that
connect portable computers to desktop peripherals and the network.
The Company's solution provides the following advantages to the virtual
enterprise:
- Enable Mobile Computing Within an Organization. The Company's JetEye
infrared wireless connectivity products enable mobile users to easily
access networks or peripherals while moving between offices and
conference rooms without the need for bulky cables and wired connections.
The Company's port replicator products provide portable computers quick,
cost-effective access to desktop peripherals and the network.
- Enable Mobile Connectivity Outside the Organization. The Company's
ExtendNet VPN product enables a business to extend its network
environment beyond physical connections to the LAN or WAN, permitting
seamless, secure access to the network by mobile users over the Internet.
ExtendNet IAS provides remote offices and small businesses with Internet
connectivity, allowing multiple users to easily access a single Internet
connection while intelligently managing usage to reduce costs. These
products are designed to address users' needs for mobile access and
access to the Internet and result in cost savings to businesses by
significantly reducing remote access toll charges and by reducing the
number of modems and telephone lines and the level of administration
needed to support remote access and Internet access.
- Enable Distributed Applications. The Advantage Database Server is a
scalable, high performance database management system that enables
organizations to extend applications and databases across the distributed
network and, when coupled with the Advantage Internet Server, over the
Internet. The ExtendNet print server products enable the effective
deployment of complex printing applications across distributed networks
worldwide.
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<PAGE> 30
- Enable Effective Network Integration. The Company's network products
permit effective management of devices locally and across the virtual
enterprise. The Company's products share a common industry standard
Simple Network Management Protocol ("SNMP") architecture that enables
network administrators to effectively manage the Company's products
within the network environment to address the evolving needs of today's
virtual enterprises.
[GRAPHICS -- See Appendix A]
STRATEGY
The Company's objective is to be a leading supplier of distributed and
mobile computing solutions for the virtual enterprise. To achieve this
objective, the Company has adopted the following key strategies:
Meet the Emerging Needs of the Virtual Enterprise. The Company is at the
forefront in addressing the distributed and mobile computing needs of the
virtual enterprise. The Company's understanding of the virtual enterprise has
enabled it to develop a range of products, including the JetEye products, the
ExtendNet VPN, the ExtendNet IAS and the Advantage Database Server. The Company
intends to continue to capitalize on its core competencies in distributed and
mobile connectivity to continue to meet the emerging needs of the virtual
enterprise. The Company believes that product areas in which there are
significant market opportunities include internetworking, small office/home
office connectivity and wireless and digital data communications.
Expand and Leverage Core Technologies. The Company is committed to
developing, introducing and manufacturing new products and enhancing existing
products by expanding and leveraging its core technologies. The Company has
developed a high degree of expertise in the development of distributed and
mobile computing solutions. The Company works with other industry leaders to
develop industry standards in such areas as infrared technology and network
protocols. As a founding member of the IrDA, the Company led the development of
the worldwide standards that govern infrared connectivity. The Company intends
to invest substantial resources to build upon its expertise in order to continue
to develop innovative distributed and mobile connectivity products.
Expand Distribution Channels. The Company has established an international
distribution network which allows the Company to market its products throughout
the world. The Company has placed particular focus on North American and
European markets through sales subsidiaries in France, Germany and the United
Kingdom and by forming strong relationships with key distributors in the United
States and Europe. The Company intends to form additional distribution
relationships in order to strengthen its geographic reach and to provide greater
access to additional end users within its current markets.
Increase Sales to Existing End Users. The Company has established a
reputation for providing high-quality, cost-effective products, which has
enabled it to develop a strong base of end users. The Company is devoting
substantial resources to actively maintain its relationships with end users in
order to cross-market its current products to this established end user base. In
addition, the Company intends to develop and acquire new products and it will
leverage its established end user base to market these products.
Acquire Complementary Businesses, Products and Technologies. In April 1997,
the Company acquired Counterpoint, a provider of infrared connectivity software.
In addition, the Company has created a sales and marketing presence in France,
Germany and the United Kingdom by acquiring distributors in those countries. The
Company intends to pursue additional strategic acquisitions of, or investments
in, companies with complementary products, technologies or distribution networks
in order to broaden its product lines and to provide a more complete virtual
enterprise networking solution.
PRODUCTS
The Company meets the needs of virtual enterprises with two product
families: Distributed Connectivity products and Mobile Systems products.
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<PAGE> 31
Distributed Connectivity
The Distributed Connectivity product family consists of four product lines:
ExtendNet Virtual Private Network Servers, ExtendNet Internet Access Servers,
Advantage Database Management Servers and network print servers. The following
table sets forth selected information regarding the Company's principal
Distributed Connectivity products:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
INITIAL
PRODUCT DESCRIPTION INTRODUCTION PRICE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXTENDNET VIRTUAL PRIVATE NETWORK
SERVERS
ExtendNet VPN PC-to-LAN VPN Solution 1997 $2,999-$9,999
- --------------------------------------------------------------------------------------------------
EXTENDNET INTERNET ACCESS SERVERS
ExtendNet IAS Shared Internet access for 1997 $2,199-$2,799
workgroups and branch
offices
- --------------------------------------------------------------------------------------------------
ADVANTAGE DATABASE MANAGEMENT
SERVERS
Advantage Database Server Client/server database 1993 $615-$8,995*
management system
Advantage Internet Server Remote application access 1997 $595-$715*
via the Internet
Advantage Development Tool Kits Windows development tools 1993 $99-$299*
for Advantage
- --------------------------------------------------------------------------------------------------
NETWORK PRINT SERVERS
ExtendNet Print Servers Single and multi-protocol 1991 $299-$1,195
print servers for
Ethernet, Fast Ethernet
and Token Ring networks
PrintTRAK Print management and 1997 $399-$2,999**
reporting software
- --------------------------------------------------------------------------------------------------
</TABLE>
* Varies based upon authorized number of users.
** Varies based upon authorized number of servers.
ExtendNet VPN provides corporate MIS groups with a more cost-effective,
scalable means to connect mobile workers to LAN applications. VPN technology
enables a corporation to use the Internet to communicate securely between mobile
users and the LAN. For companies with multiple locations, telecommuters, mobile
workers or the need to exchange information with corporate partners, the VPN
provides a secure alternative to traditional remote access solutions such as
X.25, leased lines, frame relay, 800 numbers and long distance modem dial-in.
ExtendNet VPN also addresses the issues involved in scaling mobile users to
higher-speed communications such as 56K modems, ISDN, frame relay and T-1
communications.
ExtendNet IAS allows multiple users to share one connection to the Internet
via an ISP, providing an easy, cost-effective and secure way for remote and
branch offices to connect to the Internet. ExtendNet IAS includes firewall
security, e-mail and intelligent Internet connection management. ExtendNet IAS
also provides a number of communications options, enabling the user to scale the
device's capacity to the environment, such as ISDN, analog and frame relay
connections.
Advantage Database Server ("ADS") is a high performance database management
system that brings client/server functionality to PC database applications. ADS
allows developers to work with easy to use development tools and methodology,
but replaces the traditional PC database model with a client/server
architecture. ADS works in both Novell Netware and Windows NT server
environments and improves multi-user performance by intelligently allocating
database operations between the client and the server. ADS protects database
files against network failure and user error through a centralized storage
management
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system and provides data security through encryption and file hiding. ADS
includes a client interface, supporting common application development tools
such as Delphi, Visual Objects and Visual Basic, as well as any applications
with an ODBC interface.
Advantage Internet Server provides a secure, seamless and reliable method
for running Advantage Database applications across the Internet. Advantage
Database applications can easily be migrated to remote users without recoding to
HTML.
Advantage Development Tool Kits provide database application developers and
VARs with a set of software tools to develop, debug and deploy reliable
applications running in an ADS environment.
ExtendNet print servers consist of five core products: (i) PrintTRAK, (ii)
ExtendNet for 100 Base-T, (iii) ExtendNet stand-alone, (iv) ExtendNet for
LaserJets and (v) Pocket Print Server. The ExtendNet print servers enable the
deployment of complex printing applications across global networks, while
permitting comprehensive management of network printers from any location on the
network.
PrintTRAK enables the user to monitor the activity of one or more printers
in the Windows NT network. PrintTRAK provides tools to track and report printer,
paper and consumable usage via the network. The rapid deployment of color, laser
and high-quality printers in many organizations has been accompanied by a sharp
increase in related costs of consumables and supplies. With PrintTRAK, these
costs can now be tracked accurately, reported and, if desired, billed to the
department or end user. Professional organizations, such as law firms and
consulting firms, can also use PrintTRAK's project-based accounting capabilities
to bill specific printing costs to the relevant client or project.
[GRAPHICS -- See Appendix A]
Mobile Systems
The Mobile Systems product family consists of three product lines: infrared
wireless connectivity products, IrDA connectivity software and mobile
connectivity products. The following table sets forth selected information
regarding the Company's principal Mobile Systems products:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INITIAL
PRODUCT DESCRIPTION INTRODUCTION PRICE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JETEYE WIRELESS CONNECTIVITY
PRODUCTS
JetEye Net Ethernet infrared network 1996 $345-$579
adapter
JetEye Printer IrDA printer interface adapter 1991 $179
JetEye PC IrDA infrared serial PC 1992 $135
adapter
- -------------------------------------------------------------------------------------------------
IRDA CONNECTIVITY SOFTWARE
QuickBeam Infrared file transfer 1997 OEM
application
JetBeam Infrared communications 1997 OEM
package for Windows
IrLite Development Kit Embedded software for infrared 1996 OEM
communications in mobile
products
- -------------------------------------------------------------------------------------------------
MOBILE CONNECTIVITY PRODUCTS
Port Replicators Connects notebook computers to 1997 $159-$315
peripherals
Port Replicators with Ethernet Connects notebook computers to 1997 $359-$579
peripherals and networks
- -------------------------------------------------------------------------------------------------
</TABLE>
The infrared wireless connectivity product line was introduced in 1991 and
today consists of three core products: (i) JetEye Net, (ii) JetEye Printer and
(iii) JetEye PC.
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<PAGE> 33
JetEye Net allows mobile computing users to easily attach to an Ethernet or
TokenRing network. End users requiring a high degree of mobility within an
organization rely on JetEye Net to provide fast network access, without
cumbersome cables, lost network interface cards or broken connectors.
The JetEye Printer was introduced in 1991, and initially allowed handheld
computers to print by means of an infrared beam to a printer. The JetEye Printer
has since been enhanced to support the IrDA standard and to support notebook
computers that are equipped with an IrDA port.
The JetEye PC enables IrDA communications from portable computers equipped
with a serial port. The JetEye PC is used for data transfers, file
synchronization and software updates between mobile devices or portable PCs and
desktop computers.
Through the acquisition of Counterpoint, the Company expanded its Mobile
Systems product family to include IrDA Connectivity Software. The IrDA
Connectivity Software product line consists of three core products: (i)
QuickBeam, (ii) JetBeam and (iii) IrLite. QuickBeam is an infrared file transfer
application which enables mobile data exchange between portable devices or from
portable devices to desktop PCs. JetBeam is a complete set of IrDA infrared
communication applications designed for use with Windows 95, Windows NT and
Windows 98. The IrLite Development Kit is infrared communication software
designed to enable the integration of IrDA capability into portable systems. The
IrLite Development Kit provides robust infrared communications with a compact
code base.
The Company's Mobile Connectivity product line consists of two core
products: Port Replicators and Port Replicators with Ethernet. The port
replicators connect notebook computers to external peripherals such as a
monitor, keyboard, mouse and printer. Similar solutions provided by PC
manufacturers typically are costly, have limited features and are late to
market. Recognizing the market opportunity, the Company developed a product that
is cost-effective and easy to use. With minor modifications, the Company's port
replicators can be used with a wide variety of notebook computers.
[GRAPHICS -- See Appendix A]
TECHNOLOGY
The Company's core technological competencies are in the areas of embedded
systems software and microcontroller hardware design. In addition, the Company's
engineers have a high degree of expertise in supporting network hardware
topologies, software transport protocols and application-layer networking. The
Company's software development group has placed particular emphasis on the
development of network management tools for multi-protocol networking.
The Company has maintained an active program to develop and deploy new
enterprise networking technologies across its product lines. The Company has
focused product development efforts upon such enterprise networking capabilities
as Novell NEST/NDS and Windows NT enterprise services. In addition, the Company
was an early and active supporter of industry standard SNMP-based management
capabilities for easy control of devices over the network. Today, end users use
these technologies to deploy and maintain worldwide access to key network
resources.
With the emergence of the Internet as a commercial network, the Company has
deployed key virtual private networking capabilities for the support of mobile
and distributed workforces over the Internet. The Company has embedded an
implementation of the Point-to-Point Tunneling Protocol ("PPTP") into ExtendNet
VPN. The Company has also developed other technologies that will enable it to
develop additional VPN products. The Company's secure embedded real-time
operating system and virtual private networking software are integrated in flash
memory within the ExtendNet VPN, which enables users to upgrade the product
remotely. Unlike competing VPN products implemented with open operating systems
running on standard server platforms, the embedded operating system of
ExtendedNet VPN deters hackers and prevents tampering with the system. The
Company believes that a real-time embedded operating system and dedicated
hardware platforms are key differentiators in constructing effective and secure
VPN solutions.
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<PAGE> 34
The ExtendNet VPN solution also provides multi-protocol networking support
for end users deploying both TCP/IP-based and SPX/IPX-based network systems.
SPX/IPX is the transport protocol utilized by Novell's NetWare network operating
system. In contrast to competing products based on other VPN technologies, such
as IPSec, ExtendNet VPN permits virtual private networking in the multi-protocol
networking environments common in many corporate settings.
The Company will continue to enhance its product lines with additional
advanced network management capabilities. Currently, ExtendNet print servers,
ExtendNet IAS and ExtendNet VPN incorporate web-based management agents that
permit the monitoring and control of these devices via browser software tools.
In an effort to advance its network management support, the Company is
contributing to the development of next-generation secure management
capabilities such as an encrypted version of SNMP.
The Advantage Database Server implements technologies for enhancing the
execution of client/server database transactions across a network. This includes
algorithms for "burst-mode" transmission of data records across the LAN or WAN,
which speeds the flow of data between server and client. ADS capabilities
include transaction processing, filter optimization, enhanced locking algorithms
and support for a variety of communications protocols.
The Company designs its products to adhere to industry standards and widely
accepted protocols, and is active in the organizations that develop and maintain
these standards and protocols. The Company was a founding contributor to the
IrDA standards committee and is currently represented on the IrDA executive
committee. Today more than 160 companies are active participants in the IrDA,
and are developing a broad range of mobile products that are IrDA-compliant. The
Company believes that IrDA infrared connectivity, due to its benign, low cost,
low power consumption, high speed and device independent characteristics, will
become an increasingly important technology in permitting the seamless
connection of mobile devices to each other and to the virtual enterprise.
Through the Company's efforts, standards such as the IrLAN protocol
(co-developed with Microsoft Corporation and Hewlett-Packard) were proposed,
developed, ratified and adopted for network connectivity to notebook computers.
The Company has been actively guiding IrOBEX, which is an object-oriented
standard for transferring files, graphics and other data by infrared
transmission. The Company's QuickBeam and JetBeam products implement a
communications application using IrOBEX.
The Company has been aggressively developing new applications for OEM and
corporate customers based on its IrDA technology, including inventory
management, data logging, network access, computer docking and data
communications products. The Company believes that these technologies and
applications will have even broader applicability to connectivity for mobile
workforces in the coming years.
SALES AND MARKETING
The Company markets and sells its products worldwide through multiple
indirect channels, primarily distributors and resellers. Certain of the
Company's products, in particular its JetEye IrDA products, IrDA connectivity
software, and ExtendNet print servers, are also sold to OEMs. The Company
supports its indirect channels with its own sales and marketing organization. As
of September 30, 1997 the Company's sales, marketing and support organization
consisted of 128 full-time equivalent employees.
The Company conducts its North American sales and marketing activities
primarily from its offices in Boise, Idaho and Bozeman, Montana. The Company's
in-house sales and marketing staff is largely responsible for generating end
user demand for the Company's products by soliciting prospective customers,
providing technical advice with respect to the Company's products and working
closely with distributors to sell the Company's products. The Company's sales
and marketing staff actively participates with distributors and resellers in the
selling process, which provides end users with the level of support needed for
the successful integration of solutions in enterprise networks.
In international markets, the Company markets and sells its products
through its sales subsidiaries in France, Germany and the United Kingdom. In
addition, the Company has distribution agreements with companies located in more
than 28 foreign countries, including Australia, Brazil, Japan, Mexico, The
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<PAGE> 35
Netherlands and Sweden. In fiscal 1996, fiscal 1997 and the first three months
of fiscal 1998, international sales represented 38%, 44% and 44%, respectively,
of net revenue, and the Company expects that international sales will continue
to represent a substantial portion of its net revenue for the foreseeable
future. International sales are subject to a number of risks, including changes
in foreign government regulations, export license requirements, tariffs and
taxes, other trade barriers, fluctuations in currency exchange rates, difficulty
in collecting accounts receivable, difficulty in staffing and managing foreign
operations and political and economic instability. See "Risk Factors -- Risks of
International Sales and Operations."
The Company's key distributors include Ingram Micro and Tech Data. In
fiscal 1997, sales to Ingram Micro accounted for 19% of the Company's net
revenue. In the first three months of fiscal 1998, sales to Ingram Micro and
Tech Data accounted for 22% and 10%, respectively, of the Company's net revenue.
The loss of, or reduction in sales to, any of the Company's key customers could
have a material adverse affect on the Company's business and results of
operations. See "Risk Factors -- Reliance on Distribution Channels."
The Company's key OEM customers include printer manufacturers and
manufacturers of notebook computers, PDAs, digital cameras and other mobile
computing devices. The Company intends to increase its sales to OEMs in the
future. Sales to OEMs involve a number of potential risks, including lengthy
sales cycles and potential competition from OEM customers. See "Risk
Factors -- Reliance on Distribution Channels."
The Company provides most of its distributors and resellers with limited
product return rights for stock rotation. Stock rotation rights permit
distributors to return products to the Company for credit against an offsetting
purchase order, but are limited based upon amounts purchased by a given
distributor during the preceding quarter. Although the Company believes that its
allowance for product returns is adequate, there can be no assurance that the
Company will not experience significant returns in the future or that such
allowances will be adequate. The Company also provides most of its distributors
and resellers with price protection rights. Price protection rights require that
the Company grant retroactive price adjustments for inventories of the Company's
products held by distributors or resellers if the Company lowers its prices for
such products. See "Risk Factors -- Reliance on Distribution Channels."
The timing and volume of customer orders are difficult to forecast because
the Company's customers typically require prompt delivery of products and a
substantial majority of the Company's sales are booked and shipped in the same
quarter. Accordingly, the Company typically operates with a relatively small
order backlog. Further, sales are generally made pursuant to standard purchase
orders that can be rescheduled, reduced or canceled with little or no penalty.
The Company believes that its backlog at any given time is not a meaningful
indicator of future net revenue. See "Risk Factors -- Potential Fluctuations in
Operating Results."
SERVICE AND SUPPORT
The Company believes that service and support are critical components of
end user satisfaction and the success of the Company's business. The Company's
commitment to service and support enables it to interact regularly with network
administrators and to identify and respond to their needs on an ongoing basis.
The Company maintains service and support personnel in Bozeman, Montana and
Boise, Idaho. In addition, the Company's foreign sales subsidiaries and
international distributors provide service and support to foreign end users. The
Company operates a technical support hotline to provide a range of telephone
support to its distributors, dealers and end user customers through a toll-free
number. In addition, the Company maintains a technical support group comprised
of engineers and technicians, 24-hour automated support, an on-line bulletin
board which contains in depth technical information. Through the Engineering
Assist program, the Company's engineering staff provides technical support via
e-mail. The Company also provides on-line services to distribute technical
advice and software updates.
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend in large part on
its ability to develop, introduce and manufacture new products and enhance
existing products, allowing it to offer its customers products that achieve
higher levels of performance and reliability. The Company's research and
development efforts are
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<PAGE> 36
currently focused on infrared communications, networking protocols, enterprise
network management tools, client/server data management, Internet connectivity
and new networking and mobile connectivity platforms.
As of September 30, 1997, the Company had 58 engineers engaged in research
and development. During fiscal 1995, 1996 and 1997 and the three months ended
September 30, 1997, research and development expenses were $3.7 million, $4.4
million, $5.3 million and $1.5 million, respectively. The Company anticipates
that it will continue to commit substantial resources to research and
development in the future.
The product development process involves a number of risks. The development
of new, technologically advanced hardware and software products is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. There can be no assurance that
the Company will successfully develop, introduce or manage the transition to new
products. See "Risk Factors -- Risks Associated with New Product Development."
MANUFACTURING
The Company focuses its manufacturing efforts on cost-effectively producing
high-quality products. The Company's manufacturing operations are located in
Boise, Idaho and consist mainly of materials procurement, final assembly,
testing, quality assurance and shipping. The only product assembly performed by
the Company is final assembly, which consists of the integration of major
components into a final product and the preparation of that product for
shipment. The Company performs testing and quality assurance of certain products
at its Boise facilities and plans to expand its in-house automated testing
efforts as its product volume increases. The Company has received ISO 9001
certification, which the Company believes is crucial in order to sell its
products internationally.
The Company subcontracts other manufacturing functions, including the
production of its printed circuit boards. Certain of the Company's products are
manufactured in their entirety by third parties. For example, the ExtendNet IAS
is manufactured by Apexx Technology, Inc. In addition, the Company's port
replicator and in-air and in-car charger products are manufactured by Mobility
Electronics. The Company's reliance on third-party manufacturers involves a
number of risks, including the potential inability to obtain an adequate supply
of products and control over delivery schedules, product quality and product
cost. See "Risk Factors -- Risks Associated with Third-Party Manufacturers and
Suppliers."
The Company relies on third-party suppliers for components used in its
products. Certain of the components used in the Company's products, including
certain semiconductor components and infrared transmission components, are
currently available from a limited number of suppliers. Disruption in service by
any of the Company's manufacturers or the Company's suppliers could lead to
supply constraints or delays in the delivery of the Company's products. Such
supply constraints or delays could have a material adverse effect on the
Company's business and results of operations. See "Risk Factors -- Risks
Associated with Third-Party Manufacturers and Suppliers."
COMPETITION
The markets for the Company's products are intensely competitive, and are
characterized by frequent new product introductions, rapidly changing technology
and standards, constant price pressure and competition for distribution
channels. The principal competitive factors in the Company's markets include
brand-name awareness, price, product performance, reliability, breadth of
product line, sales and distribution capability and technical support and
service. Certain of these factors are outside the Company's control. There can
be no assurance that the Company will be able to compete successfully in the
future with respect to these or any other competitive factors or that
competition will not have a material adverse effect on the Company's business
and results of operations.
The Company's principal competitors in the market for print servers include
Hewlett-Packard, Intel Corporation, Lexmark International, Inc. and Emulex
Corporation. In the market for infrared mobile computing products, the Company's
competitors include a number of companies which have hardware or software
solutions. As the market for infrared connectivity matures, the Company may face
increased
35
<PAGE> 37
competition from the major PC manufacturers, who may choose to develop infrared
solutions for use with their own products. The Company currently faces limited
direct competition from major applications and operating systems software
vendors who may choose to incorporate infrared connectivity functionality into
their software, thereby potentially reducing the need for OEMs to include the
Company's products in their notebook and desktop PCs. The Company's ExtendNet
IAS product currently competes with the product offerings of Bay Networks, Inc.,
as well as those of a number of smaller companies. The Company's ExtendNet VPN
product currently competes with software-based solutions offered by Microsoft
Corporation and others. As the market for these distributed connectivity
products matures, the Company expects to face direct competition from other
large computer networking and software companies. The Company's Advantage
Database Server product currently competes with low-end database products from
companies such as Microsoft Corporation and Oracle Corporation, in addition to
smaller competitors offering data management software. The Company faces
indirect competition from existing and potential customers that provide
internally developed solutions. As a result, the Company must demonstrate to
prospective customers the advantages of the Company's products over internally
developed solutions.
In addition to direct competition, the Company's products face competition
from alternative technological solutions. For example, the Company's IrDA mobile
computing products face indirect competition from alternatives such as radio
frequency connectivity and non-IrDA infrared solutions. The Company's ExtendNet
VPN products face indirect competition from the major computer networking
companies which provide extended Ethernet solutions for wide area and local area
networks.
Many of the companies with which the Company competes or may in the future
compete, including the internal development groups of its current and potential
customers, have substantially greater financial, marketing, technical, sales and
support resources and may have more brand name recognition than the Company. The
Company expects that, in order to remain competitive, it may have to decrease
its sales prices on certain products, which could materially and adversely
affect the Company's business and results of operations. There can be no
assurance that the Company will be able to compete effectively in the future.
See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY
The Company relies on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary intellectual property rights. The Company seeks to
protect its software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection. The Company
currently has six issued United States patents that expire in 2006 and beyond
and has four patent applications pending. The Company has registered nine
trademarks in the United States, including "JetEye" and "ExtendNet." The
Company's future success is dependent in part upon its proprietary technology.
There can be no assurance that any patent, trademark or copyright owned by the
Company will not be invalidated, circumvented or challenged, that the rights
granted thereunder will provide competitive advantages to the Company or that
any of the Company's pending or future patent applications will be issued with
the scope of the claims sought by the Company, if at all. Further, there can be
no assurance that others will not develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology or
design around the patents owned by the Company. Effective intellectual property
protection may be unavailable or limited in certain foreign countries. There can
be no assurance that the steps taken by the Company will prevent
misappropriation of its technology by foreign companies.
The Company has entered into source code and design document escrow
agreements with a limited number of its customers requiring release of design
details in certain circumstances. Such agreements generally provide that such
parties will have a limited, non-exclusive right to use such code in the event
that there is a bankruptcy proceeding by or against the Company, if the Company
ceases to do business or if the Company fails to meet its support obligations.
The Company also provides its source code to foreign language translation
service providers and consultants to the Company in limited circumstances. The
provision of source code to third parties may increase the likelihood of
misappropriation.
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<PAGE> 38
As is common in its industry, the Company has from time to time received
notification from other companies of intellectual property rights held by those
companies upon which the Company's products may infringe. If the Company were
found to be infringing on the intellectual property rights of any third party,
the Company could be subject to liabilities for such infringement, which could
be material. As a result, the Company could be required to seek licenses from
other companies or to refrain from using, manufacturing or selling certain
products or using certain processes. Although holders of patents and other
intellectual property rights often offer licenses to their patent or other
intellectual property rights, no assurance can be given that licenses would be
offered, that the terms of any offered license would be acceptable to the
Company or that the failure to obtain a license would not adversely affect the
Company's operating results.
In order to protect its proprietary rights, the Company may in the future
initiate proceedings against third parties. Any litigation, whether brought by
or against the Company, could result in the incurrence of significant expenses
by the Company. In addition, any such litigation could result in a diversion of
management's time and efforts. A claim by the Company against a third party
could prompt a counterclaim by the third party against the Company, which could
have an adverse effect on the Company's intellectual property rights. Any of the
foregoing could result in a material adverse effect on the Company's business
and results of operations.
EMPLOYEES
As of September 30, 1997, the Company had 258 full-time equivalent
employees, including 59 in research and development, 128 in sales, marketing and
customer support, 40 in manufacturing and 31 in administration. None of the
Company's employees is represented by a labor union or is subject to a
collective bargaining agreement with respect to his or her employment with the
Company. The Company believes that its relations with its employees are good.
The Company's future success will depend, in part, upon its ability to
attract and retain qualified personnel. Competition for qualified personnel in
the Company's industry is intense, and there can be no assurance that the
Company will be successful in retaining its key employees or that it will be
able to attract skilled personnel as the Company grows. See "Risk
Factors -- Management of Growth" and "Risk Factors -- Dependence on Key
Personnel."
FACILITIES
The Company owns its corporate headquarters facility in Boise, Idaho which
consists of approximately 100,000 square feet of space located on 24 acres of
land which are also owned by the Company. This space is used for research and
development, manufacturing, sales and marketing, customer support and
administration. In addition, the Company owns a facility of approximately 20,000
square feet in Bozeman, Montana. This facility is used primarily for customer
support and sales and marketing. The Company believes that its current
facilities in Boise and Bozeman are adequate to meet its needs for at least the
next 12 months.
The Company also leases a number of sales, support and development offices
in the United States and Europe. The Company believes that existing field sales,
support and development facilities are adequate to meet its current
requirements. The Company plans to continue to expand its field sales, support
and development facilities worldwide where appropriate.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of December 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ------------------------------------------------------
<S> <C> <C>
Steven D. Simpson*.......... 50 President, Chief Executive Officer and Director
Karla K. Rosa............... 35 Chief Financial Officer
Holmes T. Lundt............. 40 Vice President, Corporate Research and Development and
Business Development
Scott J. Ritchie............ 42 Vice President, Operations
Thomas C. White............. 48 Vice President, Sales and Marketing
Bradley J. Surkamer......... 43 Vice President, Technical Support and Third-Party
Marketing
Douglas B. Winterrowd*...... 46 Chief Engineer and Director
Raymond A. Smelek***........ 63 Chairman of the Board of Directors
Robert G. Hamlin(1)(2)*..... 51 Secretary and Director
Gregory M. Avis(1)(2)**..... 39 Director
Alan W. Frankle(1)**........ 53 Director
S. Scott Wald(1)(2)***...... 42 Director
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
* Class I Director
** Class II Director
*** Class III Director
Steven D. Simpson has served as the Company's President and Chief Executive
Officer and as a director since January 1996. From January 1995 to January 1996,
Mr. Simpson served as the Company's Executive Vice President of Sales and
Marketing. Prior to joining the Company, Mr. Simpson was employed by
Hewlett-Packard from 1978 to 1994. From 1991 to 1994, Mr. Simpson was General
Manager of the Boise LaserJet Printer Division. He holds a B.S. in Marketing
from the University of Utah and an M.B.A. from the University of Wyoming.
Karla K. Rosa has served as the Company's Chief Financial Officer since
April 1996. From January 1996 to April 1996, Ms. Rosa was the Company's
Assistant Controller, from April 1992 to January 1996 Ms. Rosa was Treasury
Manager and from December 1991 to April 1996, Ms. Rosa was Tax Director. Prior
to joining the Company, Ms. Rosa was a manager in the Los Angeles and Boise
offices of Arthur Andersen & Co. Ms. Rosa is a Certified Public Accountant and
holds a B.S. in Accounting from Utah State University.
Holmes T. Lundt has served as the Company's Vice President of Corporate
Research and Development and Business Development since January 1996. From
December 1994 to January 1996, Mr. Lundt was the Company's Vice President of
Research and Development, from October 1993 to December 1994, Mr. Lundt was Vice
President of Marketing and from January 1991 to October 1993, Mr. Lundt was
Business Unit Manager of Network Printing. Mr. Lundt joined the Company in 1984.
Mr. Lundt holds a B.S. in Electrical Engineering from Iowa State University and
a M.S. of Electrical Engineering from Stanford University.
Scott J. Ritchie has served as the Company's Vice President of Operations
since he joined the Company in December 1995. From November 1989 to November
1995, Mr. Ritchie was employed by Hewlett-Packard and held a number of positions
in manufacturing and material management, most recently as Materials Manager in
the Disk Memory Division. He holds a B.B.A. in Management and an M.B.A. from
Boise State University.
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<PAGE> 40
Thomas C. White has served as the Company's Vice President of Sales and
Marketing since January 1996. From June 1995 to January 1996, Mr. White was the
Company's Vice President of North American Sales. From July 1993 to June 1995,
Mr. White was National Account Director for MicroAge Computer Centers, Inc.
("MicroAge"). Prior to joining MicroAge, Mr. White spent seven years at Apple
Computer, where he served as Large Enterprise Manager. He holds a B.S. in
Business Administration from Western Illinois University.
Bradley J. Surkamer has served as the Company's Vice President of Technical
Support and Third-Party Marketing since January 1996. From January 1995 to
January 1996, Mr. Surkamer was the Company's Manager of Technical and Third
Party Marketing. From 1991 to January 1995, Mr. Surkamer was the Company's
Manager of Sales and Marketing. He holds a B.S. in Mathematics from the
University of Montana and an M.B.A. from Northern Arizona University.
Douglas B. Winterrowd is a founder of the Company and has been a Director
of the Company since October 1995. Previously, Mr. Winterrowd served as a
Director of the Company from 1984 to 1992. He has served as Chief Engineer since
February 1994. Prior to such time, Mr. Winterrowd held various positions with
the Company, including Program Manager, Quality Assurance Manager, Technical
Support Manager, Project Manager and Senior Engineer. Prior to joining the
Company, Mr. Winterrowd was employed by Hewlett-Packard for 10 years and held a
number of positions in Research and Development. Mr. Winterrowd holds a B.S. in
Electrical Engineering and an M.S. in Electrical Engineering from Montana State
University.
Raymond A. Smelek has served as the Company's Chairman of the Board of
Directors since June 1995 and he has been a Director of the Company since June
1994. From June 1994 to February 1996, Mr. Smelek was the Company's President
and Chief Executive Officer. Prior to joining the Company, Mr. Smelek was
employed by Hewlett-Packard and held a number of positions, most recently as
Vice President and General Manager of the Mass Storage Group. Mr. Smelek is also
a director of Apexx Technology and Gem Pharmaceuticals. Mr. Smelek holds a B.S.
in Electrical Engineering from San Jose State University.
Robert G. Hamlin has been the Secretary and a Director of the Company since
1992. Mr. Hamlin is also the outside General Counsel for the Company and a
partner in the law firm of Hamlin & Sasser. Mr. Hamlin holds a B.A. from
California State University at Sacramento and a J.D. from the University of
Idaho.
Gregory M. Avis has been a Director of the Company since September 1992.
Mr. Avis has served as a General Partner of Summit Partners, L.P., a venture
capital partnership, since 1987 and has served as a Managing Partner of Summit
Partners, L.P. since 1990. Mr. Avis is also a director of Digital Link
Corporation, a manufacturer of digital access products for wide area networks,
Powerwave Technologies, Inc., a designer and manufacturer of linear power
amplifiers for wireless communications, and Splash Technology Holdings, Inc., a
supplier of open-platform color servers. Mr. Avis holds a B.A. in Political
Economy from Williams College and an M.B.A. from Harvard Business School.
Alan W. Frankle has been a Director of the Company since October 1992. Dr.
Frankle is a tenured Professor of Finance at Boise State University. From 1982
to 1995, Dr. Frankle also was Chairman of the Marketing and Finance Department
at Boise State University. Mr. Frankle holds a B.S. in Industrial Distribution
from Clarkson University and an M.B.A. and Ph.D. in Finance from the University
of Arizona.
S. Scott Wald has been a Director of the Company since July 1994. Mr. Wald
is the founder of ASAP Software Express, Inc. ("ASAP"). Mr. Wald has served as
President and Chief Executive Officer of ASAP since September 1985. Prior to
joining ASAP, Mr. Wald was employed by Hewlett-Packard and held positions in
sales and product management. Mr. Wald holds a B.S. in Business Administration
and an M.B.A. from Arizona State University.
The Company's Board of Directors is divided into three classes. The term of
the Class I director expires at the Company's annual meeting of stockholders in
1999, the term of the Class II directors expires at the Company's annual meeting
of stockholders in 2000, and the term of the Class III directors expires at the
Company's annual meeting of stockholders in 1998. Thereafter, the term of each
class of directors shall be three years. All directors hold office until the
annual meeting of stockholders at which their respective class is subject to
re-election and until their successors are duly elected and qualified, or until
their earlier resignation
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<PAGE> 41
or removal. Officers serve at the discretion of the Board and are elected
annually. There are no family relationships among the directors or officers of
the Company.
BOARD COMMITTEES
Audit Committee. The Audit Committee of the Board of Directors reviews and
monitors the corporate financial reporting and external audits of the Company,
including among other things, the Company's internal control functions, the
results and scope of the annual audit and other services provided by the
Company's independent accountants, and the Company's compliance with legal
matters with a significant impact on the Company's financial reports. In
addition, the Audit Committee has the responsibility to consider and recommend
the appointment of the Company's independent accountants. The Audit Committee
also monitors transactions between the Company and its officers, directors and
employees for any potential conflicts of interest. The current members of the
Audit Committee are Gregory M. Avis, S. Scott Wald, Robert G. Hamlin and Alan W.
Frankle.
Compensation Committee. The Compensation Committee of the Board of
Directors reviews and makes recommendations to the Board regarding the Company's
compensation policy and all forms of compensation to be provided to executive
officers and directors of the Company, including, among other things, annual
salaries and bonuses, and stock option and other incentive compensation
arrangements. In addition, the Compensation Committee reviews bonus and stock
compensation arrangements for all other employees of the Company. As part of the
foregoing, the Compensation Committee also administers the Company's 1998 Stock
Plan and 1998 Employee Stock Purchase Plan. The current members of the
Compensation Committee are Gregory M. Avis, Robert G. Hamlin and S. Scott Wald.
Nominating Committee. The Nominating Committee of the Board of Directors
reviews and makes recommendations to the Board regarding annual elections of
directors and potential new directors. The current members of the Nominating
Committee are Raymond A. Smelek (Chairman), Gregory M. Avis and S. Scott Wald.
DIRECTOR COMPENSATION
Non-employee directors of the Company (the "Outside Directors") receive no
cash fees as compensation for their services as directors. The Outside Directors
are reimbursed for travel and other expenses incurred in attending meetings of
the Company's Board of Directors and meetings of committees of the Board of
Directors.
1998 Director Plan. The Company's 1998 Director Option Plan (the "Director
Plan") was adopted by the Board of Directors in December 1997 and will be
submitted for approval by the stockholders in January 1998. The Director Plan
becomes effective on the effectiveness of the registration statement relating to
this Offering. A total of 250,000 shares of Common Stock have been reserved for
issuance under the Director Plan. The Outside Directors are eligible to
participate in the Director Plan. Option grants under the Director Plan are
automatic and non-discretionary, and the exercise price of the options is 100%
of the fair market value of the Common Stock on the grant date. The Director
Plan provides for an initial grant of an option to purchase 15,000 shares of
Common Stock (the "First Option") to each Outside Director on the later of the
date on which such person first becomes an Outside Director or the date of
effectiveness of the Director Plan; provided, however, that an Inside Director
who ceases to be an Inside Director but who remains a Director shall not receive
the First Option. Thereafter, the Company shall automatically grant to each
Outside Director an option to purchase 7,500 shares of Common Stock (a
"Subsequent Option") on the date of the Company's annual meeting of stockholders
of each year; provided, however, that such Outside Director shall have served on
the Board for at least 6 months. Each First Option and each Subsequent Option
shall have a term of 10 years, or shorter upon termination of an Outside
Director's status as a director. The shares subject to each First Option shall
vest and become exercisable in installments at a rate of 33% of the total of
such shares on the first anniversary date of grant and at a rate of 1/36th of
the total of such shares per month thereafter. The shares subject to each
Subsequent Option shall vest and become exercisable in full on the first
anniversary of the date of grant of that Subsequent Option. The fair market
value of any option granted
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<PAGE> 42
concurrently with the initial effectiveness of the Director Plan shall be the
Price to Public set forth in the final prospectus relating to this Offering.
The Director Plan provides that in the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding option under the Director Plan will be assumed
or substituted for by the successor corporation (the "Successor Corporation").
If the Successor Corporation refuses to assume or substitute for the option, the
optionee shall have the right to exercise all of the optioned stock, including
shares as to which it would not otherwise be exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee was or is an officer or employee of
the Company or any of its subsidiaries. No executive officer of the Company
serves as a member of the Board of Directors or Compensation Committee of any
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned during the fiscal
year ended June 30, 1997 (the "Last Fiscal Year") by the Company's Chief
Executive Officer and the four other most highly-compensated executive officers
of the Company whose total annual salary and bonus during such fiscal year
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION(1)
- ----------------------------------------------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Steven D. Simpson.............................. $ 193,333 $4,256 33,333 $59,268(2)
President and Chief Executive Officer
Holmes T. Lundt................................ 120,850 4,711 4,000 4,448(3)
Vice President, Corporate Research and
Development and Business Development
Scott J. Ritchie............................... 120,450 2,657 6,000 4,334(4)
Vice President, Operations
Thomas C. White................................ 110,040 41,402(5) 6,000 16,321(6)
Vice President, Sales and Marketing
Raymond A. Smelek.............................. 100,000 27,212 -- 2,486(7)
Chairman of the Board of Directors
</TABLE>
- ---------------
(1) Includes $78 in premiums paid by the Company with respect to term life
insurance for the benefit of the respective individual.
(2) Includes $5,674 of contributions by the Company to defined contribution
plans and $53,516 deferred compensation from options granted under the
Company's 1987 Restricted Stock Option Plan, as amended.
(3) Includes $4,370 of contributions by the Company to defined contribution
plans.
(4) Includes $4,256 of contributions by the Company to defined contribution
plans.
(5) Includes sales commissions of $38,968.
(6) Includes $4,983 of contributions by the Company to defined contribution
plans and $11,260 deferred compensation from options that were granted under
the Company's 1987 Restricted Stock Option Plan, as amended.
(7) Includes $2,408 of contributions by the Company to defined contribution
plans.
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<PAGE> 43
STOCK OPTION GRANTS
The following table provides information concerning stock option grants
made to each of the Named Executive Officers during the Last Fiscal Year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
--------------------------------------------------------------- RATES OF STOCK
NUMBER OF SHARES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION -------------------
NAME GRANTED(#)(1) LAST FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
- ------------------------ ---------------- ---------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Simpson....... 16,667 4.1% $ 8.36 12/16/06 $226,824 $361,179
16,667 4.1 8.88 01/01/07 241,076 383,874
Holmes T. Lundt......... 4,000 1.0 8.36 12/16/06 54,438 86,683
Scott J. Ritchie........ 6,000 1.5 8.36 12/16/06 81,656 130,024
Thomas C. White......... 6,000 1.5 8.36 12/16/06 81,626 130,024
Raymond A. Smelek....... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Unless otherwise noted, all options vest over a period of five years and
have a ten year term.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and is calculated by assuming that the stock
price on the date of grant (the Board of Directors' determination of the
fair market value of the Company's Common Stock based on an independent
appraisal) appreciates at the indicated annual rate compounded annually for
the entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated price. Actual gains, if any, on
stock option exercises are dependent on the future performance of the Common
Stock and overall stock market conditions.
The following table sets forth the number of shares acquired upon exercise
of stock options during the Last Fiscal Year by each of the Named Executive
Officers, and the value of unexercised options as of June 30, 1997. Also
reported are values "in-the-money" options that represent the positive "spread"
between the respective exercise prices of outstanding stock options and the fair
market value of the Company's Common Stock as of June 30, 1997, as determined by
the Board of Directors.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#)(1) AT FISCAL YEAR-END($)(2)
--------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven D. Simpson.................. 71,673 100,573 $ 329,311 $ 217,036
Holmes T. Lundt.................... 47,067 12,933 42,800 --
Scott J. Ritchie................... 6,667 32,667 10,900 43,600
Thomas C. White.................... 15,915 20,300 27,600 18,400
Raymond A. Smelek.................. 214,667 58,659 7,578 30,324
</TABLE>
- ---------------
(1) No Named Executive Officer exercised options during the fiscal year ended
June 30, 1997.
(2) There was no public trading market for the Company's Common Stock as of June
30, 1997. Accordingly, the value of unexercised in-the-money options is
calculated based on a price of $7.05 per share, the Board of Directors'
determination of the fair market value of the Company's Common Stock which
was based on an independent appraisal as of June 30, 1997. Amounts reflected
are based on the assumed value minus the exercise price and do not
necessarily indicate that the optionee sold such stock.
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<PAGE> 44
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
The Company has entered into employment agreements with each of the Named
Executive Officers. These agreements generally set forth the individual's
salary, position and benefits. In addition, Mr. Simpson's contract with the
Company entitles Mr. Simpson to a continued salary and bonus for a period of 12
months if he is terminated by the Company without cause or without 12 months
written notice.
In 1994, the Company entered into an employment agreement with Raymond
Smelek pursuant to which the Company agreed to pay Mr. Smelek a base salary and
an annual bonus. In fiscal 1997, Mr. Smelek received $100,000 in salary and a
bonus of $27,212 for services rendered as Chairman of the Board of Directors. In
addition, for the first three months of fiscal 1998 the Company paid Mr. Smelek
$25,000. In December 1997, the Company and Mr. Smelek entered into a new
employment agreement pursuant to which Mr. Smelek will receive an annual salary
of $100,000 through December 1998 and $40,000 thereafter and will be eligible
for stock options under the 1998 Plan.
STOCK PLANS
1998 Stock Plan. The Company's 1998 Stock Plan (the "1998 Plan") provides
for the grant to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code"), and for the grant
to employees, directors and consultants of nonstatutory stock options and stock
purchase rights. The 1998 Plan was adopted by the Board of Directors in December
1997 and will be submitted for approval by the stockholders in January 1998. The
1998 Plan becomes effective on the effectiveness of the registration statement
relating to this Offering. Unless terminated sooner, the 1998 Plan will
terminate automatically in January 2008. The maximum aggregate number of shares
which may be issued under the 1998 Plan is 1,600,000.
The 1998 Plan may be administered by a committee appointed by the Board of
Directors (the "Committee"), which Committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, consist of two or more "outside directors" within
the meaning of Section 162(m) of the Code. The Committee has, pursuant to the
terms of the 1998 Plan, the power to determine the terms of options granted,
including the exercise price, to reduce the exercise price of any option to the
then current fair market price if the fair market value of the Common Stock
covered by such option shall have declined since the date the option was
granted, number of shares subject to the option, and the exercisability thereof,
the form of consideration payable upon such exercise. In addition, the Board of
Directors has the authority to amend, suspend or terminate the 1998 Plan,
provided that no such action may affect any share of Common Stock previously
issued and sold or any option previously granted under the 1998 Plan.
Unless determined otherwise by the Committee, options and stock purchase
rights granted under the 1998 Plan are not transferable by the optionee, and
each option and stock purchase right is generally exercisable during the
lifetime of the optionee only by such optionee. Options granted under the 1998
Plan must generally be exercised within three months following termination of an
optionee's status as an employee, director or consultant of the Company, within
twelve months after an optionee's termination by disability, and within twelve
months after an optionee's termination by death, but in no event later than the
expiration of the option. In the case of stock purchase rights, unless the
administrator determines otherwise, a restricted stock purchase agreement shall
grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to a restricted stock purchase agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the administrator. The exercise price of all incentive
stock options granted under the 1998 Plan must be at least equal to the fair
market value of the shares on the date of grant. The exercise price of
nonstatutory stock options granted under the 1998 Plan is determined by the
Committee, but with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the exercise price must be at least equal to the fair market value of the
Common Stock on the date of grant. With
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<PAGE> 45
respect to any employee who owns stock possessing more than ten percent of the
voting power of all classes of the Company's, or any parent or subsidiary of the
Company's outstanding capital stock, the exercise price of any incentive stock
option granted to such person must equal at least 110% of the fair market value
of the Common Stock on the date of grant and the term of such incentive stock
option must not exceed five years. The term of all other options granted under
the 1998 Plan may not exceed ten years.
The 1998 Plan provides that in the event of a merger of the Company with or
into another corporation, or a sale of substantially all of the Company's
assets, each outstanding option and stock purchase right will be assumed or
substituted for by the successor corporation. In the event the successor
corporation refuses to assume or substitute for the option or stock purchase
right, the optionee shall have the right to exercise all of the optioned stock,
including shares as to which it would not otherwise be exercisable.
1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
December 1997 and will be submitted for approval by the stockholders in January
1998. The Purchase Plan becomes effective on the effectiveness of the
registration statement relating to this Offering. A total of 700,000 shares of
Common Stock have been made available for issuance under the Purchase Plan and
an annual increase is to be added on each anniversary date of the adoption of
the Purchase Plan equal to the lesser of (i) the number of shares needed to
restore the maximum aggregate number of shares available for sale under the
Purchase Plan to 700,000, or (ii) an amount determined by the Board of
Directors. The Purchase Plan, which is intended to qualify under Section 423 of
the Code is administered by the Board of Directors or by a committee appointed
by the Board. Employees (including officers and employee directors of the
Company but excluding 5% or greater stockholders) are eligible to participate if
they are employed for at least 20 hours per week and for more than five months
in any calendar year. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 15% of the
compensation an employee receives each pay period. The Purchase Plan will be
implemented by consecutive overlapping 24 month offering periods. The initial
offering period under the Purchase Plan will begin on the effective date of this
Offering and subsequent offering periods will begin on the first trading day on
or after June 30 and December 31 of each year. Each participant will be granted
an option on the first day of the offering period and shares of Common Stock
will be automatically purchased on the last date of each purchase period within
the offering period. If the fair market value of the Common Stock on any
purchase date (other than the final purchase date of the offering period) is
lower than such fair market value on the start date of that offering period,
then all participants in that offering period will be automatically withdrawn
from such offering period and re-enrolled in the immediately following offering
period. The purchase price of the Common Stock under the Purchase Plan will be
equal to 85% of the lesser of the fair market value per share of Common Stock on
the start date of the offering period or on the purchase date. Employees may end
their participation in an offering period at any time, and participation ends
automatically on termination of employment with the Company. In the event of a
proposed dissolution or liquidation of the Company, the offering periods then in
progress will be shortened by setting a new exercise date that is before the
dissolution or liquidation, and will terminate immediately prior to the
consummation of the proposed action, unless otherwise provided by the Board. In
the event of a proposed sale of all or substantially all of the Company's assets
or the merger of the Company with or into another corporation, each outstanding
option will be assumed or substituted for by the successor corporation. In the
event the successor corporation refuses to assume or substitute for the options,
the offering periods then in progress will be shortened by setting a new
exercise date that is before the sale or merger and the offering periods then in
progress will end on the new exercise date. Each participant will be notified at
least ten business days prior to the new exercise date, and unless such
participant ends his or her participation, the option will be exercised
automatically on the new exercise date. The Purchase Plan will terminate in
December 2008, unless sooner terminated by the Board of Directors.
1994 Incentive Stock Option Plan. The Company's 1994 Incentive Stock Option
Plan (the "1994 Plan") provides for the grant to full-time employees of
incentive stock options within the meaning of Section 422 of the Code. The 1994
Plan was adopted by the Board of Directors and approved by the stockholders in
October 1993. The Board of Directors has the authority to amend the 1994 Plan,
unless such amendment relates to a change in the aggregate number of shares of
Common Stock to be issued by the Company under
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<PAGE> 46
the 1994 Plan. The maximum aggregate number of shares that may be issued
pursuant to the 1994 Plan is 2,666,667 shares of Common Stock. Options that the
Company grants under the 1994 Plan are non-transferable by the optionee, except
on death, and exercisable during the optionee's lifetime only by the optionee.
The 1994 Plan requires the exercise price of any option granted by the Company
thereunder be at least equal to the fair market value of the shares on the date
of grant. An employee who owns stock representing 10% or more of the voting
power of the Common Stock is eligible under the 1994 Plan; provided, however,
the exercise price of any option granted by the Company to such employee is
equal to at least 110% of the fair market value of the Common Stock on the date
of grant and such option expires 5 years from the date of grant. All other
options granted by the Company under the 1994 Plan must be exercised by the
optionee within 10 years from the date of grant. Options generally vest 20% per
year over a period of five years from the date of grant. The 1994 Plan, by its
terms, terminates automatically in December 2004, however, the Board of
Directors has determined that the Company will make no further option grants
under the 1994 Plan after the effective date of the Offering.
1984 Incentive Stock Option Plan. The Company's 1984 Incentive Stock Option
Plan, as amended (the "1984 Plan") provided for the grant to full-time employees
of incentive stock options within the meaning of Section 422 of the Code. The
1984 Plan was adopted by the Board of Directors and approved by the stockholders
in June 1984. The maximum aggregate number of shares that may be issued pursuant
to the 1984 Plan is 3,333,333 shares of Common Stock. Options that the Company
has granted under the 1984 Plan are non-transferable by the optionee, except on
death, and are exercisable during the optionee's lifetime only by the optionee.
The 1984 Plan required that the exercise price of any option granted by the
Company thereunder be at least equal to the fair market value of the shares on
the date of grant, which value was determined by an independent appraiser each
quarter. The 1984 Plan prohibited the Company from making option grants to any
employee who owned stock representing 10% or more of the voting power of the
Common Stock. Any option granted by the Company under the 1984 Plan must be
exercised by the optionee within ten years from the date of grant. The 1984 Plan
expired in June 1994.
1987 Restricted Stock Option Plan. The Company's 1987 Restricted Stock
Option Plan, as amended (the "1987 Plan"), provided for the grant to full-time
employees and directors of the Company nonqualified restricted stock options.
The 1987 Plan was adopted by the Board of Directors in September 1987. A total
of 1,666,667 shares of Common Stock was reserved for issuance under the 1987
Plan. The 1987 Plan required that the exercise price of the options granted
thereunder be a price determined by the Board of Directors or the current
appraised value of the shares on the date of grant, which value was determined
by an independent appraiser each quarter. Options under the 1987 Plan are not
exercisable before the first anniversary of the date of grant. Thereafter, such
options generally vest and are exercisable at a rate of 20% on each subsequent
anniversary of the date of grant. The term of all options under the 1987 Plan
generally is ten years. The 1987 Plan provided that upon termination of
employment or directorship by any party and for any reason except death or
permanent disability, any unexercised options automatically terminate. The Board
of Directors had the authority to amend the 1987 Plan at any time. The 1987 Plan
terminated in September 1997.
401(k) PLAN
The Company participates in a defined, tax-qualified employee savings and
retirement plan (the "401(k) Plan") which covers certain of the Company's
full-time employees who are at least 21 years of age (the "Participants").
Pursuant to the 401(k) Plan, Participants may elect to reduce their current
compensation by up to 15% of compensation or the statutorily prescribed annual
limit, whichever is lower, and have the amount of such reduction contributed to
the 401(k) Plan. After a Participant completes six months of service and has
attained age 21, he or she will become eligible for the Company's
dollar-for-dollar matching contributions, up to a maximum of 3% of the
Participant's annual pretax compensation, effective as of the quarterly entry
date after meeting these service and age requirements. The matching contribution
amount is a discretionary amount as determined from time to time by the Company.
The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended, so that contributions by Participants or by the
Company to the 401(k) Plan, and income earned on plan contributions, are not
taxable to Participants until
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<PAGE> 47
withdrawn from the 401(k) Plan, and so that contributions by the Company, if
any, will be deductible by the Company when made. The trustee under the 401(k)
Plan, at the direction of Participant, invests the assets of the 401(k) Plan in
any of a number of designated investment options.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors to the fullest extent permitted by the Delaware General
Corporation Law (the "Delaware Law"). Under the Delaware Law, a director's
liability to a company or its stockholders may not be limited with respect to
(i) any breach of his duty of loyalty to the company or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments or dividends or unlawful stock
repurchases or redemptions or (iv) transactions from which the director derived
an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its officers
and directors and may indemnify its employees and other agents to the fullest
extent permitted under Delaware Law, and the Bylaws also permit the Company to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of such person's actions, regardless of whether
Delaware Law would permit such indemnification.
The Company has entered into indemnification agreements with each of its
directors and executive officers and has obtained a directors' and officers'
liability insurance policy that insures such persons against the cost of
defense, settlement or payment of judgments under certain circumstances. As of
the date of this Prospectus, there is no pending litigation or proceeding
involving a director or officer of the Company as to which indemnification is
being sought, nor is the Company aware of any pending or threatened litigation
that may result in claims for indemnification by any director or officer.
CERTAIN TRANSACTIONS
In fiscal 1997, Hamlin & Sasser, P.A., a law firm in which Robert G.
Hamlin, a director of the Company, is a partner, performed legal services for
the Company.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 28, 1998, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, with
respect to (i) each person or entity who is known by the Company to own
beneficially 5% or more of the Company's outstanding Common Stock, (ii) each of
the Company's directors, (iii) each of the Named Executive Officers, (iv) all
directors and executive officers of the Company as a group and (v) each Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)
--------------------- SHARES -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Charles M. Jopson(2)..................... 1,262,666 18.4%
5777 North Meeker Ave.
Boise, Idaho 83713
Douglas B. Winterrowd(3)................. 1,531,438 22.3
Ted L. Wimer(4).......................... 1,016,133 14.8
5777 North Meeker Ave.
Boise, Idaho 83713
Gary D. Atkins(5)........................ 936,038 13.6
P.O. Box 68
Pinedale, Wyoming 83941
Steven D. Simpson(6)..................... 102,245 1.5
Holmes T. Lundt(7)....................... 337,400 4.9
Raymond A. Smelek(8)..................... 301,208 4.3
Thomas C. White(9)....................... 17,114 *
Scott J. Ritchie(10)..................... 14,532 *
S. Scott Wald(11)........................ 14,370 *
Gregory M. Avis(12)...................... -- --
Steven Bolen(13)......................... 257,000 3.7
David W. Suvak(14)....................... 211,867 3.1
Patrick J. Megowan(15)................... 211,867 3.1
Michael D. Kyle.......................... 70,000 1.0
Robert G. Hamlin(16)..................... 37,997 *
Alan W. Frankle(17)...................... 24,552 *
All directors and executive officers as a
group (12 persons)..................... 2,464,252 33.3
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable, or exercisable within 60 days of February
28, 1997, and are deemed outstanding for computing the percentage of the
person holding such options but are not deemed outstanding for computing
the percentage of any other person. Except as indicated by footnote and
subject to community property laws where applicable, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock owned by them.
(2) Includes 9,000 shares held by record by Mr. Jopson's daughter.
(3) Includes 37,850 shares held of record by Mr. Winterrowd's daughter and
333,938 shares held of record by the Employee Stock Ownership Plan for
which Mr. Winterrowd serves as trustee.
(4) Mr. Wimer is an employee of the Company.
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<PAGE> 49
(5) Includes 33,538 shares held of record by Mr. Atkins' wife.
(6) Represents shares subject to options exercisable within 60 days of February
28, 1998. Mr. Simpson is the President, Chief Executive Officer and
Director of the Company.
(7) Includes 52,400 shares subject to options exercisable within 60 days of
February 28, 1998. Mr. Lundt is Vice President, Corporate Research and
Development and Business Development of the Company.
(8) Includes 1,942 shares held of record by Smelek and Associates, a business
owned by Mr. Smelek's wife, and 17,933 shares held of record by Mr.
Smelek's wife.
(9) Represents 17,115 shares subject to options exercisable within 60 days of
February 28,1998. Mr. White is Vice President, Sales and Marketing of the
Company.
(10) Represents 14,532 shares subject to options exercisable within 60 days of
February 28, 1998. Mr. Ritchie is Vice President, Operations of the
Company.
(11) Represents 14,370 shares subject to options exercisable within 60 days of
February 28, 1998. Mr. Wald is a director of the Company.
(12) Mr. Avis is the Managing Partner of Summit Partners, L.P. which is the
general partner of Summit Investors II, L.P. ("Summit Investors") and
Summit Ventures II, L.P. ("Summit Ventures"). Summit Investors and Summit
Ventures hold subordinated notes convertible into 557,787 shares of the
Company's Common Stock. Mr. Avis is a director of the Company.
(13) Includes 9,900 shares held of record by Mr. Bolen's daughters. Mr. Bolen is
a founder of the Company.
(14) Includes 11,867 shares subject to options exercisable within 60 days of
February 28, 1998. Mr. Suvak is Chief Technical Officer of Counterpoint
Systems Foundry, Inc., a subsidiary of the Company.
(15) Includes 100,000 shares held of record by Mr. Megowan's wife. Mr. Megowan
is President of Counterpoint Systems Foundry, Inc., a subsidiary of the
Company.
(16) Includes 24,552 shares subject to options exercisable within 60 days of
February 28, 1998. Mr. Hamlin is a director of the Company.
(17) Represents shares subject to options exercisable within 60 days of February
28, 1998. Mr. Frankle is a director of the Company.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of the Offering, the Company will be authorized to issue
75,000,000 shares of Common Stock, $0.001 par value per share, and 5,000,000
shares of Preferred Stock, $0.001 par value per share.
The following description of the Company's capital stock does not purport
to be complete and is subject to and qualified in its entirety by the Amended
and Restated Certificate of Incorporation and the Amended and Restated Bylaws,
which are included as exhibits to the Registration Statement of which this
Prospectus forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of September 30, 1997, there were 6,861,527 shares of Common Stock
outstanding held of record by approximately 139 stockholders. As of September
30, 1997, there were options to purchase 2,195,308 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of Common Stock do not
have cumulative voting rights, and, therefore, holders of a majority of the
shares voting for the election of directors can elect all of the directors who
are to be elected in that year. In such event, the holders of the remaining
shares will not be able to elect any directors.
Holders of the Common Stock are entitled to receive such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any Preferred Stock that may be
issued in the future or any agreements between the Company and its creditors.
The Company has not declared or paid cash dividends on its capital stock since
September 30, 1994, expects to retain future earnings, if any, for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future. See "Dividend Policy."
PREFERRED STOCK
Following the Offering, the Board of Directors will have the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued shares of undesignated Preferred Stock and to fix the number of
shares constituting any series in the designations of such series, without any
further vote or action by the stockholders. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. See "Risk Factors --
Certain Charter Provisions and Anti-Takeover Effects of Delaware Law." The
Company has no present plan to issue Preferred Stock.
REGISTRATION RIGHTS
The holders of shares of Common Stock and the holders of the
subordinated notes convertible into 557,787 shares of Common Stock have certain
rights to require the Company to register those shares under the Securities Act.
SUBORDINATED NOTES
On September 30, 1992 the Company, Summit Investors II, L.P. ("Summit
Investors") and Summit Ventures II, L.P. ("Summit Ventures") entered into the
Convertible Subordinated Promissory Notes and Warrant Purchase Agreement (the
"Note Purchase Agreement") pursuant to the terms of which the Company issued (i)
a zero coupon convertible subordinated promissory note to Summit Investors (the
"Summit Investors Zero Coupon Note"), (ii) a zero coupon convertible
subordinated promissory note to Summit Ventures (the "Summit Ventures Zero
Coupon Note"), (iii) a 10% convertible subordinated promissory note to Summit
Investors (the "Summit Investors 10% Note"), (iv) a 10% convertible
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<PAGE> 51
subordinated promissory note to Summit Ventures (the "Summit Ventures 10% Note")
and (v) warrants to purchase Common Stock. The warrants were not exercised and
expired in 1995.
The Summit Ventures Zero Coupon Note was issued for $3,941,840 and has a
maturity value in September 1999 of $7,514,133. Summit Ventures may convert all
or a portion of the principal and accrued interest of the note into Common Stock
at any time prior to maturity. If Summit Ventures converts the note it will
receive 488,601 shares of Common Stock.
The Summit Investors Zero Coupon Note was issued for $58,160 and has a
maturity value in September 1999 of $110,867. Summit Investors may convert all
or a portion of the principal and accrued interest of the note at any time prior
to maturity into Common Stock. If Summit Investors converts the note it will
receive 7,209 shares of Common Stock.
The Summit Ventures 10% Note was issued by the Company for $492,730, bears
interest at a rate of ten percent (10%) and is due on September 29, 1999. Summit
Ventures may convert all or a portion of the principal amount into Common Stock
at any time prior to the due date. If Summit Ventures converts the full
principal amount of the note, it will receive 61,076 shares of Common Stock.
The Summit Investors 10% Note was issued by the Company for $7,270, and it
bears interest at a rate of ten percent (10%) and is due on September 29, 1999.
Summit Investors may convert all or a portion of the principal amount into
Common Stock at any time prior to the due date. If Summit Investors converts the
full principal amount of the note, it will receive 901 shares of Common Stock.
CERTAIN CHARTER PROVISIONS AND ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
The Company's Amended and Restated Certificate of Incorporation provides
that all stockholder actions must be effected at a duly called annual or special
meeting and may not be effected by written consent. The Company's Bylaws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the Chairman of the Board of Directors, the President, a
majority of the Board of Directors or by holders of a majority of the Company's
stock issued and outstanding and entitled to vote at such meeting. In addition,
the Company's Bylaws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders, including
proposed nominations of persons for election to the Board. Stockholders at an
annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of the
Board of Directors or by a stockholder who was a stockholder of record on the
record date for the meeting, who is entitled to vote at the meeting and who has
delivered timely written notice in proper form to the Company's Secretary of the
stockholder's intention to bring such business before the meeting.
In addition, the Company's Board of Directors is divided into three
classes. The directors are classified with respect to the time for which they
severally hold office into three classes, as nearly equal in number as possible,
designated Class I, Class II and Class III, with staggered terms of office. The
term of office of the Class I Directors will expire at the annual meeting of
stockholders in 1999 and Class I Directors will be elected for a full term of
three years. The term of office of the Class II Directors will expire at the
annual meeting of stockholders in the year 2000 and Class II Directors will be
elected for a full term of three years. The term of office of the Class III
Directors will expire at the annual meeting of stockholders in 1998 and Class
III Directors will be elected for a full term of three years. At each succeeding
annual meeting of stockholders, the successors of the class of directors whose
terms expire at such meeting will be elected by the holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, to hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their election.
The foregoing provisions of the Company's Amended and Restated Certificate
of Incorporation and Bylaws are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions which may involve an actual or threatened change of control of the
Company. Such provisions are designed to reduce the vulnerability of the Company
to an unsolicited acquisition proposal and, accordingly,
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<PAGE> 52
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. Such provisions are also intended to
discourage certain tactics that may be used in proxy fights but could, however,
have the effect of discouraging others from making tender offers for the
Company's shares and, consequently, may also inhibit fluctuations in the market
price of the Company's shares that could result from actual or rumored takeover
attempts. These provisions may also have the effect of preventing changes in the
management of the Company. See "Risk Factors -- Effect of Certain Charter
Provisions and Anti-Takeover Effects of Delaware Law."
The Company is also subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 could have the effect of delaying or preventing a
change of control of the Company. The Company's Certificate of Incorporation
does not permit cumulative voting. This provision and other provisions of the
Certificate of Incorporation, the Company's bylaws (the "Bylaws"), may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. A Delaware corporation may "opt out" of the Antitakeover
Law with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the Company's
outstanding voting shares. The Company has not "opted out" of the provisions of
the Antitakeover Law. See "Risk Factors -- Effect of Certain Charter Provisions;
Antitakeover Effects of Delaware Law."
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar for the Common Stock is Boston
EquiServe. Its telephone number is (781) 575-2514.
LISTING
The Company is applying to have its Common Stock approved for listing on
The Nasdaq National Market under the trading symbol "XTND."
RESCISSION OFFER
Approximately thirty days after the effectiveness of this Offering the
Company intends to commence a rescission offer (the "Rescission Offer") pursuant
to a registration statement filed under the Securities Act and pursuant to the
securities laws of the states of Idaho, California, Montana and New York
covering shares of Common Stock which may have been sold in violation of the
registration requirements of applicable federal and state securities laws, which
represented an aggregate of 220,992 shares as of September 30, 1997. Because of
the frequency and number of sales, including the number of persons who received
offers and who purchased shares, the private placement exemption under the
Securities Act may not have been available for the Company's prior sales of the
Rescission Stock. The Company will offer to rescind such prior sales by
repurchasing the Rescission Stock at the price per share paid therefor (a range
of $0.15 per share to $8.76 per share) plus interest thereon at various
statutory rates in effect for the applicable states from the date of purchase by
each purchaser to the expiration of the Rescission Offer. The Rescission Offer
will expire approximately thirty days after the effectiveness of the
registration statement with respect to the Rescission Stock. Under the
Rescission Offer, the Company would be required to make an aggregate payment of
approximately $684,000 (including $84,000 of interest thereon as of September
30, 1997). Offerees who do not accept the Rescission Offer will, for purposes of
applicable federal and state securities laws, be deemed to hold registered
shares under the Securities Act which will be freely tradeable in the public
market as of the effective date of the registration statement with respect to
the Rescission Stock. The Securities Act does not expressly provide that a
Rescission Offer will terminate a purchaser's right to rescind a sale of stock
which was not registered under the Securities Act as required. However, federal
law does provide that a stockholder may
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<PAGE> 53
lose any rescission rights under federal securities laws one year from the date
of purchase of such stockholders shares. Accordingly, should the Rescission
Offer be rejected by any or all offerees, the Company may continue to have
contingent liability under the Securities Act for the purchase price of
Rescission Stock up to an aggregate amount of approximately $94,000.
As of the date hereof, the Company is not aware of any claims for
rescission against the Company. While the Company will offer to rescind the
sales of the Rescission Stock, there can be no assurance that the Company will
not otherwise be subject to possible penalties or fines relating to these
issuances. The Company believes that the Rescission Offer will provide it with
additional meritorious defenses to any such future claims. See "Risk
Factors -- Rescission Offer," "Shares Eligible for Future Sale" and Note 11 of
Notes to Consolidated Financial Statements.
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<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the Offering. Future sales of
substantial amounts of Common Stock in the public market could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through the sale of its equity securities.
Upon the closing of the Offering, the Company will have outstanding
shares of Common Stock based upon shares outstanding as of December 31,
1997. In addition to the shares of Common Stock offered hereby ( if
the Underwriters' over-allotment option is exercised in full), as of the
effective date of the Registration Statement (the "Effective Date"), there will
be shares of Common Stock outstanding all of which are "restricted"
shares (the "Restricted Shares") under the Securities Act. Such Restricted
Shares may be sold only if registered under the Securities Act or sold in
accordance with an available exemption from such registration.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus a person (or persons whose shares are aggregated in
accordance with the Rule) who has beneficially owned his or her shares for at
least one year, including persons who are affiliates of the Company, will be
entitled to sell, within any three month period a number of shares of Common
Stock that does not exceed the greater of (i) one percent (1%) of the then
outstanding number of shares of Common Stock (up to shares of Common
Stock immediately after the consummation of the Offering) or (ii) the average
weekly trading volume of the shares during the four calendar weeks preceding
each such sale. In addition, sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. After shares are held for two
years, a person who is not an affiliate of the Company is entitled to sell such
shares under Rule 144 without regard to such volume limitations, or manner of
sale, notice or public information requirements under Rule 144. Sales of shares
by affiliates will continue to be subject to such volume limitations, and manner
of sale, notice and public information requirements.
The Company has agreed with the Underwriters not to offer, pledge, sell,
contract to sell, or otherwise dispose of or enter into any transaction which is
designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise) by the Company, any affiliate of the Company or any person in privity
with the Company, directly or indirectly, or announce the offering of any other
shares of Common Stock or any securities or options convertible into,
exchangeable or exercisable for shares of Common Stock for a period of 180 days
following the date of the Underwriting Agreement without the prior written
consent of Volpe Brown Whelan & Company, LLC; provided, however, that the
Company may issue and sell shares of Common Stock pursuant to any employee stock
option plan, stock ownership plan or dividend reinvestment plan of the Company
in effect at the date of the Underwriting Agreement and the Company may issue
shares of Common Stock issuable upon the conversion of securities or the
exercise of warrants outstanding at such date.
Each of the Company's officers directors and certain of the Company's
stockholders holding in the aggregate shares of Common Stock, have agreed
with the Underwriters not to offer, sell, contract to sell, pledge or otherwise
dispose of or file a registration statement with the Securities and Exchange
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") with
respect to any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock, or publicly announce an
intention to effect any such transaction, for a period of 180 days after the
date of the Underwriting Agreement without the prior written consent of Volpe
Brown Whelan & Company, LLC, other than (i) upon the exercise of any option or
warrant or the conversion of a security, outstanding on the date of the
Underwriting Agreement and referred to in this Prospectus and (ii) shares of
Common Stock disposed of as bona fide gifts approved by Volpe Brown Whelan &
Company, LLC.
53
<PAGE> 55
Approximately Restricted Shares are immediately available for
sale in the public market upon the date of this Prospectus without restriction.
The remaining Restricted Shares will be available for sale in the
public market beginning 90 days after the date of this Prospectus, subject to
certain volume and other resale restrictions pursuant to Rule 144. Beginning 180
days after the Effective Date, approximately additional Restricted Shares
of Common Stock subject to the lock-up agreements will become eligible for sale
in the public market (unless the Representatives elect, in their sole
discretion, the earlier release of such shares from the lock-up agreement)
pursuant to Rule 144.
The Company plans to grant options to purchase up to 360,000 shares prior
to the Offering. See "Management -- 1994 Incentive Stock Option Plan." The
Company intends to file a registration statement on Form S-8 to register shares
reserved for issuance under this stock option plan and shares issuable upon
exercise of outstanding options. Shares of Common Stock issued upon the exercise
of options after the effective date of the Form S-8 will be available for sale
in the public market, subject to Rule 144 volume limitations applicable to
affiliates and lock-up agreements. Beginning 180 days after the Effective Date,
shares issuable upon the exercise of vested options will be eligible for
sale.
54
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
underwriters named below (the "Underwriters"), for whom Volpe Brown Whelan &
Company, LLC and Needham & Company, Inc. are acting as representatives (the
"Representatives"), and each of the Underwriters has agreed severally to
purchase from the Company and the Selling Stockholders, the respective number of
shares of Common Stock set forth opposite its name below. The Underwriters are
committed to purchase and pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------------------------------------------------------------- -----------
<S> <C>
Volpe Brown Whelan & Company, LLC................................
Needham & Company, Inc...........................................
-------
Total..................................................
=======
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of per share, of which $ per share may be reallocated to other
dealers. After the Offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company and Selling
Stockholders as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an option for 45 days after the
date of this Prospectus to purchase, at the initial public offering price, less
the underwriting discounts and commissions as set forth on the cover page of
this Prospectus, up to additional shares of Common Stock at the same
price per share as the Company and the Selling Stockholders receive for the
shares of Common Stock offered hereby, solely to cover over-allotments,
if any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by each of them, as shown in the foregoing table, bears to
the shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover the over-allotments made in connection with the sale
of shares of Common Stock offered hereby.
The Company's executive officers and directors and the Selling Stockholders
have agreed not to offer, sell, contract to sell or otherwise dispose of Common
Stock or securities convertible into or exchangeable for, or any rights to
purchase or acquire, Common Stock for a period of 180 days following the date of
this Prospectus, without the prior written consent of Volpe Brown Whelan &
Company, LLC. The Company also has agreed not to offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for, or any rights to purchase or acquire, Common Stock for
a period of 180 days following the date of this Prospectus without prior written
consent of Volpe Brown Whelan & Company, LLC, except for the granting of options
or the issuance of stock pursuant to the Company's existing stock option plans.
Volpe Brown Whelan & Company, LLC, in its discretion, may waive the foregoing
restrictions in whole or in part, with or without a public announcement of such
action. In recent offerings in which it has served as lead manager of
underwriters, Volpe Brown Whelan & Company, LLC has consented to early releases
from lock-up agreements only in a limited number of circumstances, after
considering all circumstances that it deemed to be relevant. Volpe Brown Whelan
& Company, LLC will, however, have complete discretion in determining whether to
consent to early releases from the lock-up agreements delivered
55
<PAGE> 57
in connection with this Offering, and no assurance can be given that it will not
consent to the early release of all or a portion of the shares of Common Stock
and options covered by such lock-up agreements.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which the Underwriters have
discretionary authority.
Prior to the Offering, there was no public market for the Common Stock. The
initial public offering price of the Common Stock was determined by negotiations
between the Company, the Selling Stockholders and the Representatives. Among the
factors considered in determining the initial public offering price of the
Common Stock, in addition to prevailing market conditions, were the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuations of companies
in related businesses.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the price of Common Stock. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
Common Stock for the purpose of stabilizing its market price. The Underwriters
also may create a short position for the account of the Underwriters by selling
more Common Stock in connection with the Offering than they are committed to
purchase from the Company and the Selling Stockholders, and in such case may
purchase Common Stock in the open market following completion of the Offering to
cover all or a portion of such short position. The Underwriters may also cover
all or a portion of such short position, up to shares, by exercising the
Underwriters' over-allotment option referred to above. In addition, Volpe Brown
Whelan & Company, LLC, on behalf of the Underwriters, may impose "penalty bids"
under contractual arrangements with the Underwriters whereby it may reclaim from
an Underwriter (or dealer participating in the Offering), for the account of the
other Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discounted at any time.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
the Offering, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The foregoing contains a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Cooley Godward LLP, Palo Alto, California.
EXPERTS
The consolidated balance sheets as of June 30, 1997 and 1996 and the
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1997, included in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
56
<PAGE> 58
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and the exhibits and schedules filed as a part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete. In each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, and each such statement is qualified in
all respects by such reference. The Registration Statement, including exhibits
and schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
57
<PAGE> 59
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Income..................................................... F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Extended Systems Incorporated
We have audited the accompanying consolidated balance sheets of Extended
Systems Incorporated as of June 30, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Extended
Systems Incorporated as of June 30, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1997 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boise, Idaho
August 11, 1997 except
as to Notes 11 and 12,
the date of which is
December 18, 1997.
F-2
<PAGE> 61
EXTENDED SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
---------------------- SEPTEMBER 30,
1996 1997 1997
---------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents............................... $ 5,729 $ 6,621 $ 7,951
Accounts receivable, net of $223, $207 and $233
allowance for doubtful accounts...................... 4,331 6,917 6,106
Inventories:
Purchased parts...................................... 2,810 2,240 2,508
Finished goods....................................... 1,384 1,647 1,646
Prepaids and other...................................... 257 411 619
------- ------- -------
Total current assets................................. 14,511 17,836 18,830
------- ------- -------
Property and equipment, net............................... 6,285 7,335 8,032
Intangibles, net.......................................... 321 133 103
Investments and other assets.............................. 221 373 272
------- ------- -------
Total assets......................................... $ 21,338 $25,677 $27,237
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable........................................ $ 2,355 $ 3,040 $ 3,483
Accrued payroll and related benefits.................... 620 1,059 1,123
Income taxes payable.................................... 103 110 349
------- ------- -------
Total current liabilities............................ 3,078 4,209 4,995
Long-term debt............................................ 6,151 7,210 7,342
Deferred income taxes..................................... 587 233 275
------- ------- -------
Total liabilities.................................... 9,816 11,652 12,572
Stockholders' equity:
Common stock $.10 par value per share, 13,333,333 shares
authorized; 6,607,767, 6,874,765 and 6,874,765 shares
issued............................................... 661 687 687
Additional paid-in capital.............................. 330 538 344
Retained earnings....................................... 11,684 13,881 14,471
Treasury stock, 137,542, 7,789 and 13,238 shares, at
cost................................................. (1,003) (43) (85)
Deferred compensation................................... (79) (1,002) (719)
Incentive stock option plan receivables................. (71) (36) (33)
------- ------- -------
Total stockholders' equity........................... 11,522 14,025 14,665
------- ------- -------
Total liabilities and stockholders' equity........... $ 21,338 $25,677 $27,237
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 62
EXTENDED SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER
YEAR ENDED JUNE 30, 30,
-------------------------------- -----------------
1995 1996 1997 1996 1997
------- ------- ---------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................................. $28,588 $34,670 $ 39,535 $8,943 $11,152
Cost of net revenue....................... 11,901 14,829 15,287 3,513 4,429
------- ------- ------- ------ -------
Gross profit.............................. 16,687 19,841 24,248 5,430 6,723
Operating costs and expenses:
Research and development.................. 3,701 4,362 5,259 1,167 1,532
Marketing and sales....................... 7,114 9,007 10,802 2,281 3,223
General and administrative................ 2,416 2,273 2,879 668 755
------- ------- ------- ------ -------
Income from operations................. 3,456 4,199 5,308 1,314 1,213
Other expense, net.......................... 90 198 494 173 52
Interest expense............................ 535 558 629 152 167
------- ------- ------- ------ -------
Income before income taxes............. 2,831 3,443 4,185 989 994
Provision for income taxes.................. 1,033 1,164 1,509 357 353
------- ------- ------- ------ -------
Net income............................. $ 1,798 $ 2,279 $ 2,676 $ 632 $ 641
======= ======= ======= ====== =======
Earnings per share.......................... $ 0.26 $ 0.32 $ 0.37 $ 0.09 $ 0.09
======= ======= ======= ====== =======
Weighted-average number of common shares
outstanding............................... 6,362 6,826 6,871 6,869 6,865
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 63
EXTENDED SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCENTIVE
ADDITIONAL STOCK
COMMON PAID-IN RETAINED TREASURY DEFERRED OPTION PLAN
STOCK CAPITAL EARNINGS STOCK COMPENSATION RECEIVABLES TOTAL
------ ---------- -------- -------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1994.............. $ 661 $ 745 $ 9,217 $(1,558) $ -- $(133) $ 8,932
Net income........ -- -- 1,798 -- -- -- 1,798
Shares issued for:
Employee stock
transactions... -- (401) (63) 2,405 -- (4) 1,937
Services and
other......... -- -- -- 44 -- -- 44
Restricted stock
option
activity........ -- -- -- -- (181) -- (181)
Treasury stock
purchased....... -- -- -- (3,169) -- -- (3,169)
Payments
received........ -- -- -- -- -- 80 80
Dividends......... -- -- (481) -- -- -- (481)
Income tax benefit
from employee
stock
transactions.... -- 262 -- -- -- -- 262
------ ------ ------- ------- ------- ----- -------
Balance at June 30,
1995.............. 661 606 10,471 (2,278) (181) (57) 9,222
Net income........ -- -- 2,279 -- -- -- 2,279
Shares issued for:
Employee stock
transactions... -- (280) (1,025) 1,327 -- (36) (14)
Services and
other......... -- (7) (41) 61 -- -- 13
Amortization of
deferred
compensation.... -- -- -- -- 102 -- 102
Treasury stock
purchased....... -- -- -- (113) -- -- (113)
Payments
received........ -- -- -- -- -- 22 22
Income tax benefit
from employee
stock
transactions.... -- 11 -- -- -- -- 11
------ ------ ------- ------- ------- ----- -------
Balance at June 30,
1996.............. 661 330 11,684 (1,003) (79) (71) 11,522
Net income........ -- -- 2,676 -- -- -- 2,676
Shares issued for:
Employee stock
transactions... -- (46) (138) 125 -- (3) (62)
Pooling of
interests..... 26 (823) -- 945 -- -- 148
Services or
other......... -- (13) (148) 48 -- -- (113)
Restricted stock
option
activity........ -- 1,084 -- -- (1,084) -- --
Amortization of
deferred
compensation.... -- -- -- -- 161 -- 161
Counterpoint
distribution
(Note 2)........ -- -- (193) -- -- (193)
Treasury stock
purchased....... -- -- -- (158) -- -- (158)
Payments
received........ -- -- -- -- -- 38 38
Income tax benefit
from employee
stock
transactions.... -- 6 -- -- -- -- 6
------ ------ ------- ------- ------- ----- -------
Balance at June 30,
1997.............. 687 538 13,881 (43) (1,002) (36) 14,025
First quarter of
1998
transactions
(unaudited):
Net income...... -- -- 641 -- -- -- 641
Shares issued
for:
Employee stock
transactions... -- (48) -- (42) -- -- (90)
Services or
other...... -- -- (41) -- -- -- (41)
Amortization of
deferred
compensation.. -- -- -- -- 118 -- 118
Adjustment to
deferred
compensation.. -- (155) (10) -- 165 -- --
Payments
received...... -- -- -- -- -- 3 3
Income tax
benefit from
employee stock
transactions... -- 9 -- -- -- -- 9
------ ------ ------- ------- ------- ----- -------
Balance at September
30, 1997
(unaudited)....... $ 687 $ 344 $14,471 $ (85) $ (719) $ (33) $14,665
====== ====== ======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 64
EXTENDED SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------ -----------------
1995 1996 1997 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 1,798 $ 2,279 $ 2,676 $ 632 $ 641
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......... 693 937 1,118 244 274
Accretion of discount.................. 454 498 546 132 145
Provision for deferred income taxes.... (285) 148 (354) (45) (42)
Writedown of investment................ -- -- 180 180 20
Stock option compensation.............. 364 102 160 22 118
Provision for bad debts................ 82 101 34 26 33
Other.................................. 111 (40) (84) -- (40)
Changes in assets and liabilities:
Accounts receivable.................. (213) 353 (2,620) (74) 778
Inventories.......................... 295 (789) 307 166 (267)
Income taxes receivable.............. (117) 117 -- -- --
Prepaids and other assets............ (107) 34 (494) (578) (139)
Accounts payable..................... 249 (613) 685 (70) 220
Accrued payroll and related
benefits.......................... (176) 434 439 264 64
Income taxes payable................. (613) 103 7 261 239
------ ------ ------ ----- -----
Net cash provided by operating
activities...................... 2,535 3,664 2,600 1,160 2,128
------ ------ ------ ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (955) (1,032) (1,483) (582) (720)
Cash acquired from purchase of affiliate,
net of cash paid....................... -- 258 -- -- --
Purchase of intangibles................... (242) -- -- -- --
Other investing activities................ (61) (17) 56 6 3
------ ------ ------ ----- -----
Net cash used by investing
activities...................... (1,258) (791) (1,427) (576) (717)
------ ------ ------ ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock purchased.................. (3,169) (113) (158) (12) (163)
Proceeds from exercise of stock options... 1,395 104 64 -- 66
Income tax benefit from employee stock
transfers.............................. 262 11 6 -- 9
Dividends................................. (481) -- -- -- --
Other financing activities................ 80 -- (193) 6 7
------ ------ ------ ----- -----
Net cash provided by (used by)
financing activities............ (1,913) 2 (281) (6) (81)
------ ------ ------ ----- -----
Net increase (decrease) in cash
and cash equivalents............ (636) 2,875 892 578 1,330
CASH AND CASH EQUIVALENTS:
Beginning of period....................... 3,490 2,854 5,729 5,729 6,621
------ ------ ------ ----- -----
End of period............................. $ 2,854 $ 5,729 $ 6,621 $6,307 $7,951
====== ====== ====== ===== =====
SUPPLEMENTAL DISCLOSURES:
Income taxes paid, net of refunds......... $ 1,795 $ 830 $ 1,891 $ 142 $ 68
Equipment financed with lease line of
credit................................. -- -- 513 -- 210
Interest paid............................. 50 50 64 50 63
Purchase of intangibles for contracts
payable................................ 238 -- -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 65
EXTENDED SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Extended Systems Incorporated provides distributed and mobile computing
solutions that address the needs of the virtual enterprise. The consolidated
financial statements include the accounts of Extended Systems Incorporated, a
Delaware corporation, and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Earnings per share are computed using the weighted average number of common
and common equivalent shares outstanding. Common equivalent shares result from
the assumed exercise of outstanding stock options and affect earnings per share
when they have a dilutive effect.
Revenues on hardware products are recognized when products are shipped.
Revenues earned under software license agreements are recognized when the
software has been delivered, payment is due within one year, collectability is
probable and there are no significant obligations remaining.
Cash equivalents are highly liquid investments with original maturities of
three months or less.
Inventories of purchased parts and finished goods are valued at the lower
of cost (principally standard cost, which approximates actual cost on a
first-in, first-out basis) or market.
Intangible assets, consisting primarily of a customer list, non-compete
agreements and goodwill, are carried at cost less accumulated amortization.
Costs are being amortized over estimated useful lives of 2-5 years using the
straight-line method.
Research and development costs are expensed as incurred.
Advertising costs are expensed as incurred.
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax and financial reporting bases of assets and
liabilities. The provision for income taxes includes taxes payable for the
period and the change during the period in deferred tax assets and liabilities.
Recently issued accounting standards. In February 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," which changes the method of
calculating earnings per share and is effective for periods ending after
December 15, 1997. SFAS No. 128 requires the presentation of "basic" earnings
per share and "diluted" earnings per share on the face of the income statement.
Basic earnings per share is computed by dividing the net income available to
common stockholders by the weighted-average shares of outstanding common stock.
The calculation of diluted earnings per share is similar to basic earnings per
share except the denominator includes dilutive common stock equivalents such as
stock options and warrants. The Company will adopt SFAS No. 128 in fiscal 1998
as early adoption is not permitted. This statement requires restatement of all
prior earnings per share data presented. The Company has not yet determined the
impact of this statement on the earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains and losses) in the
financial statements. This statement requires that an enterprise classify items
of other comprehensive income by their nature in a financial statement and
display the accumulated balance of other
F-7
<PAGE> 66
EXTENDED SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a balance sheet. This statement is effective
for fiscal years beginning after December 25, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which establishes standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes the standards for related disclosures about
products and services, geographic areas, and major customers. This statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. This statement is effective for financial statements for
periods beginning after December 15, 1997.
Management is currently evaluating the requirements of SFAS No. 130 and No.
131, respectively.
2. POOLING OF INTERESTS
On April 23, 1997, Counterpoint Systems Foundry, Inc. ("Counterpoint")
merged with the Company through the issuance of 400,000 shares of the Company's
common stock in exchange for all of the outstanding common stock of
Counterpoint.
The merger qualified as a tax-free reorganization and was accounted for as
a pooling of interests. Accordingly, the Company's financial statements include
Counterpoint for 1996 (Counterpoint had no material effect on the 1995 financial
statements). Separate and combined results of the Company and Counterpoint were
as follows (in thousands):
<TABLE>
<CAPTION>
EXTENDED
SYSTEMS COUNTERPOINT COMBINED
------- ------------ --------
<S> <C> <C> <C>
For the period July 1, 1996 through April 30,
1997 (unaudited)
Sales........................................ $30,850 $799 $31,649
Net income................................... 2,272 52 2,324
For the year ended June 30, 1996
Sales........................................ 34,045 624 34,669
Net income................................... 2,019 260 2,279
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives of 5-40 years using the straight-line method. Property and
equipment at June 30 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Land and land improvements................................... $ 914 $ 931
Buildings.................................................... 4,610 5,058
Computer hardware............................................ 2,666 3,681
Furniture and fixtures....................................... 1,177 1,385
------ ------
9,367 11,055
Less accumulated depreciation................................ (3,082) (3,720)
------ ------
$6,285 $7,335
====== ======
</TABLE>
Depreciation and amortization of property and equipment were $603,000 for
1995, $731,000 for 1996 and $935,000 for 1997.
F-8
<PAGE> 67
EXTENDED SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LEASES
The Company leases certain office space and equipment. Total lease expense
was $38,000 in 1995, $44,000 in 1996 and $67,000 in 1997. The minimum future
lease commitments for all operating leases are $29,000 in 1998, $29,000 in 1999
and $13,000 in 2000.
5. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal........................................ $ 873 $ 952 $1,619
State.......................................... 183 147 238
Deferred......................................... (285) 148 (354)
Provision allocated to equity for employee stock
transactions................................... 262 11 6
------ ------ ------
$1,033 $1,258 $1,509
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes at enacted tax rates. The
tax effects of temporary differences and carryforwards which give rise to the
net deferred tax liability were as follows as of June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Accrued Stock Option Compensation........................... $ 117 $ 195
Foreign Loss Carryforwards.................................. 198 380
----- -----
Deferred Assets............................................. 315 575
Depreciation................................................ (318) (332)
Deferred DISC Income........................................ (436) (363)
Other....................................................... (148) (113)
----- -----
Net Deferred Income Tax Liability........................... $(587) $(233)
===== =====
</TABLE>
The effective income tax rate varies from the federal statutory rate of 34%
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal tax rate...................................... 34.0% 34.0% 34.0%
States taxes, net of federal benefit.................. 4.3 4.0 3.3
Foreign Sales Corporation............................. (5.4) (6.5) (6.4)
Non-deductible expense................................ 2.9 3.2 --
Other, net............................................ 0.7 (0.9) 5.2
---- ---- ----
Effective income tax rate............................. 36.5% 33.8% 36.1%
==== ==== ====
</TABLE>
6. CONTINGENCY
Substantially all of the Company's products are warranted against material
and workmanship defects for periods of two to five years from the date of
shipment. Warranty costs associated with sales through June 30, 1997 are not
expected to be material, therefore, no accrual has been made for such costs.
F-9
<PAGE> 68
EXTENDED SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consisted of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Zero coupon convertible subordinated promissory notes due September
1999............................................................. $5,651 $6,197
10% convertible subordinated promissory notes due September 1999... 500 500
Lease line of credit to a bank to be refinanced into a long-term
lease; Interest paid at prime plus 1%, collateralized by
equipment........................................................ -- 513
------ ------
$6,151 $7,210
====== ======
</TABLE>
The zero coupon promissory notes were issued on September 30, 1992 for
$4,000,000, had a maturity value in September 1999 of $7,625,000 and may be
converted at any time at the option of the holders into a total of 495,810
shares of common stock. If held to maturity, the promissory notes would yield
9.25%.
The 10% promissory notes were issued September 30, 1992 and may be
converted at any time prior to maturity in September 1999 at the option of the
holders into a total of 61,977 shares of common stock. Interest is paid annually
in arrears.
Both the zero coupon and the 10% promissory notes are subordinated in right
of payment to future senior indebtedness of the Company.
In the event of a change in control, as defined in the promissory note
agreement, or the sale of substantially all of the assets of the Company, the
holders may require redemption of the zero coupon and 10% promissory notes at
the issue price plus accrued original issue discount.
The Company has a right of first refusal to purchase the zero coupon and
the 10% promissory notes or, if converted, the stock.
During 1997, the Company obtained a $1,000,000 lease line of credit.
Borrowings under this line of credit are to be refinanced into a long-term lease
on or before September 30, 1997. The lease agreement provides for 36 monthly
installments in an amount to be determined at the inception of the lease based
on the total amount refinanced. The lease agreement requires the Company to
remain within certain financial ratio boundaries. The Company had borrowings of
$513,000 under this line as of June 30, 1997.
The Company has a $5 million uncollateralized bank revolving line of credit
that expires on March 31, 1999. Interest on borrowings is at the bank's prime
rate. There were no borrowings under this line as of June 30, 1997 or 1996.
8. STOCKHOLDERS' EQUITY
In connection with the issuance of the subordinated promissory notes, the
Company reserved 557,787 shares of common stock for issuance upon conversion of
the notes.
The Company declared and paid dividends of $.075 per share in 1995. There
were no dividends declared in 1997 and 1996.
Employee notes receivable accepted upon exercise of options are a component
of stockholders' equity.
The Company has two incentive stock option plans, adopted in 1984 and 1994.
Regular, full-time employees are eligible for options under these plans. Options
generally vest 20 percent per year over a period of five years from the date of
grant. The exercise price is equal to the fair market value of the Company's
common stock on the date the option is granted. Unexercised options lapse ten
years after issuance or upon the date the option holder ceases to be an employee
of the Company. Shares available for grant under these plans totaled 2,103,000
and 2,046,000 at June 30, 1996 and 1997, respectively. During 1995, the Company
granted a
F-10
<PAGE> 69
EXTENDED SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
variable incentive stock option to a key employee to purchase a maximum of
11,667 shares. The option vests over a period of three years from date of grant.
The Company also has a restricted stock option plan, adopted in 1987.
Regular, full-time employees and directors of the Company are eligible for
options under this plan. Terms of the options are determined at the date of
grant. Unexercised options lapse ten years after issuance or upon the date the
option holder ceases to be an employee or director of the Company. Unearned
compensation related to these options is recorded at the date of the award based
on the market value of the shares and is amortized over the periods during which
the restrictions lapse. Shares available for grant under this plan totaled
751,333 at June 30, 1996 and 992,000 at June 30, 1997.
During 1997, the Company granted restricted stock options to purchase
150,000 shares to key employees. These options vest over periods of up to 3
years. The weighted-average exercise price of the options was $.15 per share and
the weighted-average fair value was $7.31 per share. The Company recognized
$99,000 of compensation expense related to these options in 1997.
During 1995, the Company granted restricted stock options to purchase
26,667 shares to key employees with no minimum service periods. The
weighted-average exercise price of the options was $.15 per share and the
weighted-average fair value was $10.89 per share. The Company recognized
$286,400 of compensation expense related to these options in 1995. In 1995, the
Company also granted restricted stock options to two key employees to purchase
an estimated maximum of 36,000 shares at exercise prices below the fair market
value of the stock. These options vest over periods of 3 to 4 years from date of
grant. The weighted-average exercise price was $.15 per share and the
weighted-average fair value of the options was $10.47 per share. The Company
recognized $102,200 and $62,000 of compensation expense related to these options
in 1996 and 1997, respectively.
The Company granted a key employee restricted stock options to purchase
183,333 shares in 1994 at prices equaling or exceeding the fair market value of
the stock at the date of grant. These options vest over periods of 3 to 5 years.
Certain of these options vest immediately at the time of an initial public
offering or upon a change of control of the Company.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant date as
prescribed by SFAS No.123, net income would have decreased in the pro forma
amounts indicated below (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Net income -- as reported.................................. $2,279 $2,676
Net income -- pro forma.................................... 2,248 2,573
</TABLE>
The fair value of options at date of grant was estimated using the
Black-Scholes option-pricing model assuming a weighted-average risk-free
interest rate of 6.15% and a weighted-average expected option life of 7.36
years.
F-11
<PAGE> 70
EXTENDED SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
PRICE RANGE AVERAGE PRICE OUTSTANDING EXERCISABLE
------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994........................ $ .15 - 12.45 $7.74 1,988,607 708,607
Granted............................ .15 - 11.33 8.87 359,960 --
Became exercisable................. .15 - 12.45 -- 398,400
Exercised.......................... .81 - 9.69 5.57 (250,009) (250,009)
Canceled/expired................... 5.76 - 10.89 8.72 (206,200) (9,533)
--------- ---------
June 30, 1995........................ .15 - 12.45 8.13 1,892,358 847,465
Granted............................ 3.75 - 7.16 5.57 393,737 --
Became exercisable................. .15 - 12.45 -- 386,345
Exercised.......................... .15 - 8.55 1.46 (110,411) (110,411)
Canceled/expired................... .15 - 10.89 6.32 (248,661) (79,567)
--------- ---------
June 30, 1996........................ .15 - 12.45 8.31 1,927,023 1,043,832
Granted............................ .15 - 8.36 5.04 399,426 --
Became exercisable................. .15 - 12.45 -- 300,629
Exercised.......................... .54 - 8.55 4.49 (12,500) (12,500)
Canceled/expired................... .81 - 8.55 8.61 (123,892) (44,633)
--------- ---------
June 30, 1997........................ .15 - 12.45 7.74 2,190,057 1,287,327
========= =========
</TABLE>
The weighted-average remaining contractual life of options outstanding at
June 30, 1997 was 6.60 years. The weighted-average exercise price of options
exercisable at June 30, 1995, 1996 and 1997 was $6.89, $8.19 and $8.36,
respectively. The weighted-average exercise prices which were equal to the
market price at the date of grant were $10.61, $5.66 and $8.04 for the years
ended June 30, 1995, 1996 and 1997, respectively.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
WEIGHTED- AVERAGE WEIGHTED-
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE NUMBER OF EXERCISE CONTRACTUAL NUMBER OF EXERCISE
PRICES SHARES PRICE LIFE SHARES PRICE
- ---------------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
$.15 to $.30 209,093 $ .15 9.14 50,339 $ .15
$1.65 to $2.72 60,267 2.70 0.80 60,267 2.70
$5.24 to $7.58 627,429 6.00 5.85 371,649 6.12
$8.36 to $12.45 1,293,268 10.05 6.82 805,072 10.32
--------- ---------
$.15 to $12.45 2,190,057 1,287,327
========== ==========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
The Company established the Extended Systems Incorporated 401(k) Investment
Plan, a defined contribution benefit plan, effective January 1991. All regular
employees are eligible to participate. For all participants having completed six
months of service, the Company makes dollar-for-dollar matching contributions to
the participants account up to a maximum of 3% of the participant's annual
pretax compensation. The Company's contributions to the plan for the years ended
June 30, 1995, 1996 and 1997 were $149,000, $163,000 and $200,000, respectively.
The Company has an employee stock ownership plan. All regular employees
credited with at least 1,000 hours of service by the end of the plan year are
eligible to participate. No contributions were made for 1995, 1996 or 1997.
F-12
<PAGE> 71
EXTENDED SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and trade accounts
receivable. Cash balances held in financial institutions may at times, exceed
federally insured amounts. A concentration of credit risk may exist with respect
to trade accounts receivable, as primarily all customers are North American and
European distributors and manufacturers of computer equipment. The Company
performs ongoing credit evaluations on customers and generally does not require
collateral. Historically, the Company has not experienced significant losses
related to receivables.
The estimated fair value of financial instruments is made in accordance
with the requirements of Statement of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instrument" ("SFAS No. 107"). The
carrying amount of debt is considered to be a reasonable approximation of its
fair value. The fair value estimate was based on market information available to
management as of June 30, 1997. The use of different market assumptions and
estimation methodologies could have a material effect on the estimated fair
value amounts.
11. COMMON STOCK SUBJECT TO RESCISSION
The Company sold shares of its common stock to employees and others which
were not made pursuant to a registration statement filed under the Securities
Act of 1933 as amended or any filings pursuant to the laws of any of the states
in which such sales occurred ("State Blue Sky Laws"). Appropriate exemptions
from the registration and qualification provisions of the Securities Act and
State Blue Sky Laws may not have been available. As a result, the Company is
planning to make a Rescission Offer and purchasers of these securities will be
entitled to a return of the consideration paid for their stock plus interest at
applicable statutory rates, which at September 30, 1997 aggregated approximately
$684,000 including interest through that date. However, the amount of the
rescission offer to substantially all of such purchasers is less than the
estimated fair market value of the Common Stock. Accordingly, management does
not expect acceptances of the Rescission Offer to have a material impact on the
financial position or cash flows of the Company.
12. REVERSE STOCK SPLIT
The consolidated financial statements reflect a 2 for 3 reverse stock split
of the Company's Common Stock approved by the Board of Directors on December 18,
1997.
F-13
<PAGE> 72
APPENDIX A -- DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER:
Diagram defining the virtual enterprise concept, including depictions of
information resources being shared in the virtual enterprise and example clients
of the virtual enterprise, such as mobile workers and satellite offices.
GATEFOLD:
Diagram of a virtual enterprise incorporating icons for a central corporate LAN,
the Internet used for connectivity and support for mobile workers, satellite
offices and business partners. On the virtual enterprise diagram will be several
example applications of the Company's products, depicted graphically, supporting
the constituents of the network. Across the lower edge of the panel will be a
row of photographs showing examples of the Company's products, with captions
describing key features.
PAGE 29:
At this location in the text appears a diagram depicting the elements of a
virtual enterprise, including key information resources being shared and some
example constituents of the virtual enterprise, such as mobile workers and
satellite offices.
PAGE 31:
At this location in the text appears a diagram representing several
applications of the Company's distributed connectivity products.
PAGE 32:
At this location in the text appears a diagram illustrating several
applications of the Company's mobile systems products.
INSIDE BACK COVER:
Graphics, text and images describing the Company's customer support programs,
the Company's key distribution customers and the Company's operating
facilities.
<PAGE> 73
============================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER
TO BUY, ANY OF THE SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES, OR AN OFFER TO, OR A SOLICITATION OF ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Consolidated Financial Data...... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 19
Business.................................. 27
Management................................ 38
Certain Transactions...................... 46
Principal and Selling Stockholders........ 47
Description of Capital Stock.............. 49
Rescission Offer.......................... 51
Shares Eligible for Future Sale........... 53
Underwriting.............................. 55
Legal Matters............................. 56
Experts................................... 56
Additional Information.................... 57
Index to Consolidated Financial
Statements.............................. F-1
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE
OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANS-
ACTIONS IN THE REGISTERED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=================================================
</TABLE>
============================================================
SHARES
LOGO
COMMON STOCK
--------------------
PROSPECTUS
, 1998
--------------------
VOLPE BROWN WHELAN & COMPANY
NEEDHAM & COMPANY, INC.
============================================================
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, commissions and certain accountable expenses, payable by
the Company in connection with the sale of Common Stock being registered. All
amounts are estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 8,142
NASD Filing Fee................................................. 3,620
Nasdaq National Market Listing Fee.............................. *
Printing Fees and Expenses...................................... *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Blue Sky Fees and Expenses...................................... *
Transfer Agent and Registrar Fees............................... *
Miscellaneous................................................... *
----------
Total................................................. $ *
==========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
The Registrant's Amended and Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
The Registrant's Bylaws provide for the indemnification of officers,
directors and third parties acting on behalf of the Registrant if such person
acted in good faith and in a manner reasonably believed to be in and not opposed
to the best interest of the Registrant, and, with respect to any criminal action
or proceeding, the indemnified party had no reason to believe his conduct was
unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The form of Underwriting Agreement filed as Exhibit 1.1 hereto provides for
the indemnification of the Registrant's directors and officers in certain
circumstances as provided therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 30, 1994, the Registrant has issued and sold the following
securities:
1. From June 30, 1994 to December 15, 1997, the Registrant issued to
employees, officers, directors and consultants options to purchase an
aggregate of 1,117,027 shares of Common Stock of the Company, at exercise
prices ranging from $0.15 per share to $11.33 per share, pursuant to the
Company's 1994 Stock Option Plan.
2. From August 1, 1994 to June 30, 1997, the Company has issued to
those individuals referred to in paragraph 1 above an aggregate of
1,067,336 shares of Common Stock of the Company upon exercise of options at
prices ranging from $0.15 per share to $11.33 per share.
II-1
<PAGE> 75
The sales of securities set forth in paragraph 2 above were deemed to be
exempt from the registration requirements of the Securities Act in reliance on
Section 4(2) thereof, or Regulation D promulgated thereunder, as transactions by
an issuer not involving a public offering. The granting of stock options
described in paragraph 1 above did not require registration under the Securities
Act, or an exemption therefrom, insofar as such grants did not involve a "sale"
of securities as such term is used in Section 2(3) of the Securities Act.
The recipients of the securities in each of the transactions set forth in
paragraph 2 above represented their intention to acquire such securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments used in such transactions. All recipients received
adequate information about the Registrant at the time of the acquisition of such
securities or had access, through employment or other relationships with the
Registrant, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as to the
legality of the securities being registered.*
10.1 Form of Indemnification Agreement for directors and officers.
10.2 1998 Stock Plan and form of agreement thereunder.
10.3 1998 Employee Stock Purchase Plan and forms of participation agreements thereunder.
10.4 1998 Directors Stock Option Plan and form of agreement thereunder.
10.5 1994 Incentive Stock Option Plan.
10.6 1987 Restricted Stock Option Plan, as amended.
10.7 1984 Incentive Stock Option Plan, as amended.
10.8 Extended Systems Incorporated Employee Stock Ownership Plan.
10.9 Extended Systems Incorporated 401(k) Plan.
10.10 Convertible Subordinated Promissory Notes and Warrant Purchase Agreement among the
Company, Summit Ventures II, L.P. and Summit Investors II, L.P. dated September 30,
1992.
10.11 Zero Coupon Convertible Subordinated Promissory Note dated September 30, 1992
issued to Summit Ventures II, L.P.
10.12 Zero Coupon Convertible Subordinated Promissory Note dated September 30, 1992
issued to Summit Investors II, L.P.
10.13 Summit Investors II, L.P. Convertible Subordinated Promissory Note dated September
30, 1992 issued to Summit Ventures II, L.P.
10.14 Convertible Subordinated Promissory Note dated September 30, 1992 issued to Summit
Investors II, L.P.
10.15 Stockholders' Agreement among the Company, Gary Atkins, Charles M. Jopson, Douglas
B. Winterwood, Ted L. Wimer, Steven Bolen, Summit Ventures II, L.P. and Summit
Investors II, L.P. dated September 30, 1992.
10.16 Sale, License and Noncompetition Agreement between the Company and Electronic
Accessory Specialist International, L.L.C. dated June 14, 1996, as amended.**
10.17 OEM Purchasing Agreement between the Company and Apexx Technology, Inc. dated
August 14, 1997.**
10.18 Form of Distribution Agreement -- North America.
10.19 Form of Distribution Agreement -- Europe.
</TABLE>
II-2
<PAGE> 76
<TABLE>
<S> <C>
10.20 Registration Rights Agreement.*
10.21 Employment Agreement between the Company and Steven D. Simpson.
10.22 Employment Agreement between the Company and Raymond A. Smelek.*
10.23 Employment Agreement between the Company and Thomas C. White.
10.24 Employment Agreement between the Company and Holmes T. Lundt.
10.25 Employment Agreement between the Company and Scott J. Ritchie.
11.1 Computation of earnings per share.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Registrant has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, and will be governed by the final adjudication of such
issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boise, in the State of Idaho, on the 19th day of December, 1997.
EXTENDED SYSTEMS INCORPORATED
By /s/ STEVEN D. SIMPSON
------------------------------------
Steven D. Simpson
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Steven D. Simpson and Karla K.
Rosa and each one of them, acting individually and without the other, as his or
her attorney-in-fact, each with full power of substitution, for him and her in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to sign any registration
statement for the same Offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes may do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------- ------------------
<C> <S> <C>
/s/ STEVEN D. SIMPSON President, Chief December 19, 1997
- ----------------------------------------------- Executive Officer and
Steven D. Simpson Director (Principal
Executive Officer)
/s/ KARLA K. ROSA Chief Financial Officer December 19, 1997
- ----------------------------------------------- (Principal Financial
Karla K. Rosa Officer and Principal
Accounting Officer)
/s/ GREGORY M. AVIS Director December 19, 1997
- -----------------------------------------------
Gregory M. Avis
Director
- -----------------------------------------------
Alan W. Frankle
Director
- -----------------------------------------------
Robert G. Hamlin
/s/ RAYMOND A. SMELEK Director December 19, 1997
- -----------------------------------------------
Raymond A. Smelek
/s/ S. SCOTT WALD Director December 19, 1997
- -----------------------------------------------
S. Scott Wald
/s/ DOUGLAS B. WINTERROWD director December 19, 1997
- -----------------------------------------------
Douglas B. Winterrowd
</TABLE>
II-4
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE NO.
----- ------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as
to the legality of the securities being registered.*
10.1 Form of Indemnification Agreement for directors and officers.
10.2 1998 Stock Plan and form of agreement thereunder.
10.3 1998 Employee Stock Purchase Plan and forms of participation agreements
thereunder.
10.4 1998 Directors Stock Option Plan and form of agreement thereunder.
10.5 1994 Incentive Stock Option Plan.
10.6 1987 Restricted Stock Option Plan, as amended.
10.7 1984 Incentive Stock Option Plan, as amended.
10.8 Extended Systems Incorporated Employee Stock Ownership Plan.
10.9 Extended Systems Incorporated 401(k) Plan.
10.10 Convertible Subordinated Promissory Notes and Warrant Purchase Agreement
among the Company, Summit Ventures II, L.P. and Summit Investors II, L.P.
dated September 30, 1992.
10.11 Zero Coupon Convertible Subordinated Promissory Note dated September 30,
1992 issued to Summit Ventures II, L.P.
10.12 Zero Coupon Convertible Subordinated Promissory Note dated September 30,
1992 issued to Summit Investors II, L.P.
10.13 Convertible Subordinated Promissory Note dated September 30, 1992 issued
to Summit Ventures II, L.P.
10.14 Convertible Subordinated Promissory Note dated September 30, 1992 issued
to Summit Investors II, L.P.
10.15 Stockholders' Agreement among the Company, Gary Atkins, Charles M.
Jopson, Douglas B. Winterwood, Ted L. Wimer, Steven Bolen, Summit
Ventures II, L.P. and Summit Investors II, L.P. dated September 30, 1992.
10.16 Sale, License and Noncompetition Agreement between the Company and
Electronic Accessory Specialist International, L.L.C. dated June 14,
1996, as amended.**
10.17 OEM Purchasing Agreement between the Company and Apexx Technology, Inc.
dated August 14, 1997.**
10.18 Form of Distribution Agreement -- North America.
10.19 Form of Distribution Agreement -- Europe.
10.20 Registration Rights Agreement.*
10.21 Employment Agreement between the Company and Steven D. Simpson.
10.22 Employment Agreement between the Company and Raymond A. Smelek.*
10.23 Employment Agreement between the Company and Thomas C. White.
10.24 Employment Agreement between the Company and Holmes T. Lundt.
10.25 Employment Agreement between the Company and Scott J. Ritchie.
11.1 Computation of earnings per share.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Registrant has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.
<PAGE> 1
Extended Systems Incorporated
_________ Shares(1)
Common Stock
UNDERWRITING AGREEMENT
____________ __, 1998
VOLPE BROWN WHELAN & COMPANY, LLC
NEEDHAM & COMPANY, INC.
As Representatives of the several Underwriters
c/o Volpe Brown Whelan & Company, LLC
One Maritime Plaza, 11th Floor
San Francisco, California 94111
Dear Sirs and Madams:
Extended Systems Incorporated, a Delaware corporation (the "Company"),
proposes to issue and sell_____________ shares of its authorized but unissued
Common Stock, $0.001 par value per share (the "Common Stock"), and the
stockholders of the Company named in Schedule II hereto (collectively, the
"Selling Securityholders") propose to sell an aggregate of _____________ shares
of Common Stock of the Company (the "Firm Shares"). The Company proposes to
grant to the Underwriters (as defined below) an option to purchase up to
_____________ additional shares of Common Stock and the Selling Securityholders
propose to grant to the Underwriters an aggregate of ______ additional shares of
Common Stock (collectively, the "Optional Shares" and, with the Firm Shares,
collectively, the "Shares"). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the shares by the several
underwriters, for whom you are acting, named in Schedule I hereto (collectively,
the "Underwriters," which term shall also include any underwriter purchasing
Shares pursuant to Section 3(b) hereof). You represent and warrant that you have
been authorized by each of the other Underwriters to enter into this Agreement
on its behalf and to act for it in the manner herein provided.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the several Underwriters as of the date hereof
and as of each Closing Date (as defined below) that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-_____), including the related
- --------
(1) Does not include an option to purchase from the Company and the Selling
Securityholders an aggregate of up to _________ additional shares of Common
Stock to cover over-allotments.
1.
<PAGE> 2
preliminary prospectus, for the registration under the Securities Act of 1933,
as amended (the "Securities Act") of the Shares. Copies of such registration
statement and of each amendment thereto, if any, including the related
preliminary prospectus (meeting the requirements of Rule 430A of the rules and
regulations of the Commission) heretofore filed by the Company with the
Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Shares first filed with the Commission pursuant to Rule 424(b) and Rule 430A
(or if no such filing is required, as included in the Registration Statement)
and, in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
(b) Each of the Company and its subsidiaries have been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus, and is duly qualified as a
foreign corporation and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure to be
so qualified would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole).
(c) The Company does not own or control, directly or indirectly,
any corporation, association or other entity other than the subsidiaries listed
in Exhibit 21.1 to the Registration Statement. Except as described in the
Prospectus, the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and encumbrances. The
Company and each of its subsidiaries are in possession of and operating in
compliance with all material authorizations, licenses, permits, consents,
certificates and orders material to the conduct of their respective businesses
as described in the Prospectus, all of which are valid and in full force and
effect.
2.
<PAGE> 3
(d) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any materially
adverse change in the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, other than as set
forth in the Registration Statement and the Prospectus, and since such dates,
except in the ordinary course of business, neither the Company nor any of its
subsidiaries has entered into any material transaction of the nature required to
be disclosed in the Registration Statement and the Prospectus which is not
referred to in the Registration Statement and the Prospectus.
(e) The Registration Statement and the Prospectus comply, and on
the Closing Date (as hereinafter defined) and any later date on which Optional
Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Optional Shares are to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (e) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for use
in the Registration Statement or the Prospectus.
(f) As of the date therein indicated, the Company had authorized
and outstanding capital stock as set forth under the heading "Capitalization" in
the Prospectus. The issued and outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, and were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities. All issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company and
the related notes thereto included in the Prospectus, neither the Company nor
any subsidiary has any outstanding options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required by the Securities Act and the Rules and Regulations to
be shown with respect to such plans, arrangements, options and rights.
(g) The Shares are duly authorized, (or, in the case of Shares to
be sold by the Company, will be, when issued and sold to the Underwriters as
provided herein) validly issued, fully paid and nonassessable and conform to the
description thereof in the Prospectus. No further approval or authority of the
stockholders or the Board of Directors of the Company will
3.
<PAGE> 4
be required for the transfer and sale of the Shares to be sold by the Selling
Securityholders or the issuance and sale of the Shares to be sold by the Company
as contemplated herein.
(h) Prior to the Closing Date, the Shares to be sold by the
Selling Securityholders and to be issued and sold by the Company will be
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
(i) The Shares to be sold by the Company will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, and will conform to the description thereof contained in the
Prospectus. No preemptive right, co-sale right, registration right, right of
first refusal or other similar right to subscribe for or purchase securities of
the Company exists with respect to the issuance and sale of the Shares by the
Company pursuant to this Agreement. No stockholder of the Company has any right
which has not been waived, or complied with, to require the Company to register
the sale of any shares owned by such stockholder under the Securities Act in the
public offering contemplated by this Agreement.
(j) The Company has full corporate power and authority to enter
into this Agreement and to perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium laws
affecting creditors' rights generally and except as to those provisions relating
to indemnity or contribution for liabilities arising under federal and state
securities laws. The making and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby (i) will not violate
any provisions of the Certificate of Incorporation, Bylaws or other
organizational documents of the Company or any of its subsidiaries, and (ii)
will not conflict with, result in a material breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both, a
material default under (A) any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties may be bound or affected, or
(B) any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries or any of
their respective properties in each case where such breach, violation, or
default would be reasonably likely to have a material adverse effect on the
business, properties, financial condition or result of operations of the Company
and its subsidiaries, taken as a whole. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body that has not already been obtained is required for the
execution and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Securities Act,
the Blue Sky laws applicable to the public offering of the Common Shares by the
several Underwriters and the clearance of such offering with the NASD.
(k) The consolidated financial statements and schedules of the
Company and the related notes thereto included in the Registration Statement and
the Prospectus present fairly on a consolidated basis the financial position of
the Company and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and
4.
<PAGE> 5
cash flows of the Company and its subsidiaries for the respective periods
covered thereby. Such statements, schedules and related notes have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods specified, as certified by the
independent accountants named in subsection 10(g). No other financial statements
or schedules are required to be included in the Registration Statement. The
selected financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Consolidated Financial Information" fairly
present the information set forth therein on the basis stated in the
Registration Statement.
(l) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and its
officers to its independent public accountants for the purpose of supporting the
letters referred to in Section 10(g) are true and correct.
(m) Neither the Company nor any of its subsidiaries are (i) in
violation or default of any provision of its Certificate of Incorporation,
Bylaws or other organizational documents, or (ii) in a material breach of or
default with respect to any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of facts which, with notice or lapse
of time or both would constitute such a breach or default on the part of the
Company and its subsidiaries, where such breach or default would be reasonably
likely to have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(n) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations
which have not been described or filed as required. The contracts so described
in the Prospectus are in full force and effect on the date hereof.
(o) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or threatened to which the
Company or any of its subsidiaries is or is threatened to be made a party or of
which property owned or leased by the Company or any of its subsidiaries is or
is threatened to be made the subject, which actions, suits or proceedings would
be reasonably likely, individually or in the aggregate, to prevent or adversely
affect the transactions contemplated by this Agreement or to result in a
material adverse change in the business, properties, financial condition or
results of operations of the Company or its subsidiaries, taken as a whole; and
no labor disturbance by the employees of the Company or any of its subsidiaries
exists or is imminent which would be reasonably likely to materially adversely
affect the business, properties, financial condition or results of operations of
the Company or its subsidiaries. Neither the Company nor any of its subsidiaries
is a party or
5.
<PAGE> 6
subject to the provisions of any material injunction, judgment, decree or order
of any court, regulatory body, administrative agency or other governmental body.
Except as disclosed in the Prospectus, there are no material legal or
governmental actions, suits or proceedings pending or, to the Company's and the
Selling Securityholders' knowledge, threatened against any executive officers or
directors of the Company.
(p) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount to the Company or
its subsidiaries, and do not adversely affect the use made and proposed to be
made of such property by the Company or its subsidiaries. The Company or the
applicable subsidiary holds its leased properties under valid and binding
leases. Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(q) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not (A) incurred any liabilities or obligations, indirect,
direct or contingent, or (B) entered into any oral or written agreement or other
transaction, which in the case of (A) or (B) is material to the business,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, and is not in the ordinary course of business;
(ii) the Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company and its subsidiaries have not paid or declared any dividends
or other distributions with respect to their respective capital stock and the
Company and its subsidiaries are not in material default in the payment of
principal or interest on any outstanding debt obligations; (iv) there has not
been any change in the capital stock of the Company or its subsidiaries (other
than upon the sale of the Shares hereunder or upon the exercise of any options
or warrants disclosed in the Prospectus); (v) there has not been any material
increase in the short- or long-term debt of the Company and its subsidiaries;
and (vi) there has not been any material adverse change or any development which
may reasonably be expected to involve a prospective material adverse change, in
the business, financial condition, properties, or results of operations of the
Company and its subsidiaries, taken as a whole.
(r) The Company and its subsidiaries are conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which they are conducting business, except where the failure to comply would
not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(s) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns, and all such tax
returns are complete and correct in all material respects, and the Company and
its subsidiaries have not failed to pay any taxes which were payable pursuant to
said returns or any assessments with respect thereto. The
6.
<PAGE> 7
Company has no knowledge of any material tax deficiency which has been or is
likely to be threatened or asserted against the Company and its subsidiaries.
(t) The Company has not distributed, and will not distribute prior
to the later to occur of (i) completion of the distribution of the Shares, or
(ii) the expiration of any time period within which a dealer is required under
the Securities Act to deliver a prospectus relating to the Shares, any offering
material in connection with the offering and sale of the Shares other than the
Prospectus, the Registration Statement and any other materials permitted by the
Securities Act and consented to by the Underwriters.
(u) Each of the Company and its subsidiaries maintains insurance
of the types and in the amounts generally deemed adequate for their business,
including, but not limited to, directors' and officers' insurance, insurance
covering real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect. The Company has no reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially adversely affect the business,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(v) Neither the Company nor any of its subsidiaries nor, to the
best of the Company's knowledge, any of their employees or agents has at any
time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any foreign, federal or state
governmental officer or official or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
(w) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(x) The Company has caused (i) each of its executive officers and
directors as set forth in the Prospectus and (ii) each holder of 5% or more of
the outstanding Common Stock (including shares issuable upon the exercise or
conversion of any option, warrant or other security) to furnish to the
Underwriters an agreement in form and substance satisfactory to Volpe Brown
Whelan & Company, LLC ("Volpe Brown Whelan & Company") pursuant to which each
such party has agreed that during the period of one hundred eighty (180) days
after the date the Registration Statement becomes effective, without the prior
written consent of Volpe Brown Whelan & Company, such party will not (i) offer,
sell, contract to sell, make any short sale (including without limitation short
against the box), pledge or otherwise dispose of, directly or indirectly, any
shares of the Company's Common Stock (excluding the Optional Shares), options to
acquire Common Stock or securities convertible into or exchangeable for, or any
other rights to purchase or acquire Common Stock (including, without limitation,
Common Stock which may be deemed to be beneficially owned, as that term is
defined by the Securities Exchange Act of 1934) other than the exercise or
conversion of outstanding options, warrants or convertible
7.
<PAGE> 8
securities; provided, however, that bona fide gift transactions and transfers
which will not result in any change in beneficial ownership may be permitted if
the transferee enters into a lock-up agreement in substantially the same form
covering the remainder of the lock-up period.
(y) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba.
(z) Except as specifically disclosed in the Prospectus, the
Company and its subsidiaries have sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals and governmental authorizations to
conduct their businesses as now conducted; the Company has no knowledge of any
infringement by the Company or its subsidiaries of trademark, trade name rights,
patent rights, copyrights, licenses, trade secret or other similar rights of
others; and no claims have been made or are threatened against the Company or
its subsidiaries regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement which is reasonably likely to have a material
adverse effect on the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(aa) Except as disclosed in the Prospectus, (i) the Company and its
subsidiaries are in compliance in all material respects with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to their business, (ii) neither the Company nor any of its
subsidiaries has received any notice from any governmental authority or third
party of the type required to be disclosed in the Prospectus relating to an
asserted claim under Environmental Laws, (iii) no facts currently exist that
will require the Company or any of its subsidiaries to make future material
capital expenditures to comply with Environmental Laws, and (iv) to the
knowledge of the Company, no property which is or has been owned, leased or
occupied by the Company or any of its subsidiaries has been designated as a
Superfund site pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. '9601, et seq.),
or otherwise designated as a contaminated site under applicable state or local
law.
(bb) The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
SECTION 2. REPRESENTATIONS AND WARRANTIES, AND COVENANTS, OF THE SELLING
SECURITYHOLDERS.
Each of the Selling Securityholders, severally and not jointly, represents
and warrants and covenants to the several Underwriters as of the date hereof and
as of each Closing Date hereinafter mentioned that:
(a) Such Selling Securityholder has valid title to the Shares to
be sold by such Selling Securityholder hereunder, free and clear of all liens,
encumbrances, equities, security interests and claims whatsoever, with full
right and authority to deliver the same hereunder, subject, in the case of each
Selling Securityholder, to the rights of _____________ , as Custodian (the
"Custodian"), and that upon the delivery of and payment for such Shares
hereunder, the
8.
<PAGE> 9
several Underwriters will receive good and marketable title thereto, free and
clear of all liens, encumbrances, equities, security interests and claims
whatsoever.
(b) Certificates in negotiable form for the Shares to be sold by
such Selling Securityholder have been placed in custody under a Custody
Agreement for delivery under this Agreement with the Custodian; such Selling
Securityholder specifically agrees that the Shares represented by the
certificates so held in custody for such Selling Securityholder are subject to
the interests of the several Underwriters and the Company, that the arrangements
made by such Selling Securityholder for such custody, including the Power of
Attorney provided for in such Custody Agreement, are to that extent irrevocable,
and that the obligations of such Selling Securityholder shall not be terminated
by any act of such Selling Securityholder or by operation of law, whether by the
death or incapacity of such Selling Securityholder (or, in the case of a Selling
Securityholder that is not an individual, the dissolution or liquidation of such
Selling Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur before the
delivery of such shares of the shares hereunder, certificates for the Shares
shall be delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such death, incapacity, dissolution, liquidation or
other event had not occurred, regardless of whether the Custodian shall have
received notice of such death, incapacity, dissolution, liquidation or other
event.
(c) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has not
independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder to believe that (i)
on the Effective Date, the Registration Statement contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, (ii) on the Effective Date the Prospectus contained and, on the Closing
Date and any later date on which Optional Shares are to be purchased contains,
any untrue statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(d) All information in the Registration Statement or the
Prospectus, or any amendment or supplement thereto, relating to such Selling
Securityholder (including, without limitation, the information relating to the
Selling Securityholder which is set forth in the Prospectus under the caption
"Principal and Selling Stockholders"), and all representations and warranties of
such Selling Securityholder in the Custody Agreement are true and correct in all
material respects and do not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the information in the light of the circumstances under which they were
made not misleading.
(e) Such Selling Securityholder has full power and authority to
enter into this Agreement and the Custody Agreement and perform the transactions
contemplated hereby and thereby. This Agreement and the Custody Agreement have
been duly authorized, executed and delivered by or on behalf of such Selling
Securityholder and the form of such Custody Agreement has been delivered to you.
9.
<PAGE> 10
(f) The making and performance of this Agreement and the Custody
Agreement and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation by such Selling Securityholder
of any of the terms or provisions of, or constitute a default by such Selling
Securityholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Securityholder is a party or by
which such Selling Securityholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Securityholder or any of
its properties.
(g) Such Selling Securityholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(h) Each of the Selling Securityholders agrees that during the
period of one hundred and eighty (180) days after the date of the Registration
Statement becomes effective, without the prior written consent of Volpe Brown
Whelan & Company, such Selling Securityholder will not (i) offer, sell, make any
short sale (including without limitation short against the box), pledge or
otherwise dispose of, directly or indirectly, any of the Company's Common Stock,
options to acquire Common Stock or securities convertible into or exchangeable
for or any other rights to purchase or acquire the Company's Common Stock
(including without limitation, Common Stock of the Company which may be deemed
to be beneficially owned in accordance with the rules and regulations of the
Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in (i) or
(ii) is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise; provided, however, that bona fide gift transactions and
transfers which will not result in any change in beneficial ownership may be
permitted if the transferee enters into a lock-up agreement in substantially the
same form covering the remainder of the lock-up period.
SECTION 3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject
to the terms and conditions herein set forth, the Company agrees to issue and
sell _____________ of the Firm Shares to the several Underwriters, each Selling
Securityholder agrees to sell to the several Underwriters the number of the Firm
Shares set forth in Schedule II opposite the name of such Selling
Securityholder, and each of the Underwriters agrees to purchase from the Company
and the Selling Securityholders the respective aggregate number of Firm Shares
set forth opposite its name in Schedule I. The price at which such Firm Shares
shall be sold by the Company and the Selling Securityholders and purchased by
the several Underwriters shall be $___ per share. The obligation of each
Underwriter to the Company and each of the Selling Securityholders shall be to
purchase that number of Firm Shares which represents the same proportion of the
total number of Firm Shares to be sold by each of the Company and the Selling
Securityholders pursuant to this Agreement as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto represents of
the total number of shares of the Firm Shares to be purchased by
10.
<PAGE> 11
all Underwriters pursuant to this Agreement, as adjusted by you in such manner
as you deem advisable to avoid fractional shares. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraphs (b) and (c) of this Section 3, the agreement of each Underwriter is
to purchase only the respective number of shares of the Firm Shares specified in
Schedule I.
(b) If for any reason one or more of the Underwriters shall fail
or refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 9 or 10 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company or the Selling Securityholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of Shares which each non-defaulting Underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis to absorb the remaining shares and portion which
the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the non-defaulting Underwriters shall not be obligated to purchase
the portion which the defaulting Underwriter or Underwriters agreed to purchase
if the aggregate number of such Shares exceeds 10% of the total number of Shares
which all Underwriters agreed to purchase hereunder. If the total number of
Shares which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Securityholders shall have the right, within 24 hours
next succeeding the 24-hour period above referred to, to make arrangements with
other underwriters or purchasers satisfactory to you for purchase of such Shares
and portion on the terms herein set forth. In any such case, either you or the
Company and the Selling Securityholders shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
(7) business days after the date originally fixed as the Closing Date pursuant
to Section 5 in order that any necessary changes in the Registration Statement,
the Prospectus or any other documents or arrangements may be made. If neither
the non-defaulting Underwriters nor the Company and the Selling Securityholders
shall make arrangements within the 24-hour periods stated above for the purchase
of all of the Shares which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company or the Selling
Securityholders to any non-defaulting Underwriter and without any liability on
the part of any non-defaulting Underwriter to the Company or the Selling
Securityholders. Nothing in this paragraph (b), and no action taken hereunder,
shall relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company and the Selling Securityholders grant an option to the several
Underwriters to purchase, severally and not jointly, up to _____________
Optional Shares from the Company and the Selling Securityholders at the same
price per share as the Underwriters shall pay for the Firm Shares. Said option
may be
11.
<PAGE> 12
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or before
the forty-fifth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of Optional
Shares as to which the several Underwriters are exercising the option. Delivery
of certificates for the Optional Shares, and payment therefor, shall be made as
provided in Section 5 hereof. The number of Optional Shares to be purchased by
each Underwriter shall be the same percentage of the total number of Optional
Shares to be purchased by the several Underwriters as such Underwriter is
purchasing of the Firm Shares, as adjusted by you in such manner as you deem
advisable to avoid fractional shares.
SECTION 4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters
of the Shares to be purchased by them shall be as set forth in the Prospectus.
The Underwriters may from time to time change the public offering price after
the closing of the initial public offering and increase or decrease the
concessions and discounts to dealers as they may determine.
(b) The information (insofar as such information relates to the
Underwriters) set forth in the last paragraph on the front cover page and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Shares constitutes the only information furnished by
the Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
SECTION 5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the Optional
Shares (if the option granted by Section 3(c) hereof shall have been exercised
not later than 7:00 a.m., Palo Alto time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304, at 7:00 a.m., Palo Alto time, on the fourth business day after the date
of this Agreement, or at such time on such other day, not later than seven full
business days after such fourth business day, as shall be agreed upon in writing
by the Company, the Selling Securityholders and you. The date and hour of such
delivery and payment (which may be postponed as provided in Section 3(b) hereof)
are herein called the "Closing Date".
(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 a.m., Palo Alto time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Optional
Shares, and payment therefor, shall be made at the office of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304, at 7:00
a.m., Palo Alto time, on the third business day after the exercise of such
option.
(c) Payment for the shares purchased from the Company shall be
made to the Company or its order, and payment for the shares purchased from the
Selling Securityholders shall be made, in the discretion of the Underwriters, to
them or to the Custodian, for the account of the Selling Securityholders, in
each case by (i) one or more certified or official bank check or
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<PAGE> 13
checks in immediately available funds or (ii) federal funds wire transfer. Such
payment shall be made upon delivery of certificates for the shares to you for
the respective accounts of the several Underwriters (including without
limitation by "full-fast" electronic transfer by Depository Trust Company)
against receipt therefor signed by you. Certificates for the shares to be
delivered to you shall be registered in such name or names and shall be in such
denominations as you may request at least one business day before the Closing
Date, in the case of Firm Shares, and at least one business day prior to the
purchase thereof, in the case of the Optional Shares. Such certificates will be
made available to the Underwriters for inspection, checking and packaging at the
offices of agent of Volpe Brown Whelan & Company's clearing agent, Bear Sterns
Securities Corp., on the business day prior to the Closing Date or, in the case
of the Optional Shares, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Optional Shares are purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event
of (i) the request by the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
shares for sale in any jurisdiction, or (v) the receipt by the Company of notice
of the initiation or threatening of any proceeding for such purpose. The Company
will make every reasonable effort to prevent the issuance of such a stop order
and, if such an order shall at any time be issued, to obtain the withdrawal
thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed
13.
<PAGE> 14
copies of each of the foregoing (but without exhibits) so that one copy of each
may be distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you may
designate, as many copies of the Prospectus as you may reasonably request, and
(iii) thereafter from time to time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, likewise send to
the Underwriters as many additional copies of the Prospectus and as many copies
of any supplement to the Prospectus and of any amended prospectus, filed by the
Company with the Commission, as you may reasonably request for the purposes
contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
shares, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the initial
public offering of the shares by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the shares may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the shares in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company
will submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in
the qualification of the shares for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, in keeping such qualifications in good standing under said securities or
blue sky laws; provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will, from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for distribution of the
shares.
14.
<PAGE> 15
(g) During a period of five years commencing with the date hereof,
the Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) For a period of one year commencing with the date hereof, the
Company agrees, at the Company's expense, to cause the Company's regularly
engaged independent certified public accountants to review (but not audit) the
Company's financial statements in accordance with the procedures specified by
the American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement on Auditing Standards No. 71
"Interim Financial Information" for each of the three fiscal quarters prior to
the announcement of quarterly financial information, the filing of the Company's
Quarterly Report on Form 10-Q with the Commission and the mailing of quarterly
financial information to stockholders of the Company.
(j) The Company agrees to pay all costs and expenses incident to
the performance of their obligations under this Agreement, including all costs
and expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. ("NASD") of
the Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters and the persons designated by them of copies
of any Preliminary Prospectus and of the several documents required by paragraph
(c) of this Section 6 to be so furnished, (iii) the printing of this Agreement
and related documents delivered to the Underwriters, (iv) the preparation,
printing and filing of all supplements and amendments to the Prospectus referred
to in paragraph (d) of this Section 6, (v) the furnishing to you and the
Underwriters of the reports and information referred to in paragraph (g) of this
Section 6 and (vi) the printing and issuance of stock certificates, including
the transfer agent's fees. The Selling Securityholders will pay any transfer
taxes incident to the transfer to the Underwriters of the Shares being sold by
the Selling Securityholders.
(k) The Company agrees to reimburse you, for the account of the
several Underwriters, for blue sky fees and related disbursements (including
counsel fees and disbursements) paid by or for the account of the Underwriters
or their counsel in qualifying the shares under state securities or blue sky
laws. In addition, the Company agrees to reimburse you, for the account of the
several Underwriters, for the filing fee incurred in connection with the review
of the offering by the NASD.
(l) The Company hereby agrees that, without the prior written
consent of Volpe Brown Whelan & Company, the Company will not, for a period of
180 days following the date the Registration Statement becomes effective, (i)
offer, sell, contract to sell, make any short sale (including without limitation
short against the box), pledge, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any options to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or
15.
<PAGE> 16
acquire Common Stock. The foregoing sentence shall not apply to the shares to be
sold to the Underwriters pursuant to this Agreement.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the shares has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement responding to or commenting on such rumor,
publication or event.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7,
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the common law or otherwise,
and the Company and the Selling Securityholders jointly and severally agree to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof), or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus or the Prospectus or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that (1) the indemnity agreements of the Company and the
Selling Securityholders contained in this paragraph (a) shall not apply to any
such losses, claims, damages, liabilities or expenses if such statement or
omission was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or on
behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or
16.
<PAGE> 17
supplemented) was not sent or delivered to such person and the untrue statement
or omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented)
unless the failure is the result of noncompliance by the Company with paragraph
(c) of Section 6 hereof, and (3) each Selling Securityholder shall only be
liable under this paragraph with respect to (A) information pertaining to such
Selling Securityholder furnished by or on behalf of such Selling Securityholder
expressly for use in any Preliminary Prospectus or the Registration Statement or
the Prospectus or (B) facts that would constitute a breach of any representation
or warranty of such Selling Securityholder set forth in Section 2(b) hereof. The
indemnity agreements of the Company and the Selling Securityholders contained in
this paragraph (a) and the representations and warranties of the Company
contained in Section 1 hereof and of the Selling Securityholders contained in
Section 2 hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration Statement
on his own behalf or pursuant to a power of attorney, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, and the Selling Securityholders
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus or the omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading, if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of such indemnifying Underwriter for use in the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the shares.
(c) Each party indemnified under the provision of paragraphs (a)
and (b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party
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to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits
18.
<PAGE> 19
received by the Company and the Selling Securityholders on the one hand and the
Underwriters on the other shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the shares received
by the Company and the Selling Securityholders and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
shares. Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the shares purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not such Underwriter or any person who controls such Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(f) The liability of each Selling Securityholder for a breach of
such Selling Securityholder's representations and warranties contained in
Section 2 hereof and under the indemnity and reimbursement agreements contained
in the provisions of this Section 7 and Section 8 hereof shall be limited to an
amount equal to the product obtained by multiplying the
19.
<PAGE> 20
number of Shares sold by such Selling Securityholder pursuant to this Agreement
by the price per share set forth in Section 3(a) above. The Company and the
Selling Securityholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
SECTION 8. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a monthly basis the Underwriters for all reasonable legal and other
expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 8 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
SECTION 9. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders in accordance with Section 10, or if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred after the date of this Agreement (i) the engagement in
hostilities or an escalation of major hostilities by the United States or the
declaration of war or a national emergency by the United States on or after the
date hereof, (ii) any outbreak of hostilities or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, calamity, crisis or change in economic or political conditions
in the financial markets of the United States or the Company's industry sector
would, in the Underwriters' reasonable judgment, make the offering or delivery
of the shares impracticable, (iii) suspension of trading in securities generally
or a material adverse decline in value of securities generally on the New York
Stock Exchange, the American Stock Exchange, or The Nasdaq Stock Market, or
limitations on prices (other than limitations on hours or numbers of days of
trading) for securities on either such exchange or system, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of, or commencement of any proceeding or investigation
by, any court, legislative body, agency or other governmental authority which in
the Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 9, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; provided, however, that in the event of
any such termination the Company agrees to indemnify and the Company and the
Selling Securityholders agree to hold harmless the Underwriters from all costs
or expenses incident to the performance
20.
<PAGE> 21
of the obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (j) and (k) of Section 6 hereof.
SECTION 10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the shares shall be subject to
the performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Optional Shares are to be purchased, as the case may
be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the shares
hereunder and the validity and form of the certificates representing the shares,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Cooley Godward LLP, counsel for the Underwriters.
(c) You shall have received from Wilson Sonsini Goodrich & Rosati,
counsel for the Company and the Selling Securityholders and from Ormiston
Korfanta Dunbar & Holland P.L.L.C., patent counsel for the Company, opinions,
addressed to the Underwriters and dated the Closing Date, covering the matters
set forth in Annex A and Annex B hereto, and if Optional Shares are purchased at
any date after the Closing Date, additional opinions from such counsel,
addressed to the Underwriters and dated such later date, confirming that the
statements expressed as of the Closing Date in such opinions remain valid as of
such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct, and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading; (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment; (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development that would be reasonably
likely to result in a prospective material adverse change in or affecting the
business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the ordinary course of business, neither the Company nor any of its
subsidiaries has entered into any material transaction not referred to in the
Registration Statement in the form in which it originally became effective and
the Prospectus contained therein; (iv) the Commission has not issued any order
preventing or suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment thereto; no stop
order suspending the effectiveness of the Registration Statement has been
issued; and to the best knowledge of the respective signers, no proceedings for
that purpose have been instituted or are pending or contemplated under the
Securities Act; (v) there are not
21.
<PAGE> 22
any pending or known threatened legal proceedings to which the Company or any of
its subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed in
the Registration Statement and the Prospectus; (vi) there are not any
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as required;
and (vii) the representations and warranties of the Company herein are true and
correct in all material respects as of the Closing Date or any later date on
which Optional Shares are to be purchased, as the case may be.
(e) You shall have received on the Closing Date and on any later
date on which Optional Shares are purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers of
said certificate have carefully examined the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 10 are true and
correct.
(f) You shall have received on the Closing Date a certificate
signed by an attorney-in-fact pursuant to the Powers of Attorney, stating that
the representations and warranties of the Selling Securityholders herein are
true and correct in all material respects as of the Closing Date.
(g) You shall have received from Coopers & Lybrand, L.L.P., a
letter or letters, addressed to the Underwriters and dated the Closing Date and
any later date on which Optional Shares are purchased, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Securities Act and the applicable published rules and regulations thereunder
and based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (the "Original Letter"), but
carried out to a date not more than three (3) business days prior to the Closing
Date or such later date on which Optional Shares are purchased (i) confirming,
to the extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date, as the
case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company or any of its subsidiaries which, in your
sole judgment, makes it impractical or inadvisable to proceed with the public
offering of the shares or the purchase of the Optional Shares as contemplated by
the Prospectus.
(h) You shall have received from Coopers & Lybrand, L.L.P. a
letter stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at June 30, 1997, did not
disclose any weakness in internal controls that they considered to be material
weaknesses.
22.
<PAGE> 23
(i) Prior to the Closing Date, the shares to be issued and sold by
the Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Cooley Godward LLP, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company agrees to indemnify and the Company and the Selling
Securityholders agree to hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company and the
Selling Securityholders under this Agreement, including all costs and expenses
referred to in paragraphs (j) and (k) of Section 6 hereof, and (ii) if this
Agreement is terminated by you because of any refusal on the part of the Company
or the Selling Securityholders to perform any agreement herein, to fulfill any
of the conditions herein, or to comply with any provision hereof other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
SECTION 11. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the shares shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 11 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company agrees to indemnify and hold harmless the Underwriters from all
costs or expenses incident to the performance of the obligations of the Company
and the Selling Securityholders under this Agreement, including all costs and
expenses referred to in paragraphs (j) and (k) of Section 6 hereof.
SECTION 12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
23.
<PAGE> 24
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the shares from any of the several Underwriters.
SECTION 13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Volpe Brown Whelan &
Company, LLC, One Maritime Plaza, 11th Floor, San Francisco, California 94111,
Attention: Steven D. Piper, with a copy to Cooley Godward LLP, Five Palo Alto
Square, 3000 El Camino Real, Palo Alto, California 94306, Attention: Lana K.
Hawkins, Esq. and if to the Company, shall be mailed, telegraphed or delivered
to it at its office, 57777 Meeker Avenue, Boise, Idaho 83711, Attention: Karla
Rosa, with a copy to Wilson Sonsini Goodrich & Rosati, Professional Corporation,
650 Page Mill Road, Palo Alto, California 94304, Attention: Patrick J.
Schultheis, Esq.; and if to the Selling Securityholders, shall be mailed,
telegraphed or delivered to the Selling Securityholders in care of _____________
at _____________. All notices given by telegraph shall be promptly confirmed by
letter.
SECTION 14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the shares under this
Agreement; provided, however, that if this Agreement is terminated prior to the
Closing Date, the provisions of paragraphs (l) and (m) of Section 6 hereof shall
be of no further force or effect.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 16. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 17. GENERAL. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This
24.
<PAGE> 25
Agreement may be amended or modified, and the observance of any term of this
Agreement may be waived, only by a writing signed by the Company, the Selling
Securityholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Securityholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Securityholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action. Any action taken under this Agreement by
any of the Attorneys-in-fact will be binding on all of the Selling
Securityholders.
[intentionally left blank]
25.
<PAGE> 26
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon,
when confirmed and accepted by the Underwriters as evidenced by the signature of
Volpe Brown Whelan & Company, LLC below, it will become a binding agreement
among the Company and the several Underwriters, including you, all in accordance
with its terms.
Very truly yours,
EXTENDED SYSTEMS INCORPORATED
By:____________________________________
Title:_________________________________
THE SELLING SECURITYHOLDERS
LISTED ON SCHEDULE II
By:____________________________________
Attorney-in-fact
The foregoing Underwriting
Agreement is hereby confirmed
and accepted by us in San
Francisco, California as of
the date first above written.
VOLPE BROWN WHELAN & COMPANY, LLC
NEEDHAM AND COMPANY, INC.
Acting for ourselves and as
Representatives of the several
Underwriters named in the
attached Schedule A
By: Volpe Brown Whelan & Company, LLC
By:__________________________________
26.
<PAGE> 27
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
Volpe Brown Whelan & Company, LLC ............................
Needham and Company, Inc......................................
Total ............................................. ==========
I-1.
<PAGE> 28
SCHEDULE II
SELLING SECURITYHOLDERS
NUMBER OF
NAME AND ADDRESS SHARES
OF SELLING SECURITYHOLDERS TO BE SOLD
- -------------------------- ----------
Total .......................................... ===========
II-1.
<PAGE> 29
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF WILSON SONSINI GOODRICH & ROSATI
COUNSEL FOR THE COMPANY
AND THE SELLING SECURITYHOLDERS
(i) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign corporation
and in good standing in each state of the United States of America in which the
nature of its business or its ownership or leasing of property requires such
qualification (except where the failure to be so qualified would not have a
material adverse effect on the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole),
and has full corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; all the issued
and outstanding capital stock of each of the subsidiaries of the Company has
been duly authorized and validly issued and is fully paid and nonassessable, and
is owned by the Company free and clear of all liens, encumbrances and security
interests, and to such counsel's knowledge, no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in such
subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of
_____________ shares of Preferred Stock, $0.001 par value per share, of which
there are no shares issued or outstanding and _____________ shares of Common
Stock, $0.001 par value per share, of which there are, to our knowledge
_____________ shares issued and outstanding immediately prior to the Closing;
all of the outstanding shares of such capital stock (including the Firm Shares
and the Optional Shares issued, if any) have been duly authorized and validly
issued and are fully paid and nonassessable; any Optional Shares purchased after
the Closing Date have been duly authorized and, when issued and delivered to,
and paid for by, the Underwriters as provided in the Underwriting Agreement,
will be validly issued and fully paid and nonassessable; and no preemptive
rights of, or rights of refusal in favor of, stockholders exist with respect to
the Shares, or the issue and sale thereof, pursuant to the Certificate of
Incorporation or Bylaws of the Company and, to the knowledge of such counsel,
there are no contractual preemptive rights that have not been waived, rights of
first refusal or rights of co-sale which exist with respect to the Shares being
sold by the Selling Securityholders or the issue and sale of the Shares by the
Company;
(iii) the Registration Statement has become effective under the Securities
Act and, to such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement or suspending or preventing the use of the
Prospectus is in effect and no proceedings for that purpose have been instituted
or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
A-1
<PAGE> 30
(v) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to such counsel's knowledge accurately and adequately set
forth therein in all material respects or no response is required with respect
to such Items, and, to such counsel's knowledge, the description of the
Company's stock option plans and the options granted and which may be granted
thereunder and the options granted otherwise than under such plans set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to said plans and options to the extent required by the
Securities Act and the rules and regulations of the Commission thereunder;
(vi) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(vii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the Underwriting Agreement has been duly executed and delivered by
or on behalf of the Selling Securityholders and the Custody Agreement between
the Selling Securityholders and _____________, as Custodian, and the Power of
Attorney referred to in such Custody Agreement have been duly executed and
delivered by the several Selling Securityholders;
(ix) the Company has full corporate power and authority to enter into the
Underwriting Agreement and to sell and deliver the Shares to be sold by it to
the several Underwriters; the Underwriting Agreement is a valid and binding
agreement of the Company enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditor's rights
generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under federal and state securities laws (as
to which no opinion need be expressed);
(x) the Underwriting Agreement, the Custody Agreement and the Power of
Attorney are valid and binding agreements of each of the Selling Securityholders
enforceable in accordance with their terms except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and except with
respect to those provisions relating to indemnity or contribution for
liabilities under the Securities Act, as to which no opinion need be expressed,
and each Selling Securityholder has full legal right and authority to enter into
the Underwriting Agreement, the Custody Agreement and the Power of Attorney and
to sell, transfer and deliver in the manner provided in the Underwriting
Agreement the Shares sold by such Selling Securityholder hereunder;
(xi) the issue and sale by the Company of the Shares sold by the Company
as contemplated by the Underwriting Agreement will not violate the Certificate
of Incorporation or Bylaws of the Company or any of its subsidiaries, and will
not result in a breach of, or constitute
A-2.
<PAGE> 31
a default under, any agreement or instrument filed as an exhibit to the
Registration Statement or any applicable law or regulation, or so far as is
known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(xii) the transfer and sale by the Selling Stockholders of the Shares to
be sold by the Selling Stockholders as contemplated by the Underwriting
Agreement, the Power of Attorney and the Custody Agreement will not conflict
with, result in a breach of, or constitute a default under any agreement or
instrument known to such counsel to which any of the Selling Stockholders is a
party or by which any of the Selling Stockholders or any of their properties may
be bound, or any applicable law or regulation, or so far is known to such
counsel, order, writ, injunction or decree of any jurisdiction, court or
governmental instrumentality body;
(xiii) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xiv) upon payment for and delivery of the Shares to be sold by the
Selling Securityholders pursuant to the Underwriting Agreement with all
necessary endorsements, and assuming the Underwriters are acquiring such Shares
in good faith without notice of any adverse claim, the Underwriters will be the
owners of such Shares, free and clear of any adverse claim;
(xv) based, insofar as factual matters with respect to the Shares to be
sold by the Selling Securityholders are concerned, solely upon certificates of
the Selling Securityholders, the accuracy of which such counsel have no reason
to question, no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Shares by
the Underwriters and the clearance of the offering with the NASD; and
(xvi) the Shares will have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
Such opinion shall also include a statement to the effect that such
counsel has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company,
the Underwriters and counsel to the Underwriters at which the contents of the
Registration Statement and the Prospectus were discussed, and although such
counsel does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus, such counsel has no reason to believe that, as of its effective
date, the Registration Statement (except for the financial statements and
schedules and other financial and statistical data contained therein, as to
which such counsel need not express any belief) contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus (except as to the
A-3.
<PAGE> 32
financial statements and schedules and other financial and statistical data
contained therein, as to which such counsel need not express any belief) as of
its date contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as of the date
of the Closing, the Prospectus (except for the financial statements and
schedules and other financial and statistical data contained therein, as to
which such counsel need not express any belief) contains an untrue statement of
a material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinions may rely as to questions of law
not involving the laws of the United States or of the State of California, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel. In rendering the
opinions set forth above with respect to the Selling Securityholders, such
counsel may state that it has relied solely upon the representations and
warranties of the Selling Securityholders set forth in this Agreement and has
made no other investigation.
A-4.
<PAGE> 33
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF _____________________________
PATENT COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the Company in its
business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) such counsel have no reason to believe that the Registration
Statement or the Prospectus (A) contains any untrue statement of a material fact
with respect to patents, trade secrets, trademarks, service marks or other
proprietary information or materials owned or used by the Company, or the manner
of its use thereof, or any allegation on the part of any person that the Company
is infringing any patent rights, trade secrets, trademarks, service marks or
other proprietary information or materials of any such person or (B) omits to
state any material fact relating to patents, trade secrets, trademarks, service
marks or other proprietary information or materials owned or used by the
Company, or the manner of its use thereof, or any allegation of which such
counsel have knowledge, that is required to be stated in the Registration
Statement or the Prospectus or is necessary to make the statements therein not
misleading;
(ii) to the best of such counsel's knowledge there are no legal or
governmental proceedings pending relating to patent rights, trade secrets,
trademarks, service marks or other proprietary information or materials [of the
Company], and to the best of such counsel's knowledge no such proceedings are
threatened or contemplated by governmental authorities or others;
(iii) such counsel do not know of any contracts or other documents,
relating to governmental regulation affecting the Company or the Company's
patents, trade secrets, trademarks, service marks or other proprietary
information or materials of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the Registration
Statement or the Prospectus that are not filed or described as required;
(iv) to the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets, trademarks,
service marks or other proprietary information or materials, of others, and to
the best of such counsel's knowledge there are no infringements by others of any
of the Company's patents, trade secrets, trademarks, service marks or other
proprietary information or materials which in the judgment of such counsel could
affect materially the use thereof by the Company; and
(v) to the best of such counsel's knowledge, the Company owns or
possesses sufficient licenses or other rights to use all patents, trade secrets,
trademarks, service marks or other proprietary information or materials
necessary to conduct the business now being or proposed to be conducted by the
Company as described in the Prospectus.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EXTENDED SYSTEMS INCORPORATED
Pursuant to Section 245 of the
General Corporation Law of the State of Delaware
Extended Systems Incorporated, a corporation organized and existing
under the laws of the State of Delaware, does hereby certify:
1. The name of the corporation is Extended Systems Incorporated
(the "Corporation"). The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
February 5, 1985.
2. The amendment and restatement of the Certificate of
Incorporation herein set forth has been duly adopted by the Corporation's Board
of Directors and stockholders pursuant to Section 242 of the General
Corporation Law of the State of Delaware ("Delaware Law").
3. The restatement herein set forth has been duly adopted
pursuant to Section 245 of the Delaware Law. This Amended and Restated
Certificate of Incorporation restates, integrates and further amends the
provisions of the Corporation's Certificate of Incorporation.
4. The text of the Certificate of Incorporation is hereby amended
and restated to read in its entirety as follows:
<PAGE> 2
"AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EXTENDED SYSTEMS INCORPORATED
ARTICLE ONE
The name of this corporation is EXTENDED SYSTEMS INCORPORATED (the
"Corporation").
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE THREE
The Corporation shall have perpetual existence, and the nature of the
business or purposes to be conducted or promoted by the Corporation is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware ("Delaware Law").
ARTICLE FOUR
Section 4.1 The Corporation is authorized to issue two classes of
stock to be designated respectively "Common Stock" and "Preferred Stock." The
total number of shares of Common Stock the Corporation shall have the authority
to issue is 75,000,000 shares, and the Common Stock shall have a par value of
$0.001 per share. The total number of shares of Preferred Stock the
Corporation shall have authority to issue is 5,000,000, and the Preferred Stock
shall have a par value of $0.001 per share.
Section 4.2 Effective upon the filing of this Amended and Restated
Certificate of Incorporation, each three (3) issued and outstanding shares of
Common Stock shall be automatically combined and reconstituted as two (2)
shares of Common Stock. No fractional shares shall be issued. In lieu thereof,
the Corporation shall pay to the holders otherwise entitled to such fractional
shares resulting from the reverse stock split, a sum of cash equal to the fair
market value of such fraction on the date of conversion.
Section 4.3 Any Preferred Stock not previously designated as to
series may be issued from time to time in one or more series pursuant to a
resolution or resolutions providing for such issue duly adopted by the Board of
Directors of the Corporation (the "Board") (authority to do so being hereby
expressly vested in the Board), and such resolution or resolutions shall also
set forth the voting powers, full or limited or none, of each such series of
Preferred Stock and shall fix the
-1-
<PAGE> 3
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions of each such
series of Preferred Stock. The Board is authorized to alter the designation,
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board originally
fixing the number of shares constituting any series of Preferred Stock, to
increase or decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any such series subsequent to the
issue of shares of that series.
Section 4.4 Each share of Preferred Stock issued by the Corporation,
if reacquired by the Corporation (whether by redemption, repurchase, conversion
to Common Stock or other means), shall upon such reacquisition resume the
status of authorized and unissued shares of Preferred Stock, undesignated as to
series and available for designation and issuance by the Corporation in
accordance with the immediately preceding paragraph.
Section 4.5 The Corporation shall from time to time in accordance
with the Delaware Law increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
ARTICLE FIVE
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing of such stockholders.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by
statute, the Board is expressly authorized to adopt, amend or repeal the Bylaws
of the Corporation.
ARTICLE SEVEN
Section 7.1 The number of directors which constitute the whole Board
shall be designated in the Bylaws of the Corporation.
Section 7.2 The directors shall be divided into three classes
designated as Class I, Class II and Class III, respectively. Directors shall
be assigned to each class in accordance with a resolution or resolutions
adopted by the Board. Each class shall consist, as nearly as may be possible,
of one-
-2-
<PAGE> 4
third of the total number of directors constituting the entire Board. The
current term of office of the Class I directors shall expire at the annual
meeting of stockholders in 1999 and Class I directors shall subsequently be
elected for a full term of three years. The current term of office of the
Class II directors shall expire at the annual meeting of stockholders in 2000
and Class II directors shall subsequently be elected for a full term of three
years. The initial term of office of the Class III directors shall expire at
the annual meeting of stockholders in 1998 and Class III directors shall
subsequently be elected for a full term of three years. Thereafter, the term
of office of each class of directors shall be three years and directors shall
hold office until the annual meeting for the year in which their terms expire
and until their successors shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. If the number of directors is changed, any increase or decrease
in directorships shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office only until next election of directors
by the stockholders, but in no case will a decrease in the number of directors
shorten the term of any incumbent director.
Section 7.3 Elections of directors need not be by written ballot
unless a stockholder demands election by written ballot at the meeting and
before voting begins or unless the Bylaws of the Corporation shall so provide.
Section 7.4 Stockholders are not entitled to cumulate their votes
for directors.
Section 7.5 Vacancies created by newly created directorships,
created in accordance with the Bylaws of the Corporation, may be filled by the
vote of a majority, although less than a quorum, of the directors then in
office, or by a sole remaining director. Any director elected to fill a
vacancy shall hold office only until the next election of directors by the
stockholders.
ARTICLE EIGHT
Section 8.1 To the fullest extent permitted by the Delaware Law, as
the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
Section 8.2 The Corporation may indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate is or was a director,
officer, employee or agent of the Corporation or any predecessor of the
Corporation or serves or served at any other enterprise as a director, officer,
employee or agent at the request of the Corporation or any predecessor to the
Corporation.
-3-
<PAGE> 5
Section 8.3 Neither any amendment nor repeal of this Article Eight,
nor the adoption of any provision of this Corporation's Certificate of
Incorporation inconsistent with this Article Eight, shall eliminate or reduce
the effect of this Article Eight, in respect of any matter occurring, or any
action or proceeding accruing or arising or that, but for this Article Eight,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
ARTICLE NINE
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation."
-4-
<PAGE> 6
IN WITNESS WHEREOF, Extended Systems Incorporated has caused this
Restated and Amended Certificate of Incorporation to be signed by Steven D.
Simpson, its President and Chief Executive Officer and attested to by Robert G.
Hamlin, its Secretary, on January 22, 1998.
EXTENDED SYSTEMS INCORPORATED
A Delaware Corporation
By: /s/ Steven D. Simpson
--------------------------
Steven D. Simpson
President and Chief Executive
Officer
ATTEST:
By: /s/ Robert G. Hamlin
-------------------------------
Robert G. Hamlin
Secretary
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
EXTENDED SYSTEMS INCORPORATED
Effective as of
January 22, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I - CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE II - MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.3 SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . -2-
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . . . . . . . -2-
2.6 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.7 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.8 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.9 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . . . -3-
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS . . . . . . . . . -4-
2.12 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE . . . . . . . . . . . . . . . . . . . . -4-
2.14 INSPECTORS OF ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2.15 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
ARTICLE III - DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
3.2 NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . -6-
3.4 RESIGNATION AND VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . . . . . . . -7-
3.6 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
3.7 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
3.8 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
3.9 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
3.10 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
3.11 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . . . . . . -9-
3.13 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . -9-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.14 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . -10-
3.15 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
ARTICLE IV - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
4.1 COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
4.2 COMMITTEE MINUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
4.3 MEETINGS AND ACTION OF COMMITTEES . . . . . . . . . . . . . . . . . . . . . . -11-
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.4 REMOVAL AND RESIGNATION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . -12-
5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.6 CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.7 PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
5.8 VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
5.9 SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
5.10 TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
5.11 ASSISTANT SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
5.12 ASSISTANT TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
5.13 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . -14-
ARTICLE VI - INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . -15-
6.2 INDEMNIFICATION OF OTHERS . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
6.3 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
ARTICLE VII - RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
7.1 MAINTENANCE AND INSPECTION OF RECORDS . . . . . . . . . . . . . . . . . . . . -16-
7.2 INSPECTION BY DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
7.3 ANNUAL STATEMENT TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . -17-
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . . . . . . . . . -17-
ARTICLE VIII - GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
8.1 CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS . . . . . . . . . . . . . . -17-
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES . . . . . . . . . . . . . . . . . . . -17-
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
8.4 SPECIAL DESIGNATION ON CERTIFICATES . . . . . . . . . . . . . . . . . . . . . -18-
8.5 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
8.6 CONSTRUCTION; DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
8.7 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
8.8 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
8.9 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
8.10 TRANSFER OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
8.11 STOCK TRANSFER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
8.12 REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
ARTICLE IX - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
ARTICLE X - DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
ARTICLE XI - CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES . . . . . . . . . . . . . . . . . -21-
11.2 DUTIES OF CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
</TABLE>
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
EXTENDED SYSTEMS INCORPORATED
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of Extended Systems Incorporated (the
"Corporation") shall be in the City of Wilmington, County of New Castle, State
of Delaware. The name of the registered agent of the Corporation at such
location is the agent named in the Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") until changed by the Board
of Directors of the Corporation (the "Board").
1.2 OTHER OFFICES
The Board may at any time establish other offices at any place or
places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board. In the absence of any such
designation, stockholders' meetings shall be held at the Corporation's
principal office in Idaho.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board. In the absence of such designation, the
annual meeting of stockholders shall be held on the fourth Thursday of October
in each year at 5:00 p.m. However, if such day falls on a legal holiday, then
the meeting shall be held at the same time and place on the next succeeding full
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business day. At the meeting, directors shall be elected and any other proper
business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time and
for any purpose or purposes for which such meetings may lawfully be called,
only by (i) the Chairman of the Board, (ii) the President, (iii) a majority of
the Board, or (iii) the holders of a majority of the stock issued and
outstanding and entitled to vote thereat.
If a special meeting is called by any person or persons other than
the Chairman of the Board or the President or a majority of the Board, then the
request shall be in writing, stating the purpose or purposes of the meeting,
and such request shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Secretary. The Secretary
shall fix the date of the meeting to be held at such date and time as the
Secretary may fix, not less than 10 nor more than 60 days after the receipt of
the request, and shall cause notice to be promptly given to the stockholders
entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of
these Bylaws. If the Secretary shall neglect or refuse to fix the time and date
of such meeting and give notice thereof, the person or persons calling the
meeting may do so.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders of the Corporation shall be in
writing and shall be sent or otherwise given in accordance with Section 2.5 of
these Bylaws not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting. The
notice shall specify the place, date, and hour of the meeting, and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the Secretary or an assistant secretary or of the transfer agent
of the Corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum is not present or represented at any
meeting
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of the stockholders, then either (i) the chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the Certificate of Incorporation or
these Bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing of such stockholders.
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2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the Board does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed
by the stockholder and filed with the secretary of the Corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled
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to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.14 INSPECTORS OF ELECTION
In advance of any meeting of stockholders, the Board may appoint
inspectors of election, who need not be stockholders, to act at such meeting or
any adjournment thereof. If inspectors of election are not so appointed, the
chairman of any such meeting may, and upon the demand of any stockholder or
such person's proxy at the meeting and before voting begins shall, appoint
inspectors of election. The number of inspectors shall be either one or three,
as determined, in the case of inspectors appointed upon demand of a
stockholder, by stockholders present entitled to cast a majority of the votes
which all stockholders present are entitled to cast thereon. No person who is
a candidate for office shall act as inspector. In case any person appointed as
inspector fails to appear or fails or refuses to act, the vacancy may be filled
by appointment made by the Board in advance of the convening of the meeting, or
at the meeting by the chairman of the meeting.
If inspectors of election are appointed, they shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all
stockholders. If there be three inspectors of election, the decision, act or
certificate of a majority shall be effective in all respects as the decision,
act or certificate of all.
On request of the chairman of the meeting or of any stockholder or
such person's proxy, the inspectors shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate
of any fact found by them.
2.15 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and conduct of business.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the Board.
3.2 NUMBER OF DIRECTORS
The authorized number of directors shall be fixed from time to time by
resolution of a majority of the Board. No reduction of the authorized number of
directors shall have the effect of removing any director before that director's
term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, the directors shall
be divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board. The current term of office of the Class I
directors shall expire at the annual meeting of stockholders in 1999 and Class
I directors shall subsequently be elected for a full term of three years. The
current term of office of the Class II directors shall expire at the annual
meeting of stockholders in 2000 and Class II directors shall subsequently be
elected for a full term of three years. The initial term of office of the
Class III directors shall expire at the annual meeting of stockholders in 1998
and Class III directors shall subsequently be elected for a full term of three
years. Thereafter, the term of office of each class of directors shall be
three years and directors shall hold office until the annual meeting for the
year in which their terms expire and until their successors shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. If the number of directors is
changed, any increase or decrease in directorships shall be apportioned among
the classes so as to maintain the number of directors in each class as nearly
equal as possible, and any additional directors of any class elected to fill a
vacancy resulting from an increase in such class shall hold office only until
next election of directors by the stockholders, but in no case will a decrease
in the number of directors shorten the term of any incumbent director.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
President or Secretary. When one or more directors so resigns and the
resignation is effective at a future date, a majority of the
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directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the filling of other
vacancies.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the Certificate of Incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the Certificate of Incorporation or these
Bylaws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of
Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as
aforesaid, which election shall be governed by the provisions of Section 211 of
the General Corporation Law of Delaware as far as applicable.
A director elected or appointed to fill a vacancy shall serve until
the next annual meeting of stockholders or until a successor shall be elected
and qualified.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board may hold meetings, both regular and special, either within
or outside the State of Delaware.
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Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board, or any committee designated by the Board,
may participate in a meeting of the Board, or any committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected Board shall be held at such
time and place as shall be fixed by the vote of the stockholders at the annual
meeting and no notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a quorum shall
be present. In the event of the failure of the stockholders to fix the time or
place of such first meeting of the newly elected Board, or in the event such
meeting is not held at the time and place so fixed by the stockholders, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board, or as shall be
specified in a written waiver signed by all of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the Board may be held without notice at such time
and at such place as shall from time to time be determined by the board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the Chairman of the Board, the President, or any
two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
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3.9 QUORUM
At all meetings of the Board, a majority of the authorized number of
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board, except as may be otherwise specifically
provided by statute or by the Certificate of Incorporation. If a quorum is not
present at any meeting of the Board, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the Certificate of Incorporation or these Bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the Board, then the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of
the Board, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings
of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board shall have the authority to fix the compensation of
directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the Board and may be paid a fixed sum for attendance at each
meeting of the Board and/or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation
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therefore. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
3.14 APPROVAL OF LOANS TO OFFICERS
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board shall
approve, including, without limitation, a pledge of shares of stock of the
Corporation. Nothing in this section contained shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
3.15 REMOVAL OF DIRECTORS
Any director may be removed from office by the stockholders of the
Corporation only for cause and only by the affirmative vote of the holders of
two-thirds of the Common Stock outstanding and entitled to vote.
For purposes of the foregoing paragraph, "cause" shall mean (i)
continued willful failure to perform the obligations of a director, (ii) gross
negligence by the director, (iii) engaging in transactions that defraud the
Corporation, (iv) fraud or intentional misrepresentation, including falsifying
use of funds and intentional misstatements made in financial statements, books,
records or reports to stockholders or governmental agencies, (v) material
violation of any agreement between the director and the Corporation, (vi)
knowingly causing the Corporation to commit violations of applicable law
(including by failure to act), (vii) acts of moral turpitude or (viii)
conviction of a felony.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board may designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board to act at the
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meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, or in the
Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matter: (i) approving or adopting, or
recommending to the stockholders of the Corporation, any action or matter
expressly required by General Corporation Law of Delaware to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any bylaw of
the Corporation.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the Board when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those Bylaws as are necessary to substitute the committee and
its members for the Board and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the Board
and that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The Board may adopt rules for the government of any committee not
inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the Corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The Corporation may also have, at
the discretion of the Board, a chairman of the board, one or more assistant
vice presidents, assistant secretaries, assistant treasurers, and any such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these Bylaws. Any number of offices may be held by the same person.
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5.2 ELECTION OF OFFICERS
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be chosen by the Board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The Board may appoint, or empower the president to appoint, such other
officers and agents as the business of the Corporation may require, each of
whom shall hold office for such period, have such authority, and perform such
duties as are provided in these Bylaws or as the Board may from time to time
determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board at any regular or special meeting
of the board or, except in the case of an officer chosen by the Board, by any
officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the Corporation shall be filled
by the Board.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board and exercise and perform such other
powers and duties as may from time to time be assigned to him by the Board or
as may be prescribed by these Bylaws. If there is no president, then the
Chairman of the Board shall also be the chief executive officer of the
Corporation and shall have the powers and duties prescribed in Section 5.7 of
these Bylaws.
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5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
Board to the Chairman of the Board, if there be such an officer, the President
shall be the chief executive officer of the Corporation and shall, subject to
the control of the Board, have general supervision, direction, and control of
the business and the officers of the Corporation. He shall preside at all
meetings of the shareholders and, in the absence or nonexistence of a chairman
of the board, at all meetings of the Board. He shall have the general powers
and duties of management usually vested in the office of president of a
Corporation and shall have such other powers and duties as may be prescribed by
the Board or these Bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the President, the vice presidents, if
any, in order of their rank as fixed by the Board or, if not ranked, a vice
president designated by the Board, shall perform all the duties of the
President and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board, these Bylaws, the President or
the Chairman of the Board.
5.9 SECRETARY
The Secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board required to be given by law or by these
Bylaws. He shall keep the seal of the Corporation, if one be adopted, in safe
custody and shall have such other powers and perform such other duties as may
be prescribed by the Board or by these Bylaws.
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5.10 TREASURER
The Treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Treasurer shall deposit all money and other valuables in the name
and to the credit of the Corporation with such depositaries as may be
designated by the Board. He shall disburse the funds of the Corporation as may
be ordered by the Board, shall render to the President and directors, whenever
they request it, an account of all of his transactions as treasurer and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board or these Bylaws.
5.11 ASSISTANT SECRETARY
The Assistant Secretary, or, if there is more than one, the Assistant
Secretaries in the order determined by the stockholders or Board (or if there
be no such determination, then in the order of their election) shall, in the
absence of the Secretary or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board or the
stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
The Assistant Treasurer, or, if there is more than one, the Assistant
Treasurers, in the order determined by the stockholders or Board (or if there
be no such determination, then in the order of their election), shall, in the
absence of the Treasurer or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board or the
stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from
time to time by the Board or the stockholders.
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ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (i) who is or
was a director or officer of the Corporation, (ii) who is or was serving at the
request of the Corporation as a director or officer of another Corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The Corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the Corporation
(other than a director or officer) includes any person (i) who is or was an
employee or agent of the Corporation, (ii) who is or was serving at the request
of the Corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was an employee or agent
of a corporation which was a predecessor corporation of the Corporation or of
another enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
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ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive office or at
such place or places as designated by the Board, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A "proper purpose" shall
mean a purpose reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed to
the Corporation at its registered office in Delaware or at its principal place
of business.
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court of Chancery may
summarily order the Corporation to permit the director to inspect any and all
books and records, the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court of Chancery may, in its discretion, prescribe
any limitations or conditions with reference to the inspection, or award such
other and further relief as the Court of Chancery may deem just and proper.
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7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The Board shall present at each annual meeting, and at any special
meeting of the stockholders when called for by vote of the stockholders, a full
and clear statement of the business and condition of the Corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the President, any vice president, the
Treasurer, the Secretary or Assistant Secretary of the Corporation, or any
other person authorized by the Board or the President or a vice president, is
authorized to vote, represent, and exercise on behalf of the Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the Corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to
do so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the Board shall determine by resolution which
person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The Board, except as otherwise provided in these Bylaws, may authorize
any officer or officers, or agent or agents, to enter into any contract or
execute any instrument in the name of and on behalf of the Corporation; such
authority may be general or confined to specific instances. Unless so
authorized or ratified by the Board or within the agency power of an officer,
no officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the Corporation's stock shall be represented by
certificates, provided that the Board of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to
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shares represented by a certificate until such certificate is surrendered to
the Corporation. Notwithstanding the adoption of such a resolution by the
Board, every holder of stock represented by certificates and upon request every
holder of uncertificated shares shall be entitled to have a certificate signed
by, or in the name of the Corporation by the Chairman or Vice-Chairman of the
Board, or the President or a vice-president, and by the Treasurer or an
assistant treasurer, or the Secretary or an assistant secretary of the
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and canceled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal
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representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the Corporation, subject to any restrictions
contained in the Certificate of Incorporation, may declare and pay dividends
upon the shares of its capital stock pursuant to the General Corporation Law of
Delaware. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of
the Corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the Corporation shall end June 30 of each year or
such other date as may be fixed by resolution of the Board and may be changed
by the Board.
8.9 SEAL
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
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8.11 STOCK TRANSFER AGREEMENTS
The Corporation shall have power to enter into and perform any
agreement with any number of shareholders of any one or more classes of stock
of the Corporation to restrict the transfer of shares of stock of the
Corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the
General Corporation Law of Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the Corporation may be adopted,
amended or repealed by the stockholders entitled to vote; provided, however,
that the Corporation may, in its Certificate of Incorporation, confer the power
to adopt, amend or repeal bylaws upon the directors. The fact that such power
has been so conferred upon the directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the Board that the
Corporation should be dissolved, the Board, after the adoption of a resolution
to that effect by a majority of the whole Board at any meeting called for that
purpose, shall cause notice to be mailed to each stockholder entitled to vote
thereon of the adoption of the resolution and of a meeting of stockholders to
take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the Corporation
entitled to vote thereon votes for the proposed dissolution, then a certificate
stating that the dissolution has been authorized in accordance with the
provisions of Section 275 of the General Corporation Law of Delaware and
setting forth the names
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and residences of the directors and officers shall be executed, acknowledged,
and filed and shall become effective in accordance with Section 103 of the
General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the Corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution
consent in writing, either in person or by duly authorized attorney, to a
dissolution, no meeting of directors or stockholders shall be necessary. The
consent shall be filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such consent's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the Corporation shall be dissolved. If the consent is signed by an
attorney, then the original power of attorney or a photocopy thereof shall be
attached to and filed with the consent. The consent filed with the Secretary
of State of the State of Delaware shall have attached to it the affidavit of
the secretary or some other officer of the Corporation stating that the consent
has been signed by or on behalf of all the stockholders entitled to vote on a
dissolution; in addition, there shall be attached to the consent a
certification by the secretary or some other officer of the Corporation setting
forth the names and residences of the directors and officers of the
Corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may
appoint one or more persons to be custodians and, if the Corporation is
insolvent, to be receivers, of and for the Corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the Corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the Corporation that the required
vote for action by the Board cannot be obtained and the stockholders are unable
to terminate this division; or
(iii) the Corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
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11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the Corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED
BYLAWS
OF
EXTENDED SYSTEMS INCORPORATED
Certificate of Adoption by Secretary
The undersigned hereby certifies that he is the duly elected, qualified
and acting Secretary of Extended Systems Incorporated, a Delaware corporation
(the "Corporation"). The Secretary certifies that the foregoing Amended and
Restated Bylaws, comprising 22 pages, were duly adopted by the Board of
Directors of the Corporation as the Amended and Restated Bylaws of the
Corporation on December 18, 1997 and by the stockholders of the Corporation on
January 22, 1998.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Adoption of the Amended and Restated Bylaws on January 22, 1998.
/s/ Robert G. Hamlin
--------------------------------
Robert G. Hamlin
Secretary
<PAGE> 1
EXHIBIT 10.1
EXTENDED SYSTEMS INCORPORATED
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
_____________ by and between Extended Systems Incorporated, a Delaware
corporation (the "Company"), and ______________________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
the advancement of expenses to, Indemnitee to the maximum extent permitted by
law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of
such insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified and advanced expenses by the
Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to
have occurred if, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company acting in such capacity or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing more than 50%
of the total voting power represented by the Company's then outstanding Voting
Securities, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board
<PAGE> 2
of Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than
a merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series
of related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) References to the "Company" shall include, in addition
to Extended Systems Incorporated, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger to which
Extended Systems Incorporated, (or any of its wholly owned subsidiaries) is a
party which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting
or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(d) "Covered Event" shall mean any event or occurrence
related to the fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or
was serving at the request of the Company as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity.
(e) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is
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approved in advance by the Company, which approval shall not be unreasonably
withheld) of any Claim and any federal, state, local or foreign taxes imposed
on the Indemnitee as a result of the actual or deemed receipt of any payments
under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee
pursuant to Section 3 of Expenses in advance of the settlement of or final
judgement in any action, suit, proceeding or alternative dispute resolution
mechanism, hearing, inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or
firm of attorneys, selected in accordance with the provisions of Section 2(d)
hereof, who shall not have otherwise performed services for the Company or
Indemnitee within the last three years (other than with respect to matters
concerning the rights of Indemnitee under this Agreement, or of other
Indemnitees under similar indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director,
officer, employee, agent or fiduciary of the Company which imposes duties on,
or involves services by, such director, officer, employee, agent or fiduciary
with respect to an employee benefit plan, its participants or its
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in
this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions
of Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder
and under applicable law, which may include a member or members of the
Company's Board of Directors, Independent Legal Counsel or any other person or
body not a party to the particular Claim for which Indemnitee is seeking
indemnification.
(j) "Section" refers to a section of this Agreement unless
otherwise indicated.
(k) "Voting Securities" shall mean any securities of the
Company that vote generally in the election of directors.
2. Indemnification.
(a) Indemnification of Expenses. Subject to the provisions
of Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to
the fullest extent permitted by law if Indemnitee was or is or becomes a party
to or witness or other participant in, or is threatened to be made a party to
or witness or other participant in, any Claim (whether by reason of or arising
in part out of a Covered Event), including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses.
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(b) Review of Indemnification Obligations. Notwithstanding
the foregoing, in the event any Reviewing Party shall have determined (in a
written opinion, in any case in which Independent Legal Counsel is the
Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder
under applicable law, (i) the Company shall have no further obligation under
Section 2(a) to make any payments to Indemnitee not made prior to such
determination by such Reviewing Party, and (ii) the Company shall be entitled
to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for
all Expenses theretofore paid to Indemnitee to which Indemnitee is not entitled
hereunder under applicable law; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee is entitled to be
indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto
(as to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding
Effect. If any Reviewing Party determines that Indemnitee substantively is not
entitled to be indemnified hereunder in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by such
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and, subject to the provisions of Section 15, the Company hereby
consents to service of process and to appear in any such proceeding. Absent
such litigation, any determination by any Reviewing Party shall be conclusive
and binding on the Company and Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If
there has not been a Change in Control, any Reviewing Party shall be selected
by the Board of Directors, and if there has been such a Change in Control
(other than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such
Change in Control), any Reviewing Party with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnification of Expenses
under this Agreement or any other agreement or under the Company's Certificate
of Incorporation or Bylaws as now or hereafter in effect, or under any other
applicable law, if desired by Indemnitee, shall be Independent Legal Counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be entitled to be indemnified hereunder under applicable law
and the Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. Notwithstanding any other
provision of this Agreement, the Company shall not be required to pay Expenses
of more than one Independent Legal Counsel in connection with all matters
concerning a single Indemnitee, and such Independent Legal Counsel shall be the
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<PAGE> 5
Independent Legal Counsel for any or all other Indemnitees unless (i) the
Company otherwise determines or (ii) any Indemnitee shall provide a written
statement setting forth in detail a reasonable objection to such Independent
Legal Counsel representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any
other provision of this Agreement other than Section 10 hereof, to the extent
that Indemnitee has been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without prejudice, in defense of
any Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
(a) Obligation to Make Expense Advances. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts if
it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified therefore by the Company hereunder under applicable law, the
Company shall make Expense Advances to Indemnitee.
(b) Form of Undertaking. Any obligation to repay any
Expense Advances hereunder pursuant to a written undertaking by the Indemnitee
shall be unsecured and no interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The
parties agree that for the purposes of any Expense Advance for which Indemnitee
has made written demand to the Company in accordance with this Agreement, all
Expenses included in such Expense Advance that are certified by affidavit of
Indemnitee's counsel as being reasonable shall be presumed conclusively to be
reasonable.
4. Procedures for Indemnification and Expense Advances.
(a) Timing of Payments. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee pursuant
to this Agreement shall be made to the fullest extent permitted by law as soon
as practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such
written demand by Indemnitee is presented to the Company, except in the case of
Expense Advances, which shall be made no later than ten (10) business days
after such written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as
a condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for
which indemnification will or could be sought under this Agreement. Notice to
the Company shall be directed to the Chief Executive Officer of the Company at
the address shown on the signature page of this Agreement (or such other
address as the Company shall designate in writing to
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<PAGE> 6
Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement under applicable law, shall be a
defense to Indemnitee's claim or create a presumption that Indemnitee has not
met any particular standard of conduct or did not have any particular belief.
In connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder under applicable
law, the burden of proof shall be on the Company to establish that Indemnitee
is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by
the Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company shall
give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such Claim in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall
be entitled to assume the defense of such Claim with counsel approved by
Indemnitee (which approval shall not be unreasonably withheld) upon the
delivery to Indemnitee of written notice of the Company's election to do so.
After delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees or expenses of separate counsel
subsequently retained by or on behalf of Indemnitee with respect to the same
Claim; provided that, (i) Indemnitee shall have the right to employ
Indemnitee's separate counsel in any such Claim at Indemnitee's expense and
(ii) if (A) the employment of separate counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and
expenses of Indemnitee's separate counsel shall be Expenses for which
Indemnitee may receive indemnification or Expense Advances hereunder.
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<PAGE> 7
5. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, employee, agent or fiduciary, such change, to
the extent not otherwise required by such law, statute or rule to be applied to
this Agreement, shall have no effect on this Agreement or the parties' rights
and obligations hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any rights
to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware,
or otherwise. The indemnification and the payment of Expense Advances provided
under this Agreement shall continue as to Indemnitee for any action taken or
not taken while serving in an indemnified capacity even though subsequent
thereto Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for
a determination of the Company's right under public policy to indemnify
Indemnitee.
9. Liability Insurance. To the extent the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are provided to the most
favorably insured of the Company's directors, if Indemnitee is a director; or
of the Company's officers,
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<PAGE> 8
if Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated pursuant to the terms of this
Agreement:
(a) Excluded Action or Omissions. To indemnify or make
Expense Advances to Indemnitee with respect to Claims arising out of acts,
omissions or transactions for which Indemnitee is prohibited from receiving
indemnification under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or make
Expense Advances to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, counterclaim or
crossclaim, except (i) with respect to actions or proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Covered Events, (ii) in specific cases if the Board of Directors has approved
the initiation or bringing of such Claim, or (iii) as otherwise required under
Section 145 of the Delaware General Corporation Law, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
Expense Advances, or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by the Indemnitee with respect to any action instituted (i)
by Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part,
of the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the
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<PAGE> 9
same extent that the Company would be required to perform if no such succession
had taken place. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as a director, officer, employee, agent or
fiduciary (as applicable) of the Company or of any other enterprise at the
Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee
with respect to such action (including, without limitation, attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action,
unless as a part of such action a court having jurisdiction over such action
makes a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that each of the material assertions
made by Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of
Expense Advances hereunder with respect to such action. In the event of an
action instituted by or in the name of the Company under this Agreement to
enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be indemnified for all Expenses incurred by Indemnitee in defense
of such action (including without limitation costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action),
unless as a part of such action a court having jurisdiction over such action
makes a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that each of the material defenses
asserted by Indemnitee in such action was made in bad faith or was frivolous;
provided, however, that until such final judicial determination is made,
Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action.
14. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a
legal action within such two year period; provided, however, that if any
shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
15. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and signed for by the party addressed, on
the date of such delivery, or (ii) if mailed by domestic certified or
registered mail with postage prepaid, on the third business day after the date
postmarked. Addresses for notice to either party are as shown on the signature
page of this Agreement, or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be commenced, prosecuted and continued only in the
Court of Chancery of the
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State of Delaware in and for New Castle County, which shall be the exclusive
and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including without limitation each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
as applied to contracts between Delaware residents entered into and to be
performed entirely in the State of Delaware without regard to principles of
conflicts of laws.
19. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Company effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is
in writing signed by both the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed to be or shall constitute a waiver
of any other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth
the entire understanding between the parties hereto and supersedes and merges
all previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries or affiliated entities.
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IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
EXTENDED SYSTEMS INCORPORATED
By:________________________________
Name:______________________________
Title:_____________________________
Address: 5777 North Meeker Avenue
Boise, Idaho 83713
AGREED TO AND ACCEPTED BY
INDEMNITEE:
___________________________________
(signature)
Name:______________________________
Address:___________________________
___________________________
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<PAGE> 1
EXHIBIT 10.2
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Extended Systems Incorporated, a Delaware
corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
<PAGE> 2
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
A Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between locations of
the Company or between the Company, its Parent, any Subsidiary, or any
successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave
any Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
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<PAGE> 3
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the
Plan.
(s) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(t) "Option Exchange Program" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.
(u) "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or
Consultant.
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(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
13 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,600,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated); provided, however, that Shares that have actually
been issued under the Plan, whether upon exercise of an Option or Right, shall
not be returned to the Plan and shall not become available for future
distribution under the Plan, except that if Shares of Restricted Stock are
repurchased by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of
Service Providers.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted
hereunder as "performance-based compensation" within the meaning of Section
162(m) of the Code, the Plan shall be administered by a Committee of two or
more "outside directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee,
which committee shall be constituted to satisfy Applicable Laws.
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<PAGE> 5
(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options
and Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock
to be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or
Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options
longer than is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be
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<PAGE> 6
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary
or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase
Rights may be granted to Service Providers. Incentive Stock Options may be
granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of
Options:
(i) No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 750,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 250,000
Shares which shall not count against the limit set forth in subsection (i)
above.
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<PAGE> 7
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 13.
(iv) If an Option is cancelled in the same fiscal year
of the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon the date that the Company's registration statement for the
purpose of effecting the initial public offering of the Common Stock becomes
effective under the Securities Act of 1933, as amended. It shall continue in
effect for a term of ten (10) years unless terminated earlier under Section 15
of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided
in the Option Agreement. Moreover, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Option
Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by
the Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the
per Share exercise price shall be determined by the Administrator. In the case
of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
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<PAGE> 8
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied before
the Option may be exercised.
(c) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant.
Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable according to the terms of the
Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement. Unless the Administrator
provides otherwise, vesting of Options granted hereunder shall be tolled during
any unpaid leave of absence. An Option may not be exercised for a fraction of
a Share.
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<PAGE> 9
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii)
full payment for the Shares with respect to which the Option is exercised.
Full payment may consist of any consideration and method of payment authorized
by the Administrator and permitted by the Option Agreement and the Plan.
Shares issued upon exercise of an Option shall be issued in the name of the
Optionee or, if requested by the Optionee, in the name of the Optionee and his
or her spouse. Until the Shares are issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
Shares promptly after the Option is exercised. No adjustment will be made for
a dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period
of time as is specified in the Option Agreement to the extent that the Option
is vested on the date of termination (but in no event later than the expiration
of the term of such Option as set forth in the Option Agreement). In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Optionee's termination. If, on
the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert
to the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent
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<PAGE> 10
that the Option is vested on the date of death. In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee's termination. If, at the time of death,
the Optionee is not vested as to his or her entire Option, the Shares covered
by the unvested portion of the Option shall immediately revert to the Plan.
The Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under the
Optionee's will or the laws of descent or distribution. If the Option is not
so exercised within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares an Option previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to
be paid, and the time within which the offeree must accept such offer. The
offer shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Stock Purchase Right is exercised, except as provided
in Section 13 of the Plan.
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<PAGE> 11
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Optionee, only by the Optionee.
If the Administrator makes an Option or Stock Purchase Right transferable, such
Option or Stock Purchase Right shall contain such additional terms and
conditions as the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and Stock Purchase Right, and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but as to which no Options or Stock Purchase Rights have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee
to have the right to exercise his or her Option until ten (10) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has
not been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
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<PAGE> 12
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested
and exercisable for a period of fifteen (15) days from the date of such notice,
and the Option or Stock Purchase Right shall terminate upon the expiration of
such period. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger or sale of assets,
the option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain
stockholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of
any Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
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<PAGE> 13
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. The Plan shall be subject to approval by
the stockholders of the Company within twelve (12) months after the date the
Plan is adopted. Such stockholder approval shall be obtained in the manner and
to the degree required under Applicable Laws.
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<PAGE> 14
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number
-------------------------
Date of Grant
-------------------------
Vesting Commencement Date
-------------------------
Exercise Price per Share $
-------------------------
Total Number of Shares Granted
-------------------------
Total Exercise Price $
-------------------------
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:
-------------------------
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the total Shares subject to the
Option shall vest each month thereafter, subject to the Optionee continuing to
be a Service Provider on such dates.
<PAGE> 15
Termination Period:
This Option may be exercised for three months after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for one year after Optionee ceases to be a Service Provider.
In no event shall this Option be exercised later than the Term/Expiration Date
as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share
set forth in the Notice of Grant (the "Exercise Price"), subject to the terms
and conditions of the Plan, which is incorporated herein by reference. Subject
to Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery
of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall
be completed by the Optionee and delivered to Karla K. Rosa, Chief Financial
Officer of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
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<PAGE> 16
3. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with
the execution and delivery by the Optionee of the Security Agreement attached
hereto as Exhibit B. The Note shall bear interest at the "applicable federal
rate" prescribed under the Code and its regulations at time of purchase, and
shall be secured by a pledge of the Shares purchased by the Note pursuant to
the Security Agreement.
4. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
5. Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating
to this Option, as of the date of this Option, are set forth below. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS
OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax liability upon exercise of a NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.
If the Optionee is an
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<PAGE> 17
Employee or a former Employee, the Company will be required to withhold from
his or her compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(ii) Incentive Stock Option. If this Option qualifies
as an ISO, the Optionee will have no regular federal income tax liability upon
its exercise, although the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price
will be treated as an adjustment to alternative minimum taxable income for
federal tax purposes and may subject the Optionee to alternative minimum tax in
the year of exercise. In the event that the Optionee ceases to be an Employee
but remains a Service Provider, any Incentive Stock Option of the Optionee that
remains unexercised shall cease to qualify as an Incentive Stock Option and
will be treated for tax purposes as a Nonstatutory Stock Option on the date
three (3) months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at
least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (A) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (B) the difference between the
sale price of such Shares and the aggregate Exercise Price. Any additional
gain will be taxed as capital gain, short-term or long-term depending on the
period that the ISO Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii)
one year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of Idaho.
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<PAGE> 18
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING
SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee
has reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Administrator upon any questions
relating to the Plan and Option Agreement. Optionee further agrees to notify
the Company upon any change in the residence address indicated below.
OPTIONEE: EXTENDED SYSTEMS INCORPORATED
________________________________ ___________________________________
Signature By
________________________________ ___________________________________
Print Name Title
________________________________
Residence Address
________________________________
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<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
___________________________________
Spouse of Optionee
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<PAGE> 20
EXHIBIT A
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
EXERCISE NOTICE
Extended Systems Incorporated
5777 North Meeker Avenue
Boise, Idaho 83713
Attention: Karla K. Rosa
1. Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Extended Systems Incorporated (the
"Company") under and pursuant to the 1998 Stock Plan (the "Plan") and the Stock
Option Agreement dated _____________, 19___ (the "Option Agreement"). The
purchase price for the Shares shall be $_____________, as required by the
Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date of issuance, except as provided in Section 13
of the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may
suffer adverse tax consequences as a result of Purchaser's purchase or
disposition of the Shares. Purchaser represents that Purchaser has consulted
with any tax consultants Purchaser deems advisable in connection with the
purchase or disposition of the Shares and that Purchaser is not relying on the
Company for any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement
are incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings
and
<PAGE> 21
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Idaho.
Submitted by: Accepted by:
PURCHASER: EXTENDED SYSTEMS INCORPORATED
________________________________ ___________________________________
Signature By
________________________________ ___________________________________
Print Name Its
Address: Address:
_________________________________ Extended Systems Incorporated
_________________________________ 5777 North Meeker Avenue
_________________________________ Boise, Idaho 83713
_________________________________
___________________________________
Date Received
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<PAGE> 22
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between Extended
Systems Incorporated, a Delaware corporation ("Pledgee"), and
_________________________ ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1998 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note
and the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration
of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Idaho Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to
Pledgee, its successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal
sum of the Note secured hereby, together with interest thereon, at the time and
in the manner provided in the Note.
b. Encumbrances. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
c. Margin Regulations. In the event that Pledgee's Common
Stock is now or later becomes margin-listed by the Federal Reserve Board and
Pledgee is classified as a "lender" within the meaning of the regulations under
Part 207 of Title 12 of the Code of Federal Regulations
<PAGE> 23
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the
pledge any stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In
the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder
shall cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held
under the terms of this Security Agreement in the same manner as the Shares
pledged.
6. Default. Pledgor shall be deemed to be in default of the Note
and of this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in
the Option or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the Idaho
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be
that number of full Shares which bears the same proportion to the initial
number of Shares pledged hereunder as the payment of principal bears to the
initial full principal amount of the Note.
-2-
<PAGE> 24
8. Withdrawal or Substitution of Collateral. Pledgor shall not
sell, withdraw, pledge, substitute or otherwise dispose of all or any part of
the Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
stock shall be promptly delivered to Pledgor, subject to the provisions for
prior release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for
the property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due
and payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of Idaho.
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" ___________________________________
Signature
___________________________________
Print Name
Address: ___________________________________
___________________________________
"PLEDGEE" Extended Systems Incorporated,
a Delaware corporation
___________________________________
Signature
___________________________________
Print Name
___________________________________
Title
"PLEDGEHOLDER" ___________________________________
Secretary of
Extended Systems Incorporated
-4-
<PAGE> 26
EXHIBIT C
NOTE
$_______________ Boise, Idaho
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to Extended Systems
Incorporated, a Delaware corporation (the "Company"), or order, the principal
sum of _______________________ ($_____________), together with interest on the
unpaid principal hereof from the date hereof at the rate of _______________
percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
___________________________________
___________________________________
<PAGE> 27
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the 1998 Stock Plan and the Restricted
Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are
made a part of this document. You further agree to execute the attached
Restricted Stock Purchase Agreement as a condition to purchasing any shares
under this Stock Purchase Right.
GRANTEE: EXTENDED SYSTEMS INCORPORATED
___________________________ _______________________________
Signature By
___________________________ _______________________________
Print Name Title
<PAGE> 28
EXHIBIT A-1
EXTENDED SYSTEMS INCORPORATED
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
a Service Provider, and the Purchaser's continued participation is considered
by the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the
Purchaser and the Purchaser hereby agrees to purchase shares of the Company's
Common Stock (the "Shares"), at the per Share purchase price and as otherwise
described in the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may
be paid by delivery to the Company at the time of execution of this Agreement
of cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider
for any or no reason (including death or disability) before all of the Shares
are released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option")
for a period of sixty (60) days from such date to repurchase up to that number
of shares which constitute the Unreleased Shares (as defined in Section 4) at
the original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) and,
at the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to
the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so
that the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the
aggregate Repurchase Price, the Company shall become the legal and beneficial
owner of the Shares being repurchased and all rights and interests therein or
relating thereto, and the Company shall have the right to retain and transfer
to its own name the number of Shares being repurchased by the Company.
<PAGE> 29
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or stockholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of
such Shares, then each such designee or assignee shall pay the Company cash
equal to the difference between the Repurchase FMV and the aggregate Repurchase
Price of such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares
shall be released from the Company's Repurchase Option one year after the Date
of Grant and __________________ percent (______%) of the Shares at the end of
each month thereafter, provided that the Purchaser does not cease to be a
Service Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 6).
5. Restriction on Transfer. Except for the escrow described in
Section 6 or the transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares or any beneficial interest
therein shall be transferred, encumbered or otherwise disposed of in any way
until such Shares are released from the Company's Repurchase Option in
accordance with the provisions of this Agreement, other than by will or the
laws of descent and distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit
A-4.
(b) The Escrow Holder shall not be liable for any act it may
do or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
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<PAGE> 30
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate
to be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all
the rights of a stockholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to
any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of
Shares and the purchase price of the Shares in this Agreement shall be
appropriately adjusted to reflect any stock split, stock dividend or other
change in the Shares which may be made by the Company after the date of this
Agreement.
9. Tax Consequences. The Purchaser has reviewed with the
Purchaser's own tax advisors the federal, state, local and foreign tax
consequences of this investment and the transactions contemplated by this
Agreement. The Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The
Purchaser understands that the Purchaser (and not the Company) shall be
responsible for the Purchaser's own tax liability that may arise as a result of
the transactions contemplated by this Agreement. The Purchaser understands
that Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"),
taxes as ordinary income the difference between the purchase price for the
Shares and the Fair Market Value of the Shares as of the date any restrictions
on the Shares lapse. In this context, "restriction" includes the right of the
Company to buy back the Shares pursuant to the Repurchase Option. The
Purchaser understands that the Purchaser may elect to be taxed at the time the
Shares are purchased rather than when and as the Repurchase Option
-3-
<PAGE> 31
expires by filing an election under Section 83(b) of the Code with the IRS
within 30 days from the date of purchase. The form for making this election is
attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO
MAKE THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules of Idaho. This Agreement,
subject to the terms and conditions of the Plan and the Notice of Grant,
represents the entire agreement between the parties with respect to the
purchase of the Shares by the Purchaser. Subject to Section 15(c) of the Plan,
in the event of a conflict between the terms and conditions of the Plan and the
terms and conditions of this Agreement, the terms and conditions of the Plan
shall prevail. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end
of this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal
remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF
SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT
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<PAGE> 32
OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES
AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,
FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR
THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER
AT ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: EXTENDED SYSTEMS INCORPORATED
______________________________ ___________________________________
Signature By
______________________________ ___________________________________
Print Name Title
-5-
<PAGE> 33
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto _________________________________________________
______________________________________________ (__________) shares of the
Common Stock of Extended Systems Incorporated standing in my name of the books
of said corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint ___________________
_________________________ to transfer the said stock on the books of the within
named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:_________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 34
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_____________, 19__
Corporate Secretary
Extended Systems Incorporated
5777 North Meeker Avenue
Boise, Idaho 83713
Dear _________________:
As Escrow Agent for both Extended Systems Incorporated, a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you
a written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number
of shares being transferred, and (c) to deliver same, together with the
certificate evidencing the shares of stock to be transferred, to the Company or
its assignee, against the simultaneous delivery to you of the purchase price
(by cash, a check, or some combination thereof) for the number of shares of
stock being purchased pursuant to the exercise of the Company's Repurchase
Option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer
of, the securities. Subject to the provisions of this paragraph 3, Purchaser
shall exercise all rights and privileges of a stockholder of the Company while
the stock is held by you.
<PAGE> 35
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by you
to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting
in good faith, and any act done or omitted by you pursuant to the advice of
your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case you obey or comply with any such order, judgment or decree,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with
your obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor.
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<PAGE> 36
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or
defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: Extended Systems Incorporated
5777 North Meeker Avenue
Boise, Idaho 83713
PURCHASER: ___________________________________
___________________________________
___________________________________
ESCROW AGENT: Corporate Secretary
Extended Systems Incorporated
5777 North Meeker Avenue
Boise, Idaho 83713
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not
become a party to the Agreement.
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<PAGE> 37
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the internal substantive laws, but
not the choice of law rules, of Idaho.
Very truly yours,
EXTENDED SYSTEMS INCORPORATED
___________________________________
By
___________________________________
Title
PURCHASER:
___________________________________
Signature
___________________________________
Print Name
ESCROW AGENT:
_____________________________________
Corporate Secretary
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<PAGE> 38
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement").
In consideration of the Company's grant to my spouse of the right to purchase
shares of Extended Systems Incorporated, as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, 19____
___________________________________
Signature of Spouse
<PAGE> 39
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross
income for the current taxable year the amount of any compensation taxable to
taxpayer in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: __________ shares (the "Shares") of the Common Stock of
Extended Systems Incorporated (the "Company").
3. The date on which the property was transferred is: ______________,
19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the
Shares based on the continued performance of services by the taxpayer
over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ __________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ __________________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.3
EXTENDED SYSTEMS INCORPORATED
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock
Purchase Plan of Extended Systems Incorporated.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Code. The provisions of the Plan, accordingly, shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. Definitions.
a. "Board" shall mean the Board of Directors of the Company.
b. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
c. "Common Stock" shall mean the Common Stock of the Company.
d. "Company" shall mean Extended Systems Incorporated and any
Designated Subsidiary of the Company.
e. "Compensation" shall mean all base straight time gross
earnings, but exclusive of payments for commission, overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
f. "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
g. "Employee" shall mean any individual who is an Employee of the
Company for tax purposes. For purposes of the Plan, the employment relationship
shall be treated as continuing intact while the individual is on sick leave or
other leave of absence approved by the Company. Where the period of leave
exceeds ninety (90) days and the individual's right to reemployment is not
guaranteed either by statute or by contract, the employment relationship shall
be deemed to have terminated on the ninety-first (91st) day of such leave.
h. "Enrollment Date" shall mean the first day of each Offering
Period.
i. "Exercise Date" shall mean the last day of each Purchase
Period.
<PAGE> 2
j. "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) if the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap
Market of The Nasdaq Stock Market, its Fair Market Value shall be
the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the
last market trading day prior to the date of determination, as
reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or
(ii) if the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported,
its Fair Market Value shall be the mean of the closing bid and
asked prices for the Common Stock on the last market trading day
prior to the date of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable;
or
(iii) in the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined
in good faith by the Board; or
(iv) for purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be
the initial price to the public as set forth in the final
prospectus included within the registration statement on Form S-1
filed with the Securities and Exchange Commission for the initial
public offering of the Company's Common Stock (the "Registration
Statement").
k. "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after June 30 and
December 31 of each year and terminating on the last Trading Day in the periods
ending twenty-four (24) months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or after
December 31, 1999.. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
l. "Plan" shall mean this Employee Stock Purchase Plan.
m. "Purchase Price" shall mean an amount equal to eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock on the
Enrollment Date or on the Exercise Date, whichever is lower.
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<PAGE> 3
n. "Purchase Period" shall mean the approximately six (6) month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
o. "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
p. "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than fifty percent (50%) of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
q. "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
a. Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
b. Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after June 30 and December 31 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or after
December 31, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
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<PAGE> 4
5. Participation.
a. An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A or A1, as applicable, to this Plan and filing it with the Company's
payroll office prior to the applicable Enrollment Date.
b. Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
c. Notwithstanding anything to the contrary contained herein, an
Employee's enrollment in the Plan shall also constitute enrollment in the
Company's 1998 Employee Stock Purchase Plan for Non-U.S. Employees (the
"International ESPP") as of the Enrollment Date of the current Offering Period
under the International ESPP. Such Employee's payroll deductions with respect to
the International ESPP prior to the effective date of a transfer of the Employee
to the Company or a Designated Subsidiary that results in the Employee ceasing
to be an Employee for U.S. tax purposes shall be zero percent (0%), and such
Employee's payroll deductions with respect to the International ESPP following
the effective date of the Employee's transfer may be at the same rate as the
Employee's rate of payroll deductions with respect to this Plan prior to such
transfer, or may be adjusted by the Employee pursuant to Section 6 of the
International ESPP. Such Employee's payroll deductions with respect to this Plan
shall be zero percent (0%) as of the effective date of such transfer.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
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<PAGE> 5
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
30,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall, in its discretion, either
(a) arrange the delivery to each participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his or her option, or (b)
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<PAGE> 6
credit the shares purchased to an account in the participant's name with a
brokerage firm selected by the Board to hold the shares in street name.
10. Withdrawal.
a. A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
b. A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason,
he or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
a. Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan shall be
700,000 shares, plus an annual increase to be added on each anniversary date of
the adoption of the Plan equal to the lesser of (i) the number of shares needed
to restore the maximum aggregate number of shares available for sale under the
Plan to 700,000, or (ii) an amount determined by the Board. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan,
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<PAGE> 7
the Company shall make a pro rata allocation of the shares remaining available
for purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
b. The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
c. Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
a. A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
b. Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
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<PAGE> 8
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
a. Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
b. Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
c. Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on
the New Exercise Date. The New Exercise Date shall be before the date of the
Company's proposed sale
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<PAGE> 9
or merger. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
20. Amendment or Termination.
a. The Board may, at any time and for any reason, terminate or
amend the Plan. Except as provided in Section 19 hereof, no such termination can
affect options previously granted, provided that an Offering Period may be
terminated by the Board on any Exercise Date if the Board determines that the
termination of the Plan is in the best interests of the Company and its
stockholders. Except as provided in Section 19 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain stockholder approval in such a
manner and to such a degree as required.
b. Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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<PAGE> 10
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE> 11
EXHIBIT A
EXTENDED SYSTEMS INCORPORATED
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
U.S. PARTICIPANTS
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________________ hereby elects to participate in the
Extended Systems Incorporated 1998 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
options.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Employee Stock Purchase
Plan. I understand that my ability to exercise the option under this
Subscription Agreement is subject to stockholder approval of the
Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):________
______________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within two (2) years after the Enrollment Date (the first day
of the Offering Period during which I purchased such shares) or one (1)
year after the Exercise Date, I will be treated for Federal income tax
purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value of
the shares at the time such shares were purchased by me over the price
which I paid for the shares. I hereby agree to notify the Company in
writing within thirty (30) days after the date of any disposition of my
shares and I will make adequate provision
-1-
<PAGE> 12
for Federal, state or other tax withholding obligations, if any, which
arise upon the disposition of the Common Stock. The Company may, but
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax
deductions or benefits attribu table to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the two (2)-year and one (1)-year holding periods, I
understand that I will be treated for Federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (a) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which
I paid for the shares, or (b) fifteen percent (15%) of the fair market
value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain. I understand that while the information set forth
in this paragraph is intended as a summary of the tax consequences in
connection with my participation in the Employee Stock Purchase Plan, I
am not relying on such information or the Company to provide me with any
tax advice. I further understand that I should consult with any tax or
legal advisors I deem necessary or advisable in connection with my
participation in the Employee Stock Purchase Plan.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)____________________________________________________
(First) (Middle) (Last)
_____________________________________ _______________________________
Relationship
_______________________________
(Address)
-2-
<PAGE> 13
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ____________________________________________
Signature of Employee
____________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE> 14
EXHIBIT B
EXTENDED SYSTEMS INCORPORATED
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
U.S. PARTICIPANTS
The undersigned participant in the Offering Period of the Extended
Systems Incorporated 1998 Employee Stock Purchase Plan which began on
____________, 19____ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:____________________________
-4-
<PAGE> 15
EXHIBIT A1
EXTENDED SYSTEMS, INCORPORATED
1998 EMPLOYEE STOCK PURCHASE PLAN FOR NON-U.S. EMPLOYEES
PARTICIPATION AGREEMENT
NON-U.S. EMPLOYEES
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the Extended Systems Incorporated 1998 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribes to purchase shares
of the Company's Common Stock in accordance with this Participation
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated in order
to exercise the option(s) granted to me pursuant to the Employee Stock
Purchase Plan and to purchase shares of Common Stock at the applicable
Purchase Price determined in accordance with the Employee Stock Purchase
Plan. I understand that if I do not withdraw from an Offering Period,
any accumulated payroll deductions will be used to automatically
exercise my option(s).
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Employee Stock Purchase
Plan. I understand that my ability to exercise the option under this
Participation Agreement is subject to stockholder approval of the
Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):________
_______________________________________________.
<PAGE> 16
6. I understand and acknowledge that notwithstanding any other provision of
this Participation Agreement or the Employee Stock Purchase Plan:
(a) neither the Employee Stock Purchase Plan nor this Participation
Agreement shall form any part of any contract of employment
between me and the Company or any Designated Subsidiary, and it
shall not confer on me any legal or equitable rights (other than
those constituting the options granted under the Employee Stock
Purchase themselves) against the Company or any Designated
Subsidiary, directly or indirectly, or give rise to any cause of
action in law or in equity against the Company or any subsidiary;
(b) my benefits under the Employee Stock Purchase Plan shall not form
any part of my wages, pay or remuneration or count as wages, pay
or remuneration for pension fund or other purposes;
(c) in no circumstances shall I, upon ceasing to hold my office or
employment by virtue of which I am eligible to participate in the
Employee Stock Purchase Plan, be entitled to any compensation for
any loss of any right or benefit or prospective right or benefit
under the Plan, which I might otherwise have enjoyed, whether
such compensation is claimed by way of damages for wrongful
dismissal or other breach of contract or by way of compensation
for loss of office or otherwise; and
(d) that the Company expressly retains the right to terminate the
Employee Stock Purchase Plan at any time and that I will have no
right to continued option grants under the Employee Stock
Purchase Plan in such event.
7. I represent that I have consulted with any tax advisors I deem necessary
or advisable in connection with my participation under the Employee
Stock Purchase Plan and that I am not relying on the Company for any tax
advice.
8. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Participation Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
9. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) __________________________________________________________
(First) (Middle) (Last)
-2-
<PAGE> 17
---------------------------- -----------------------------------
Relationship
-----------------------------------
(Address)
Employee's Social
Security Number (or
equivalent): ------------------------------------
Employee's Address: ------------------------------------
------------------------------------
------------------------------------
I UNDERSTAND THAT THIS PARTICIPATION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ ____________________________________________
Signature of Employee
____________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE> 18
EXHIBIT B1
EXTENDED SYSTEMS INCORPORATED
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
NON-U.S. EMPLOYEES
The undersigned participant in the Offering Period of the Extended
Systems Incorporated 1998 Employee Stock Purchase Plan which began on
___________ 19____ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Participation Agreement.
Name and Address of Participant:
------------------------------------
------------------------------------
------------------------------------
Signature:
------------------------------------
Date: ______________________________
<PAGE> 1
EXHIBIT 10.4
EXTENDED SYSTEMS INCORPORATED
1998 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1998 Director
Option Plan are to attract and retain the best available personnel for service
as Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Extended Systems Incorporated, a
Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and
of itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(h) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq Small Cap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
<PAGE> 2
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the date of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.
(i) "Inside Director" means a Director who is an
Employee.
(j) "Option" means a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" means the Common Stock subject to an
Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an
Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1998 Director Option Plan.
(p) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Internal
Revenue Code of 1986.
3. Stock Subject to the Plan. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 250,000 Shares of Common Stock (the "Pool").
The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. The provisions set forth in
this Section 4(a) shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. All grants of
2
<PAGE> 3
Options to Outside Directors under this Plan shall be automatic and
nondiscretionary and shall be made strictly in accordance with the following
provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option to purchase 15,000 Shares (the "First Option") on the date on
which the later of the following events occurs: (A) the effective date of this
Plan, as determined in accordance with Section 6 hereof, or (B) the date on
which such person first becomes an Outside Director, whether through election by
the stockholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically
granted an Option to purchase 7,500 Shares (a "Subsequent Option") on the date
of the Company's annual meeting of stockholders of each year provided he or she
is then an Outside Director and if as of such date, he or she shall have served
on the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any exercise of an Option granted before the Company has
obtained stockholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such stockholder approval of the Plan in
accordance with Section 16 hereof.
(v) The terms of a First Option granted hereunder
shall be as follows:
(A) the term of the First Option shall
be ten (10) years.
(B) the First Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall
be 100% of the Fair Market Value per Share on the date of grant of the First
Option. In the event that the date of grant of the First Option is not a
trading day, the exercise price per Share shall be the Fair Market Value on the
next trading day immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the
First Option shall be exercisable, in whole or in part, according to the
following vesting schedule: 33% of the total Shares subject to option shall vest
twelve months after the date of grant, and 1/36 of the Shares subject to the
First Option shall vest each month thereafter subject to the Optionee
continuing to be a Director.
3
<PAGE> 4
(vi) The terms of a Subsequent Option granted
hereunder shall be as follows:
(A) the term of the Subsequent Option
shall be ten (10) years.
(B) the Subsequent Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall
be 100% of the Fair Market Value per Share on the date of grant of the
Subsequent Option. In the event that the date of grant of the Subsequent
Option is not a trading day, the exercise price per Share shall be the Fair
Market Value on the next trading day immediately following the date of grant of
the Subsequent Option.
(D) subject to Section 10 hereof, the
Subsequent Option shall become vested and exercisable, in whole or in part, on
the first anniversary of the date of grant of the Subsequent Option, provided
that the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under
the Plan would cause the number of Shares subject to outstanding Options plus
the number of Shares previously purchased under Options to exceed the Pool,
then the remaining Shares available for Option grant shall be granted under
Options to the Outside Directors on a pro rata basis. No further grants shall
be made until such time, if any, as additional Shares become available for
grant under the Plan through action of the Board or the stockholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside
Directors. All Options shall be automatically granted in accordance with the
terms set forth in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the date of
the effectiveness that the Company's registration statement for the purpose of
effecting the initial public offering of the Common Stock becomes effective
under the Securities Act of 1933, as amended (the Securities Act"). It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of
payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in
the case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six (6) months on the date of surrender, and (y) have a
Fair Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which said Option shall be
4
<PAGE> 5
exercised, (iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price, or (v) any
combination of the foregoing methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
stockholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of
payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so
acquired shall be issued to the Optionee as soon as practicable after exercise
of the Option. No adjustment shall be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors
must comply with the applicable provisions of Rule 16b-3 promulgated under the
Exchange Act or any successor thereto and shall contain such additional
conditions or restrictions as may be required thereunder to qualify Plan
transactions, and other transactions by Outside Directors that otherwise could
be matched with Plan transactions, for the maximum exemption from Section 16 of
the Exchange Act.
(c) Termination of Continuous Status as a Director.
Subject to Section 10 hereof, in the event an Optionee's status as a Director
terminates (other than upon the Optionee's death or total and permanent
disability (as defined in Section 22(e)(3) of the Code)), the Optionee may
exercise his or her Option, but only within three (3) months following the date
of such termination, and only to the extent that the Optionee was entitled to
exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of such termination, and to the
extent that the Optionee does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.
5
<PAGE> 6
(d) Disability of Optionee. In the event Optionee's
status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration
of its ten (10) year term). To the extent that the Optionee was not entitled
to exercise an Option on the date of termination, or if he or she does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(e) Death of Optionee. In the event of an Optionee's
death, the Optionee's estate or a person who acquired the right to exercise the
Option by bequest or inheritance may exercise the Option, but only within
twelve (12) months following the date of death, and only to the extent that the
Optionee was entitled to exercise it on the date of death (but in no event
later than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of death, and to
the extent that the Optionee's estate or a person who acquired the right to
exercise such Option does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding Option,
and the number of Shares issuable pursuant to the automatic grant provisions of
Section 4 hereof shall be proportionately adjusted for any increase or decrease
in the number of issued Shares resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, to the extent that an
Option has not been previously exercised, it shall terminate immediately prior
to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of
the Company with or into another corporation or the sale of substantially all
of the assets of the Company, outstanding Options may
6
<PAGE> 7
be assumed or equivalent options may be substituted by the successor
corporation or a Parent or Subsidiary thereof (the "Successor Corporation").
If an Option is assumed or substituted for, the Option or equivalent option
shall continue to be exercisable as provided in Section 4 hereof for so long as
the Optionee serves as a Director or a director of the Successor Corporation.
Following such assumption or substitution, if the Optionee's status as a
Director or director of the Successor Corporation, as applicable, is terminated
other than upon a voluntary resignation by the Optionee, the Option or option
shall become fully exercisable, including as to Shares for which it would not
otherwise be exercisable. Thereafter, the Option or option shall remain
exercisable in accordance with Sections 8(c) through (e) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested
and exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger
or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares). If such consideration received in the merger or sale
of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger
or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in
Section 4, the Board may at any time amend, alter, suspend, or discontinue the
Plan, but no amendment, alteration, suspension, or discontinuation shall be
made which would impair the rights of any Optionee under any grant theretofore
made, without his or her consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act (or any other
applicable law or regulation), the Company shall obtain stockholder approval of
any Plan amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated.
12. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with Section 4
hereof.
7
<PAGE> 8
13. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, state
securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
14. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
16. Stockholder Approval. Continuance of the Plan shall be
subject to approval by the stockholders of the Company at or prior to the first
annual meeting of stockholders held subsequent to the granting of an Option
hereunder. Such stockholder approval shall be obtained in the degree and
manner required under applicable state and federal law.
8
<PAGE> 9
EXTENDED SYSTEMS INCORPORATED
DIRECTOR OPTION AGREEMENT
Extended Systems Incorporated, a Delaware corporation (the "Company"),
has granted to __________________________________________ (the "Optionee"), an
option to purchase a total of [ __________________ (_________)] shares of the
Company's Common Stock (the "Optioned Stock"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1998 Director Option Plan (the "Plan") adopted by
the Company which is incorporated herein by reference. The terms defined in
the Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is
not intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
(a) This Option shall become exercisable in installments
cumulatively with respect to [_________________________________________________
___________________________________________________________________] (100%) of
the Optioned Stock shall be exercisable 5 years after the date of grant;
provided, however, that in no event shall any Option be exercisable prior to the
date the stockholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such
written notice, in the form attached hereto as Exhibit A, shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the exercise price.
<PAGE> 10
4. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(iii) cash;
(iv) check; or
(v) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares
purchased over the exercise price paid for such Shares. Since the Optionee is
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended,
under certain limited circumstances the measurement and timing of such income
(and the commencement of any capital gain holding period) may be deferred, and
the Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of
such Shares by the Optionee, any difference between the sale
2
<PAGE> 11
price and the Fair Market Value of the Shares on the date of exercise of the
Option, to the extent not included in income as described above, will be
treated as capital gain or loss.
DATE OF GRANT: ______________
EXTENDED SYSTEMS INCORPORATED,
a Delaware corporation
By: _______________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Dated: _________________
___________________________________
Optionee
3
<PAGE> 12
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Extended Systems Incorporated
5777 North Meeker Avenue
Boise, Idaho 83713
Attention: Karla K. Rosa
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Extended Systems Incorporated (the "Company") under and pursuant
to the Company's 1998 Director Option Plan and the Director Option Agreement
dated _______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee
has received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the
Securities Act of 1933, as amended (the "1933 Act"), or unless an exemption
from such registration is available, and that the certificate(s) representing
the Shares may bear a legend to that effect. Optionee understands that the
Company is under no obligation to register the Shares and that an exemption may
not be available or may not permit Optionee to transfer Shares in the amounts
or at the times proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding
taxes required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by
reference. This Exercise Notice and the Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof.
1
<PAGE> 13
This Exercise Notice and the Agreement are governed by Idaho law except for
that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: EXTENDED SYSTEMS INCORPORATED
______________________________ By:________________________________
Its:_______________________________
Address:
Dated: _______________________ Dated:_____________________________
2
<PAGE> 1
EXHIBIT 10.5
EXTENDED SYSTEMS INCORPORATED
1994 INCENTIVE STOCK OPTION PLAN
1. Grant of Option. Extended Systems Incorporated, a Delaware
corporation, is hereby authorized by majority vote of its members of the Board
of Directors to issue stock options on the Corporation's behalf to any one or
more persons who, at the date of such grant, are regular employees of the
Corporation or its subsidiary. Any option granted under this plan shall be
granted after December 31, 1993, and before January 1, 2004. For purposes of
this Plan, regular employee means any regular full-time or regular part-time
employee.
2. Amount of Stock. The aggregate amount of stock which may be purchased
pursuant to options granted under this Plan shall be four million (4,000,000)
shares of the Corporation's common stock.
3. Limitation. The aggregate fair market value of stock (determined at
the time of the grant of option) with respect to which Incentive Stock Options
are exercisable for the first time by an employee in any calendar year shall not
exceed $100,000.00.
4. Exercise. Any option granted pursuant to this Plan shall contain
provisions setting forth the manner of exercise of such option. In no event,
however, shall any option granted hereunder be exercisable by its terms after
the expiration of ten (10) years from the date of the grant thereof. At the time
of exercise of an option the Corporation shall have the right and option of
paying to the option holder a sum in cash equal to the difference between the
option price of the stock and the appraisal price of the stock, in lieu of
issuance of shares of stock. For purposes of this provision, the appraisal price
shall be the latest appraisal made by an independent outside appraiser within
one hundred twenty (120) days prior to the date of the exercise of the option.
Provided, if the Corporation does not elect to pay the option holder such sum in
cash, then Corporation will loan to the option holder a sum sufficient to
exercise the option if the option holder is a regular full-time employee of the
Corporation. The loan shall be evidenced by a promissory note of the option
holder in the sum of the loan, with interest of the lowest percentage rate
prescribed by the Internal Revenue Service to prevent imputed interest, and due
and payable in monthly installments over five (5) years. The promissory note
shall be secured by a pledge of the shares purchased and shall be immediately
due and payable in full if the option holder ceases to be a regular employee of
the Corporation. The payments on the promissory note shall be paid by a payroll
deduction with the Corporation.
5. Nontransferability. The terms of any option granted under this Plan
shall include a provision making such option nontransferable by the optionee,
except upon death, and exercisable during the optionee's lifetime only by the
optionee.
6. Purchase Price. The purchase price for a share of the stock subject
to any option granted hereunder shall be not less than the fair market value.
7. Effective Date. This plan has been approved by the Corporation's
Shareholders. The effective date of this Plan is January 1, 1994.
8. Stock Reserve. The Corporation shall at all times during the term of
this Plan reserve and keep available such number of shares of its common stock
as will be sufficient to satisfy the requirements of this Plan.
9. Reclassification, Consolidation, or Merger. If and to the extent that
the number of issued shares of common stock of the Corporation shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like; the number of shares
subject to option
1
<PAGE> 2
and the option price per share shall be proportionately adjusted. If the
Corporation is reorganized or consolidated or merged with another corporation,
the number and option price of shares subject to options granted or to be
granted under this plan shall be proportionately adjusted.
10. Other Terms. Any option granted hereunder shall contain such other
and additional terms, not inconsistent with the terms of this Plan, which are
deemed necessary or desirable by the Board of Directors, and such other terms
shall include those which, together with the terms of this Plan, shall
constitute such option as an "Incentive Stock Option" within the meaning of
Section 422A of the Internal Revenue Code.
11. Eligibility. All regular employees of the Corporation shall be
eligible to participate in this Plan when approved by majority vote of the Board
of Directors. An employee who owns ten percent (10%) or more of the voting power
of all classes of the Corporation's stock may only be granted options under this
Plan in accordance with paragraph 12 hereof. The employment of the employee and
eligibility under this Plan shall continue while the employee is on military
leave, sick leave, or leave of absence not to exceed thirty (30) days. Except as
prohibited by federal law, if such leave exceeds thirty (30) days, the
eligibility under this Plan shall be suspended until the employee returns to
employment.
12. Eligibility for Employees Owning More than Ten Percent (10%) of the
Corporation Stock. The terms and conditions of this Plan shall apply to
employees owning more than ten percent (10%) of the Corporation's stock except
that the purchase price shall be not less than one hundred ten percent (110%) of
the fair market value and such option by its term is not exercisable after the
expiration of five (5) years from the date of grant.
13. Sale of Stock. If the employee desires or attempts to sell shares of
stock issued under this Agreement, the Corporation shall have the first right to
purchase said shares of stock at the current appraisal price. The current
appraisal price shall be the latest appraisal price determined by an independent
outside appraiser within one hundred twenty (120) days prior to the date of
sale. The Corporation shall have the right to purchase the shares at the current
appraisal price for a period of thirty (30) days after Shareholder gives
Corporation a written offer to sell.
14. Amendments. This Plan may be amended by a majority of the Board of
Directors unless the amendment relates to a change in the aggregate number of
shares to be issued under the Plan or an change in the class of employees
eligible to receive options as defined in Section 422A of the Internal Revenue
Code.
Approved by the Board of Directors on October 29, 1993, and approved by
the Stockholders on October 29, 1993.
Dated this 1st day of January, 1994.
/s/ Raymond Smelek
--------------------------------------
President
ATTEST:
/s/ Robert G. Hamlin
- --------------------------------
Secretary
2
<PAGE> 1
EXHIBIT 10.6
EXTENDED SYSTEMS INCORPORATED
AMENDED RESTRICTED STOCK OPTION PLAN
1. Purpose. This Plan is intended to provide nonqualified stock options
for the regular full-time employees and the directors of Extended Systems
Incorporated, a Delaware corporation, ("Corporation"), or any of its
subsidiaries. The stock options granted under this Plan shall be considered as
additional compensation to the employee-director receiving the stock option and
the value thereof shall be taxable as income to said employee-director at the
time the stock option is exercised or is canceled by the Corporation in
accordance with this agreement.
2. Term and Administration of Plan. This Plan shall become effective
upon approval by the Board of Directors and the Shareholders for the Corporation
and shall terminate as to the granting of new stock options on _______________,
19__, unless sooner terminated by resolution of the Board of Directors. Upon
termination of this Plan, such termination shall not affect outstanding stock
options which have not yet been exercised. This Plan shall be administered and
implemented by the Corporation.
3. Stock Subject to Plan. There is hereby established a Restricted Stock
Option Plan Reserve to which shall be allocated 2,500,000 shares of common
stock, par value $.10 per share, of the Corporation. If the shares of stock of
the Corporation should, as a result of a stock split or stock dividend or
combination of shares of any other change, or exchange for other securities, by
reclassification, reorganization, redesignation, merger, consolidation,
recapitalization or otherwise, be increased or decreased or changed into or
exchanged for a different number or kinds of shares of stock or other securities
of the Corporation or of another corporation, the number of shares of the then
remaining Reserve shall be appropriately adjusted to reflect such action.
4. Eligibility for Stock Option. The Corporation shall award stock
options under this Plan to regular full-time employees and directors of the
Corporation by entering into a Stock Option Agreement with said
employee-director specifically stating the number of shares of stock which may
be purchased under the Stock Option Agreement in accordance with the terms of
this Plan. In selecting employees or directors to whom stock options are to be
awarded and granted, the Corporation shall consider the value of their services
and shall consider the granting and awarding of the stock options to be
additional compensation to such employees-directors.
5. Purchase Price. The purchase price of stock under any Stock Option
granted under this Plan shall be the current appraised price of the shares of
stock as of the date of the award of the Stock Option or such other price as
determined by the Board of Directors. The current appraised price shall be
determined by an independent appraiser every quarter, provided a public market
does not exist for the stock. If a market price does exist, the options granted
will be at a price equal to the closing price on the day the option is granted.
The grant price of the shares of stock shall be included in the Stock Option
Agreement. The purchase price shall be due and payable in cash by the
employee/director at the time of the exercise of the stock option.
-1-
<PAGE> 2
6. Time of Exercise of Option. Unless otherwise provided by the Board of
Directors, any option granted under this Plan may not be exercised before the
first anniversary date of the Stock Option Agreement; and thereafter the Stock
Option may be exercised as to twenty percent (20%) of the shares represented
after the first anniversary date, twenty percent (20%) of the shares represented
after the second anniversary date, twenty percent (20%) of the shares
represented after the third anniversary date, twenty percent (20%) of the shares
represented after the fourth anniversary date, and the remaining twenty percent
(20%) of the shares represented after the fifth anniversary date of the Stock
Option Agreement. Provided, any option granted under this Plan shall terminate
ten (10) years after the date of the Stock Option Agreement unless exercised by
the employee/director by said date.
7. Restriction and Termination of Stock Options. Any stock option
granted under this Pan may be exercised only while the owner thereof is a
regular full-time employee or director of the Corporation or any of its
subsidiaries, unless the employment or directorship is terminated by reason of
death or permanent and total disability. Upon termination of employment or
directorship by any party and for any reason except death or permanent and total
disability of employee-director, any unexercised stock options of the
employee-director shall immediately and automatically terminate without payment
of any consideration to employee-director.
8. Nontransferability. Any option granted under this Plan shall be
nontransferable by the employee-director and any attempt to transfer such option
before its exercise shall be null and void.
9. Other Terms. Any stock option granted under this Plan may contain
such other additional terms and conditions, which are deemed necessary or
desirable by the Corporation.
10. Amendment. This Plan may be amended at any time by the Board of
Directors.
APPROVED by the Board of Directors and effective on September 1, 1987,
and amended by the Board of Directors at their meetings on September 28, 1990,
January 2, 1992, and April 26, 1994.
DATED this 26th day of April, 1994.
/s/ Raymond Smelek
----------------------------------
President
ATTEST:
/s/ Robert G. Hamlin
- ----------------------------
Secretary
-2-
<PAGE> 1
EXTENDED 10.7
EXTENDED SYSTEMS INCORPORATED
INCENTIVE STOCK OPTION PLAN
1. Grant of Option. Extended Systems Incorporated, a Delaware
corporation, is hereby authorized by majority vote of its members of the Board
of Directors to issue stock options on the Corporation's behalf to any one or
more persons who at the date of such grant are full time employees of the
Corporation or its subsidiary, Extended Systems Incorporated, an Idaho
corporation. Any option granted under this plan shall be granted before May 31,
1994.
2. Amount of Stock. The aggregate amount of stock which may be purchased
pursuant to options granted under this Plan shall be one million (1,000,000)
shares of the Corporation's common stock.
3. Limitation. The aggregate fair market value of stock (determined at
the time of the grant of option) with respect to which Incentive Stock Options
are exercisable for the first time by an employee in any calendar year shall not
exceed $100,000.00.
4. Exercise. Any option granted pursuant to this Plan shall contain
provisions setting forth the manner of exercise of such option. In no event,
however, shall any option granted hereunder be exercisable by its terms after
the expiration of ten (10) years from the date of the grant thereof. At the time
of exercise of an option the Corporation shall have the right and option of
paying to the option holder a sum in cash equal to the difference between the
option price of the stock and the appraisal price of the stock, in lieu of
issuance of shares of stock. For purposes of this provision, the appraisal price
shall be the latest appraisal made by an independent outside appraiser within
one hundred twenty (120) days prior to the date of the exercise of the option.
Provided, if the Corporation does not elect to pay the option holder such sum in
cash, then Corporation will loan to the option holder a sum sufficient to
exercise the option if the option holder is a regular full-time employee of the
Corporation. The loan shall be evidenced by a promissory note of the option
holder in the sum of the loan, with interest of the lowest percentage rate
prescribed by the Internal Revenue Service to prevent imputed interest, and due
and payable in monthly installments over five (5) years. The promissory note
shall be secured by a pledge of the shares purchased and shall be immediately
due and payable in full if the option holder ceases to be a full-time employee
of the Corporation. The monthly payments on the promissory note shall be paid by
a payroll deduction with the Corporation.
5. Nontransferability. The terms of any option granted under this Plan
shall include a provision making such option nontransferable by the optionee,
except upon death, and exercisable during the optionee's lifetime only by the
optionee.
6. Purchase Price. The purchase price for a share of the stock subject
to any option granted hereunder shall be not less than the fair market value.
7. Effective Date. This plan has been approved by the Corporation's
Shareholders. The effective date of this Plan is March 1, 1985.
8. Stock Reserve. The Corporation shall at all times during the term of
this Plan reserve and keep available such number of shares of its common stock
as will be sufficient to satisfy the requirements of this Plan, and shall pay
all fees and expenses necessarily incurred by the Corporation in connection with
the exercise of options granted hereunder.
-1-
<PAGE> 2
9. Reclassification, Consolidation, or Merger. If and to the extent that
the number of issued shares of common stock of the Corporation shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like; the number of shares
subject to option and the option price per share shall be proportionately
adjusted. If the Corporation is reorganized or consolidated or merged with
another corporation, the number and option price of shares subject to options
granted or to be granted under this plan shall be proportionately adjusted.
10. Other Terms. Any option granted hereunder shall contain such other
and additional terms, not inconsistent with the terms of this Plan, which are
deemed necessary or desirable by the Board of Directors, and such other terms
shall include those which, together with the terms of this Plan, shall
constitute such option as an "Incentive Stock Option" within the meaning of
Section 422A of the Internal Revenue Code.
11. Eligibility. All full-time employees of the Corporation shall be
eligible to participate in this Plan when approved by majority vote of the Board
of Directors. Provided, an employee who owns 10% or more of the voting power of
all classes of the Corporation's stock may not be granted options under this
Plan. The employment of the employee and eligibility under this Plan shall
continue while the employee is on military leave, sick leave, or leave of
absence not to exceed thirty (30) days. If such leave exceeds thirty (30) days,
the eligibility under this Plan shall be suspended until the employee returns to
employment.
12. Sales of Stock. If the employee desires or attempts to sell shares
of stock issued under this Agreement, the Corporation shall have the first right
to purchase said shares of stock at the current appraisal price. The current
appraisal price shall be the latest appraisal price determined by an independent
outside appraiser within one hundred twenty (120) days prior to the date of
sale. The Corporation shall have the right to purchase the shares at the current
appraisal price for a period of thirty (30) days after Shareholder gives
Corporation a written offer to sell.
Approved by the Board of Directors on March 1, 1985, and approved by the
Stockholders by Incorporation Agreement and Offer dated February 28, 1985, and
amended by the Board of Directors on March 15, 1987, September 28, 1990, and
January 2, 1992.
DATED this 2nd day of January, 1992.
/s/ Gary Atkins
------------------------------------
President
ATTEST:
/s/ Douglas B. Winterrowd
- --------------------------------
Secretary
-2-
<PAGE> 1
EXHIBIT 10.8
EXTENDED SYSTEMS
INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
AMENDED AND RESTATED
EFFECTIVE JULY 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION I - PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION II - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Account Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Administrative Committee . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Affiliated Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Annual Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Break In Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8 Benefit Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.11 Company Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.12 Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.13 Company Stock Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.14 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.15 Deferred Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.16 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.17 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.18 Entry Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.19 Other Investments Account . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.20 Exempt Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.21 Family Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.22 Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.23 Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.24 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.25 Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.26 Limitation Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.27 Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.28 PAYSOP Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.29 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.30 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.31 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.32 Qualified Election Period . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.33 Qualified Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.34 Qualified Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.35 Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.36 Total and Permanent Disability . . . . . . . . . . . . . . . . . . . . . . . 8
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2.37 Total Service for Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.38 Unallocated Stock Account . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.39 Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.40 Year of Service for Vesting . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION III - ELIGIBILITY TO PARTICIPATE . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Initial Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Subsequent Qualification Requirements for Plan Participation . . . . . . . . 10
3.3 Resumption of Participation . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Section 1042 Participation . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION IV - CONTRIBUTIONS TO THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Company Discretionary Contributions . . . . . . . . . . . . . . . . . . . . . 10
4.2 Manner of Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Permissible Types of Employer Contributions . . . . . . . . . . . . . . . . . 11
4.4 Interim Allocation to Unallocated Stock Account . . . . . . . . . . . . . . . 11
4.5 Return of Company Contributions to the Company . . . . . . . . . . . . . . . 11
SECTION V - ADMINISTRATION OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Allocations to Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Limitations on Allocations to Each Participant . . . . . . . . . . . . . . . 15
5.5 Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Participant Voting and Exercise of Stock Rights . . . . . . . . . . . . . . . 16
SECTION VI - VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Restoration of Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION VII - DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.1 Distribution of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.2 Method of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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7.3 Deferring Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.4 Suspense Account for Terminated Participants . . . . . . . . . . . . . . . . 19
7.5 Unable to Locate Participant or Beneficiary . . . . . . . . . . . . . . . . . 19
7.6 Options of Participants to Sell Stock . . . . . . . . . . . . . . . . . . . . 20
7.7 Distribution of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.8 Diversification of Investments . . . . . . . . . . . . . . . . . . . . . . . 21
7.9 Qualified Domestic Relations Orders . . . . . . . . . . . . . . . . . . . . . 22
SECTION VIII - DUTIES AND AUTHORITY OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Named Fiduciaries for Administration of Plan and for Investment and
Control of Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.4 Written Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Appointment of Investment Manager . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Removal and Resignation of the Trustee . . . . . . . . . . . . . . . . . . . 27
SECTION IX - DUTIES AND AUTHORITY OF ADMINISTRATIVE COMMITTEE . . . . . . . . . . . . . . . 27
9.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.2 No Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 Majority Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.4 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.5 Information to Participants . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.6 Compensation of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.7 Review of Participant's Claims . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION X - AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1 Rights to Suspend or Terminate Plan . . . . . . . . . . . . . . . . . . . . . 29
10.2 Successor Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.4 Termination of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.5 Plan Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . 30
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SECTION XI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1 Laws of Delaware to Apply . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2 Participant Cannot Transfer or Assign Benefits . . . . . . . . . . . . . . . 30
11.3 Right to Perform Alternative Acts . . . . . . . . . . . . . . . . . . . . . . 30
11.4 Reversion of Contributions Under Certain Circumstances . . . . . . . . . . . 31
11.5 Plan Administrator Agent for Service of Process . . . . . . . . . . . . . . . 31
11.6 Filing Tax Returns and Reports . . . . . . . . . . . . . . . . . . . . . . . 31
11.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION XII - EXEMPT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.2 Non-recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.3 Limitations on Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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EXTENDED SYSTEMS INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
Whereas, originally effective July 1, 1985, Extended Systems
Incorporated (the "Company" or "ESI") has hereby amended and restated the
Extended Systems Incorporated Employee Stock Ownership Plan ("Plan") to comply
with the requirements of the Internal Revenue Code of 1986, as amended;
Therefore, effective July 1, 1995, the Company hereby amends and
restates the Extended Systems Incorporated Employee Stock Ownership Plan on the
following terms:
SECTION I
PURPOSE
This Plan has been established and executed for the exclusive
benefit of the Participants hereunder and their Beneficiaries. The purpose of
this Plan is to enable participating Employees to provide for their future
security by sharing in the growth and prosperity of the Company. The Plan is
intended to do this without any deductions from Participants' paychecks and
without requiring them to invest their personal savings. The primary purpose
of the Plan is to enable Participants to acquire stock ownership interests in
ESI. Therefore, the Trust established under this Plan will be invested
primarily in Company Stock (as defined hereunder.)
This Plan shall be interpreted in a manner consistent with this
intent and with the intention of the Employer that this Plan satisfy Internal
Revenue Code Sections 401, 501 and 4975(e)(7). Under no circumstances shall
the Trust Fund ever revert to or be used or enjoyed by the Employer, except as
provided in Section 4.5.
SECTION II
DEFINITIONS
In the text of the Plan, whenever the context so indicates, the
singular or plural number and the masculine, feminine or neuter gender shall be
deemed to include the other, and the capitalized terms shall have the following
meanings:
2.1 Account:
One of several Accounts maintained to record the interest of a
Participant in the Plan.
2.2 Account Balance:
"Account Balance" means, as of any date, the amount credited to an
individual's Account as of the Valuation Date coincident with or
immediately preceding such date, plus any Company
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Contributions and Forfeitures and minus any withdrawals or
distributions made since such Valuation Date.
2.3 Administrative Committee:
The "Administrative Committee" shall refer to the Plan
Administrative Committee (defined in Section IX) appointed by the
Board of Directors of the Company.
2.4 Affiliated Employer:
"Affiliated Employer" shall mean the Employer and any corporation
which is a member of a controlled group of corporations (as defined
in IRC Section 414(b)) which includes the Employer; any trade or
business (whether or not incorporated) which is under common control
(as defined in IRC Section 414(c)) with the Employer; and
organization (whether of not incorporated) which is a member of an
affiliated service group (as defined in IRC Section 414(m)) which
includes the Employer; and any other entity required to be
aggregated with the Employer pursuant to regulations under IRC
Section 414(o).
2.5 Annual Additions
The aggregate of amounts credited to a Participant's Accounts each
year from Employer Contributions, Forfeitures, and a Participant's
voluntary contributions (if any) under all defined contribution
plans; provided, however, that Employer Contributions applied to the
payment of interest on a Securities Acquisition Loan and Forfeitures
of Company Stock purchased with the proceeds of a Securities
Acquisition Loan shall be excluded if no more than one third (1/3)
of the Employer Contribution for that year is allocated to the
Accounts of Highly Compensated Employees. Any amounts attributable
to postretirement medical benefits allocated to the account of a Key
Employee under any Welfare Benefit Plan, as defined in Section 419A
of the Code, shall be treated as an Annual Addition for purposes of
the dollar limitation on Annual Additions. A restored Forfeiture
(if any) shall not be counted as an "Annual Addition."
2.6 Beneficiary:
A "Beneficiary" is any person, estate or trust who by operation of
law, or under the terms of the Plan, or otherwise, is entitled to
receive any or all of the Participant's Account Balance under the
Plan. A "designated Beneficiary" is any individual designated or
determined in accordance with Section 5.5, except that it shall not
include any person who becomes a beneficiary by virtue of the laws
of inheritance or intestate succession.
2.7 Break In Service
A Plan Year during which a Participant has not completed more than
500 Hours of Service; provided, however, that for purposes of
Section III of the Plan, the eligibility computation period will be
used to measure Breaks in Service.
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2.8 Benefit Commencement Date:
"Benefit Commencement Date" means the date as of which a benefit is
paid or commences to be paid.
2.9 Code
The Internal Revenue Code of 1986, as amended from time to time.
2.10 Company
Extended Systems Incorporated.
2.11 Company Contributions:
"Company Contributions" means Company Discretionary Contributions.
2.12 Company Stock
Shares of capital stock issued by the Company, which shares must be
voting common stock (or preferred stock convertible into voting
common stock) and constitute "employer securities" under Section
409(l) of the Code.
2.13 Company Stock Account
The Account of a Participant which is credited with the shares of
Company Stock purchased and paid for by the Trust or contributed to
the Trust.
2.14 Compensation:
"Compensation" shall mean the following:
(a) In General:
Unless the Board elects otherwise in accordance with Code
Section 414(s) and regulations thereunder, "Compensation"
means the total amount paid to an Employee by the Company
for a Plan Year including: (i) salary, commissions, bonuses
and overtime (as they are required to be included in annual
calendar year compensation reported on Internal Revenue
Service Form W-2), (ii) Salary Deferrals and (iii) any
Salary Reduction Contribution made by the Employee to a
plan of a Participating Company during such Plan Year;
however, Compensation shall exclude any other employer
contributions to this Plan or to any other plan of deferred
compensation maintained by an Affiliated Company, amounts
realized from the exercise of a non-qualified stock option,
amounts realized when restricted stock is no longer subject
to substantial risk of forfeiture, amounts realized from
the disposition of a qualified stock option and all other
amounts which are excluded from the definition of
compensation under Treasury Regulation Section
1.415-2(d)(2).
(b) Determination of Highly Compensated Employees and Key
Employees:
For the purpose of determining Highly Compensated
Employees, the Top Paid Group and Officers, Compensation
shall be determined in accordance with the general
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<PAGE> 9
definition in paragraph (a) (unaltered by Board discretion)
but substituting "Affiliated Company" for "Company" where
it appears therein. For Plan Years beginning on or after
January 1, 1996, Compensation for determination of Highly
Compensated Employees shall not include Compensation earned
by Family Members.
(c) Company Discretionary Contributions and Forfeitures:
For the purpose of making Company Discretionary
Contributions and allocating Forfeitures, Compensation
means compensation as defined in paragraph (a).
(d) Determination of $150,000 Limit:
In applying paragraphs (a) and (c) above (but not paragraph
(b)) Compensation shall be limited to $150,000 or such
amount as may be prescribed under Code Section 415(d) by
the Secretary of the Treasury.
2.15 Deferred Retirement
Termination of service subsequent to attainment of the Normal
Retirement Date.
2.16 Employee:
An "Employee" is a common-law employee (other than a "student
employee" as defined in the 401(k) Plan) of the Company or who is on
an approved Leave of Absence, but shall not include a leased
employee described in IRC Section 414(n)(2). Directors of the
Company acting solely in that capacity shall not be Employees.
2.17 Employer:
The "Employer" shall mean Extended Systems Incorporated.
2.18 Entry Date
"Entry Date" shall be the last day of the Plan Year (June 30)
coincident with or following an Employee's completion of a Year of
Service.
2.19 Other Investments Account:
The "Other Investments Account" is the separate account maintained
under the ESOP for each Participant to which all Employer
contributions not made in Company stock shall be allocated and to
which Forfeitures shall be reallocated. The "Other Investments
Account" may be used to purchase Company Stock.
2.20 Exempt Loan:
"Exempt Loan" shall mean a loan to the Plan by a disqualified person
(as defined in IRC Section 4975(e)(2)) or a loan to the Plan which
is guaranteed by a disqualified person. Such loan includes a
direct loan of cash, a purchase-money transaction, and an assumption
of the obligation by the Plan. The Exempt Loan must satisfy the
provisions of Treasury Regulation Section 54.4975-7(b).
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<PAGE> 10
2.21 Family Member:
For Plan Years beginning before January 1, 1997, a "Family Member"
includes the spouse, lineal ascendants and descendants (and the
spouses of such lineal ascendants and descendants) of a 5% owner or
of a Highly Compensated Employee who is one of the 10 employees
receiving the greatest Covered Compensation from the Employer for
the Plan Year.
2.22 Forfeiture:
"Forfeiture" refers to the amount of non-vested Accrued Benefits in
a Participant's Other Investments Account which are reallocated to
other Participants in accordance with Section 7.4.
2.23 Highly Compensated Employee: For Plan Years beginning before
January 1, 1997, a "Highly Compensated Employee" means a highly
compensated active employee and a highly compensated former
employee. For this purpose, the determination year shall be the
Plan Year unless the Employer elects a calendar year. The look-back
year shall be the 12-month period immediately preceding the
determination year, or, if elected by the Employer, the calendar
year ending with or within the applicable determination year (or, in
the case of a determination year that is shorter than 12 months, the
calendar year ending with or within the 12-month period ending with
the end of the applicable determination year), or, if elected, the
calendar year immediately preceding the calendar year determination
year.
A highly compensated active employee includes any employee who
performs service for the Employer during the determination year and
who, during the look-back year: (i) received compensation from the
Employer in excess of $75,000 (as indexed); (ii) received
compensation from the Employer in excess of $50,000 (as indexed) and
was a member of the top-paid group for such year; or (iii) was an
officer of the Employer or an Affiliated Employer and received
compensation during such year that is greater than 50 percent of the
dollar limitation in effect under IRC Section 415(b)(1)(A). (If no
officer has satisfied the compensation requirement of (iii) above
during either a determination year or look-back year, the highest
paid officer for such year shall be treated as a highly compensated
employee.)
The term highly compensated active employee also includes: (i)
Employees who are both described in the preceding sentence if the
term "determination year" is substituted for the term "look-back
year" and the employee is one of the 100 employees who received the
most compensation from the Employer or Affiliated Employer during
the determination year; and (ii) Employees who are 5 percent owners
at any time during the look-back year or determination year.
A highly compensated former employee includes any employee who
separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer during
the determination year, and was a highly compensated active employee
for either the separation year or any determination year ending on
or after the employee's 55th birthday.
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<PAGE> 11
If an employee is, during a determination year or look-back year, a
Family Member of either a 5 percent owner who is an active or former
employee or a highly compensated employee who is one of the 10 most
highly compensated employees ranked on the basis of compensation
paid by the Employer or Affiliated Employer during such year, then
the Family Member and the 5 percent owner or top-ten highly
compensated employee shall be aggregated. In such case, the Family
Member and 5 percent owner or top-ten highly compensated employee
shall be treated as a single employee receiving compensation and
plan contributions or benefits, as applicable, equal to the sum of
such compensation and contributions or benefits, as applicable, of
the Family Member and 5 percent owner or top-ten highly compensated
employee.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of employees in the
top-paid group, the top 100 employees, the number of employees
treated as officers, and the compensation that is considered, will
be made in accordance with IRC Section 414(q) and the regulations
thereunder.
For Plan Years beginning after December 31, 1996, "Highly
Compensated Employee" shall mean any employee who (a) was a
5-percent owner at any time during the year or the preceding year or
(b) (i) had Compensation from the Employer in excess of $80,000 (as
adjusted), and (ii) if the Employer elects the application of this
clause for such preceding year, was in the top-paid group of
employees for such preceding year.
2.24 Hour of Service:
"Hour of Service" means:
(a) each hour for which an Employee is directly or indirectly
compensated or entitled to compensation from the Employer
for the performance of duties during the applicable
computation period;
(b) each hour for which an Employee is directly or indirectly
compensated or entitled to compensation from the Employer
(irrespective of whether the employment relationship has
terminated) for reasons other than performance of duties
(such as vacation, holidays, sickness, disability, lay-off,
military duty or Leave of Absence) during the applicable
computation period; and
(c) each hour for which back pay is awarded or agreed to by the
Employer, without regard to mitigation of damages.
Hours of Service will be credited for employment with other members
of an affiliated service group (under IRC Section 414(m)), a
controlled group of corporations (under IRC Section 414(b)), or a
group of trades or businesses under common control (under IRC
Section 414(c)) of which the Employer is a member or any other
entity required to be aggregated with the Employer pursuant to
regulations under IRC Section 414(o).
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<PAGE> 12
Hours of Service will also be credited for any individual considered
an Employee for purposes of this Plan under IRC Section 414(n).
Notwithstanding subparagraph (b) above, no more than 501 Hours of
Service are required to be credited to an Employee on account of any
single continuous period during which the Employee performs no
duties (whether or not such period occurs in a single computation
period), and an hour for which an Employee is directly or indirectly
paid, or entitled to payment, on account of a period during which no
duties are performed is not required to be credited to the Employee
if such payment is made or due under a plan maintained by the
Employer solely for the purpose of complying with applicable
worker's compensation, unemployment compensation or disability
insurance laws. In addition, Hours of Service are not required to
be credited hereunder for a payment which solely reimburses an
Employee for medical or medically related expenses incurred by the
Employee. The provisions of Sections 2530.200b-2(b) and (c) of the
Department of Labor Regulations are incorporated herein by
reference.
For purposes of this Section 2.24, a payment shall be deemed to be
made by or due from the Employer regardless of whether such payment
is made by or due from the Employer directly or indirectly through a
trust, fund or insurer to which the Employer contributes or pays
premiums.
2.25 Leave of Absence:
A "Leave of Absence" shall refer to that period during which the
Participant is absent without Compensation and for which the
Administrative Committee, in its sole discretion has determined him
to be on a "Leave of Absence" instead of having terminated his
employment. (However, such discretion of the Administrative
Committee shall be exercised in a nondiscriminatory manner.) In all
events, a Leave of Absence by reason of service in the armed forces
of the United States shall end no later than the time at which a
Participant's re-employment rights as a member of the armed forces
cease to be protected by law and a Leave of Absence for any other
reason shall end after 6 months, except that if the Participant
resumes employment with the Employer prior thereto, the Leave of
Absence shall end on such date of resumption of employment. The
date that the Leave of Absence ends shall be deemed the Termination
Date if the Participant does not resume employment with the
Employer. In determining a Year of Service for Accrual of Benefits,
all such Leaves of Absence shall be considered to be periods when
the Employee is a Participant.
2.26 Limitation Year:
"Limitation Year" means the Plan Year.
2.27 Normal Retirement Age:
The "Normal Retirement Age" shall be 65 years of age.
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<PAGE> 13
2.28 PAYSOP Account:
A Participant may have a PAYSOP Account which has been credited with
Employer PAYSOP Contributions for Plan Years beginning before
January 1, 1988 and with income/ loss credited to that Account.
2.29 Participant:
A "Participant" shall refer to every Employee or former Employee who
has met the applicable Participation requirements of Section III.
2.30 Plan:
"Plan" refers to this Employee Stock Ownership Plan and related
Trust Agreement.
2.31 Plan Year:
"Plan Year" shall mean the 12-month period ending each June 30,
which is the fiscal year of the Company.
2.32 Qualified Election Period:
"Qualified Election Period" shall mean the period of six Plan Years
beginning with the later of (i) the Plan Year after the Plan Year in
which the Participant attains age 55; or, (ii) the Plan Year after
the Plan Year in which the Participant first becomes a Qualified
Participant.
2.33 Qualified Company Stock
Company Stock which are issued by a domestic corporation that has no
securities outstanding that are readily tradable on an established
securities market, have been held for at least three years by the
seller and were not received by the seller in a distribution from a
Plan qualified under Section 401(a) or in a transfer pursuant to an
option or other right to acquire stock under Section 83, 422, 422A,
423 or 424 of the Code.
2.34 Qualified Participant:
"Qualified Participant" shall mean a Participant who has attained
age 55 and who has completed at least 10 years of participation in
the Plan.
2.35 Termination Date:
The "Termination Date" shall be the date on which the earliest of
the following events occurs: (a) a Participant's retirement, (b) a
Participant's termination of employment as a result of Total and
Permanent Disability, (c) a Participant's death, or (d) a
Participant's termination of employment for any other reason.
2.36 Total and Permanent Disability:
"Total and Permanent Disability" shall refer to the Participant
suffering from a physical or mental condition which in the sole
discretion of the Administrative Committee, based upon appropriate
medical reports and examinations, may be expected to result in death
or be of long
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<PAGE> 14
and indefinite duration and which renders the Participant incapable
of performing his customary duties for the Employer.
2.37 Total Service for Vesting:
"Total Service for Vesting" shall mean the sum of each separate Year
of Service for Vesting credited to the Participant; however, if the
Participant incurs at least 5 consecutive One Year Breaks in
Service, his Years of Service for Vesting rendered after such break
in service shall only be counted for purposes of determining his
vested benefits accruing after such break in service, not for
determining his vested benefits accruing before such break.
2.38 Unallocated Stock Account:
The Account used to hold Company Stock acquired with loan proceeds
pursuant to Section XII.
2.39 Year of Service:
A "Year of Service" means a Plan Year during which the Employee had
not less than 1,000 Hours of Service as an Employee of an Affiliated
Company. Notwithstanding the preceding sentence, for Plan Years
beginning before January 1, 1997, if the number of Employees who
have less than 1,000 but more than 500 Hours of Service as a
Participant for the Plan Year is such that the Plan would not
otherwise meet the requirements of IRC Section 401(a)(26) (generally
requiring the participation of the lesser of 50 employees or 40% of
the employees), then the 1,000 Hours of Service requirement of the
first paragraph of this Section will be reduced to 501 Hours of
Service, but only to the extent necessary to permit a sufficient
additional number of Employees to be credited with a Year of Service
for Accrual of Benefits to meet the requirements of IRC Section
401(a)(26). The Employees (or former Employees) so qualifying shall
be determined by first selecting the Employee with the highest
number of Hours of Service (less than 1,000) for the Plan Year and
continuing in descending order until a sufficient number of
Employees have qualified. Since Section III requires that an
individual be an Employee on the last day of the Plan Year, that
requirement shall be waived for purposes of this paragraph.
2.40 Year of Service for Vesting
A "Year of Service for Vesting" shall mean a Plan Year during which
the Employee had not less than 1,000 Hours of Service.
SECTION III
ELIGIBILITY TO PARTICIPATE
3.1 Initial Entry:
Every Employee who completed at least a Year of Service with the
Employer shall participate in the ESOP as of the last day of the
calendar quarter which first occurs on or after such completion,
provided that he is an Employee on such date. However, an Employee
shall not
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be eligible to participate in the Plan while covered by a collective
bargaining agreement between employee representatives and one or
more Employers, if retirement benefits were the subject of good
faith bargaining between such employee representatives and the
employer. In the event any Employee ceases to be subject to
collective bargaining, eligibility service shall include years
during which the Employee is covered by a collective bargaining
agreement after the effective date of the Plan.
3.2 Subsequent Qualification Requirements for Plan Participation:
Each remaining Employee shall become a Participant as of first day
of the Plan Year coinciding with or next following the date on
which such individual completes a 1,000 Hours of Service
(disregarding any service earned before a Break in Service) in a
Plan Year; provided he is an Employee on such date.
3.3 Resumption of Participation:
If a Participant incurs at least a One Year Break in Service, his
active participation in the Plan shall resume as of his reemployment
date. Such Participant will be readmitted to active participation
in the Plan retroactive to the beginning of such Year of Service for
Participation.
3.4 Section 1042 Participation:
To the extent that a Company shareholder sells Company Stock to the
Trust and elects nonrecognition of gain under Code Section 1042,
Code Section 409(n) shall apply to such sale of stock.
SECTION IV
CONTRIBUTIONS TO THE TRUST
4.1 Company Discretionary Contributions:
Subject to the rights of the Employer under Section IX, the Employer
may make a contribution to the Trust beginning with the first Plan
Year ending on or after the effective date of the Plan. The amount
of the contribution shall be discretionary with the Employer (but
shall not exceed the maximum amounts deductible under Sections
404(a)(3) and 404(a)(9) of the Code,) and shall be paid to the
Trustee on or before the time required by law for filing the
Employer's federal income tax return (including extensions) for the
year with respect to which the contribution is made. Employer
Contributions to the ESOP shall be made in sufficient amounts to
cover principal and interest on securities acquisition loan in
accordance with Section IX.
4.2 Manner of Allocation:
All ESOP Contributions made in cash by the Employer for any Plan
Year, and all ESOP Forfeitures, if any, during such year, shall be
allocated as of the last day of such year to the Other Investments
Account of each individual Participant, who is an Employee on the
last day of such Plan Year (except an Employee who terminated
employment before the last day of
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the Plan Year on account of death, Total and Permanent Disability,
or Retirement), and who has a Year of Service for Company
Contributions for the Plan Year. All ESOP Contributions made in
Company Stock by the Employer for any Plan Year, if any, during such
year, shall be allocated as of the last day of such year to the
Company Stock Account of each individual Participant, who is an
Employee on the last day of such Plan Year (except an Employee who
terminated employment before the last day of the Plan Year on
account of death, Total and Permanent Disability, or Retirement),
and who has a Year of Service for Company Contributions for the Plan
Year. The ESOP Contribution (both cash and/or Company Stock) will
be allocated in the same proportion that each such Participant's
Compensation for the Plan Year bears to the total Compensation of
all Participants for the Plan Year.
4.3 Permissible Types of Employer Contributions:
Payments on account of the contributions due from the Employer for
any year may be made in cash or in kind, specifically including
Company Stock; except that assets may not be contributed if such
contribution violates the prohibited transaction rules of IRC
Section 4975, or the corresponding rules under ERISA Section 406, if
applicable.
4.4 Interim Allocation to Unallocated Stock Account:
Company Stock when initially acquired by the Trustee pursuant to a
transaction described in Section XII, shall be credited to the
Unallocated Stock Account. The balance in the Unallocated Stock
Account shall be released in accordance with Section 5.3(b) and the
Company Stock so released shall be allocated as of the last day of
each Plan Year in accordance with Section 5.3(b).
4.5 Return of Company Contributions to the Company:
(a) Company Contributions are made to the Trust contingent upon
their deductibility by the Company (or an Affiliated
Company) under Code Section 404. Any such contribution
shall be returned by the Trustee to the Participating
Companies if:
(1) Such contribution exceeded the amount deductible by
an Affiliated Company for the taxable year, or
(2) Such contribution was made because of a reasonable
mistake as to the facts and circumstances existing
at such time, or
(3) Such contribution was conditioned on the initial
qualification of the Plan under Code Section 401(a)
and the Plan does not so qualify.
As soon as practicable following the return of funds to the
Participating Companies under this paragraph (a), the
portion of such funds attributable to Salary Deferrals
(plus earnings and minus losses thereon) shall be paid to
the individuals who made such Salary Deferrals.
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(b) Any return of Company Contributions or Salary Deferrals
under paragraph (a) shall be limited, as applicable, to:
(1) That portion in excess of the amount deductible by
an Affiliated Company for the taxable year, or
(2) That portion attributable to a reasonable mistake
of fact, or
(3) The total amount of such contributions plus
interest and earnings thereon if the Plan fails to
qualify.
Any such return must be made within one year of the date
such contributions were made.
SECTION V
ADMINISTRATION OF ACCOUNTS
5.1 Investments:
A Company Stock Account, an Other Investments Account, and a PAYSOP
Account may be maintained to reflect the interest of each
Participant under the Plan. The amounts allocated to the Other
Investments Accounts shall be invested by the Trustee in accordance
with Section 8.1(2)(D). The amounts allocated to the Company Stock
Account shall be invested by the Trustee in shares of Company Stock.
For Plan Years beginning after January 1, 1988, no additional
Employer Contributions shall be made to a Participant's PAYSOP
Account.
The Committee shall have the right to determine, from time to time,
the investment of all Accounts, including percentage increments in
which Accounts may be divided among investment funds and effective
dates of changes to such Accounts.
5.2 Accounts:
(a) Company Stock Account - The Company Stock Account
maintained for each Participant will be credited annually
with his allocable share of Company Stock (including
fractional shares) purchased and paid for by the Trust or
contributed in kind to the Trust as a Discretionary
Contribution, with any Forfeitures from Company Stock
Accounts and with any stock dividends on Company Stock
allocated to his Company Stock Account.
(b) Other Investments Account - The Other Investments Account
maintained for each Participant will be credited annually
with his allocable share of Company Contributions that are
not in the form of Company Stock, with any Forfeitures from
Other Investments Accounts, with any cash dividends on
Company Stock allocated to his Company Stock Account (other
than currently distributed dividends) and any net
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income (or loss) of the Trust. Such Account will be
debited for the Participant's share of any cash payments
made by the Trustee for the acquisition of Company Stock or
for the payment of any principal and/or interest on an
Acquisition Loan.
5.3 Allocations to Accounts:
(a) Discretionary Contributions and Forfeitures - Discretionary
Contributions under Section 4.1 and Forfeitures under
Section 7.4 from Company Stock Accounts and Other
Investments Accounts for each Plan Year will be allocated
as of the end of such Plan Year among the Company Stock
Accounts and Other Investments Accounts of Participants in
the ratio that the Compensation of each such Participant
bears to the total Compensation of all such Participants,
subject to the allocation limitations described in Section
5.4.
(b) Financed Shares - Any Financed Shares acquired by the Trust
shall initially be credited to a "Loan Suspense Account"
and will be allocated to the Company Stock Accounts of
Participants only as payments on the Acquisition Loan are
made by the Trustee. The number of Financed Shares to be
released from the Loan Suspense Account for allocation to
Participants' Company Stock Accounts for each Plan Year
shall be determined by the Trustee (as of the end of each
Plan Year) as follows:
(1) Principal/Interest Method - The number of Financed
Shares held in the Loan Suspense Account
immediately before the release for the current Plan
Year shall be multiplied by a fraction. The
numerator of the fraction shall be the amount of
principal and/or interest paid on the Acquisition
Loan for that Plan Year. The denominator of the
fraction shall be the sum of the numerator plus the
total payments of principal and interest on that
Acquisition Loan projected to be paid for all
future Plan Years. For this purpose, the interest
to be paid in future years is to be computed by
using the interest rate in effect as of the current
Plan Year.
(2) Principal Only Method - The Trustee may elect (as
to each Acquisition Loan) or the provisions of the
Acquisition Loan may provide for the release of
Financed Shares from the Loan Suspense Account
based solely on the ratio that the payments of
principal for each Plan Year bear to the total
principal amount of the Acquisition Loan. This
method may be used only to the extent that: (A) the
Acquisition Loan provides for annual payments of
principal and interest at a cumulative rate that is
not less rapid at any time than level annual
payments of such amounts for ten years; (B)
interest included in any payment on the Acquisition
Loan is disregarded only to the extent that it
would be determined to be interest under standard
loan amortization tables; and (C) the entire
duration of the Acquisition Loan repayment period
does not exceed ten years,
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even in the event of a renewal, extension or
refinancing of the Acquisition Loan.
In each Plan Year in which Trust Assets are applied to make
payments on an Acquisition Loan, the Financed Shares
released from the Loan Suspense Account in accordance with
the provisions of this Section 5.3 shall be allocated among
the Company Stock Accounts of Participants in the manner
determined by the Trustee based upon the source of funds
Employer Contributions (and earnings attributable thereto)
and cash dividends on Financed Shares allocated to
Participants' Company Stock Accounts or cash dividends on
Financed Shares credited to the Loan Suspense Account) used
to make the payments on the Acquisition Loan. If cash
dividends on Financed Shares allocated to a Participant's
Company Stock Account are used to make payments on an
Acquisition Loan, Financed Shares (representing that
portion of such payments and whose Fair Market Value is at
least equal to the amount of such dividends) released from
the Loan Suspense Account shall be allocated to that
Participant's Company Stock Account.
(c) Net Income (or Loss) of the Trust - The net income (or
loss) of the Trust for each Plan Year will be determined as
of the end of the Plan Year. Prior to the allocation of
Company Contributions, for the Plan Year, each
Participant's share of such net income (or loss) will be
allocated to his Other Investments Account in the ratio
that the balance of such Account as of the end of the
preceding Plan Year, reduced by any distribution of Capital
Accumulation from such Accounts during the Plan Year) bears
to the sum of such Account balances for all Participants as
of that date. Such net income (or loss) includes the
increase (or decrease) in the fair market value of Trust
Assets under the ESOP (other than Company Stock), interest
income, dividends and other income and gains (or losses)
attributable to such Trust Assets (other than any dividends
on allocated Company Stock) since the preceding Plan Year
end, reduced by any expenses charged to such Trust Assets
for that Plan Year. The determination of such net income
(or loss) shall not take into account any interest paid by
the Trust under an Acquisition Loan.
(d) Dividends on Company Stock - Any cash dividends received on
shares of Company Stock allocated to Participants' Company
Stock Accounts will be allocated to the respective Other
Investments Accounts of such Participants. Any cash
dividends received on unallocated shares of Company Stock
(including any Financed Shares credited to the Loan
Suspense Account) shall be included in the computation of
the net income (or loss) of the Trust attributable to the
ESOP Portion. Any stock dividends received on Company
Stock shall be credited to the Accounts (including the Loan
Suspense Account) to which such Company Stock was
allocated. Any cash dividends which are currently
distributed to Participants (or their Beneficiaries) under
Section 7.7 shall not be credited to their Other
Investments Accounts.
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5.4 Limitations on Allocations to Each Participant
Notwithstanding any other provision of this Plan the maximum annual
addition for any Plan Year which can be made to any individual
Participant's Employer and Participant accounts, taken together, is
the lesser of $30,000 (or, if greater, one-fourth of the defined
benefit dollar limitation set forth in IRC Section 415(b)(1) as in
effect for the Plan Year) or 25 percent of the Participant's
Compensation. For purposes of Subsections 5.4(a), (b), and (c) the
annual addition is the sum of the following amounts allocated to the
accounts of the individual Participant for the Plan Year of the
Trust (which shall be the limitation year for purposes of IRC
Section 415) under this and all other defined contribution type
plans maintained by the Employer:
(a) Employer contributions;
(b) Forfeitures (if applicable);
(c) Participant contributions;
(d) Amounts allocated to an individual medical account
(as defined in IRC Section 415(l)(2)) that is part
of a defined benefit plan maintained by the
Employer; and
(e) Amounts derived from contributions paid or accrued
after December 31, 1985, in taxable years ending
after such date, that are attributable to
post-retirement medical benefits allocated to the
separate account of a Key Employee (as defined in
IRC Section 419A(d)(3)) under a welfare benefit
fund (as defined in IRC Section 419(e)) maintained
by the Employer.
If Subsections 5.4(a), (b), and (c) limit the amount which can be
allocated to the Other Investments Account of any Participant for a
Plan Year, the excess amount which cannot be allocated for the Plan
Year shall be held in the suspense account to be allocated on the
last day of each succeeding Plan Year until the funds in the
suspense account have been completely reallocated. No further
Employer contributions may be made to the Plan until the suspense
account has been completely reallocated. No investment gains and
losses or other income shall be allocated to the suspense account.
5.5 Designation of Beneficiary:
Each Participant may designate from time to time in writing one or
more Beneficiaries, who will receive the Participant's vested
Accrued Benefit in the event of the Participant's death. If the
Participant dies without having made a Beneficiary designation, the
Trustee shall distribute such benefits in the following order of
priority to the deceased Participant's:
(a) spouse,
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<PAGE> 21
(b) lineal descendants,
(c) parents, or
(d) estate.
However, in the event of the death of a married Participant, the
surviving spouse must be the sole beneficiary unless the surviving
spouse has consented in writing to a different election, has
acknowledged the effect of such election, and the consent and
acknowledgment are witnessed by a member of the Administrative
Committee or a notary public.
5.6 Participant Voting and Exercise of Stock Rights:
(a) Each Participant shall be entitled to direct the Trustee in
confidence as to the manner in which any Company Stock
allocated to his Company Stock Account are to be voted with
respect to any corporate matter which involves the voting
of such shares allocated to the Participant's Company Stock
Account with respect to the approval or disapproval of any
corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such
similar transactions as may be prescribed in Treasury
regulations.
(b) The Trustee shall notify Participants at least 30 days (or
a lesser period if 30 days if impossible or impractical)
prior to the voting or other exercise of rights referred to
in this Section 5.6. The notice shall include all proxy
solicitations and other materials distributed to other
shareholders holding any of the shares of stock described
in this Plan as Company Stock.
(c) The Trustee shall vote any shares and exercise any other
rights with respect to applicable Company Stock in the
manner instructed by the Participant. The Trustee shall
not vote any shares and exercise any other rights with
respect to Company Stock as to which it receives no such
instructions (either because the Participant does not
timely give such instructions, or because the shares have
not yet been allocated to the Other Investments Accounts).
Shares of Company Stock held in the Unallocated Stock
Account shall be voted by the Trustee in his sole
discretion.
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SECTION VI
VESTING
6.1 Vesting:
(1) A Participant's interest in his Company Stock Account and
Other Investments Account shall become 100% vested and
nonforfeitable without regard to his Credited Service if he
(A) is employed by the Company on or after his 65th
birthday, (B) incurs a Disability while employed by the
Company, or (C) dies while employed by the Company.
(2) A Participant's interest in his PAYSOP Account (if any)
shall be 100% vested and nonforfeitable at all times.
(3) Except as otherwise provided in Section 10.4 (termination
of the Plan), the interest of a Participant in his Company
Stock Account and Other Investments Account shall become
100% vested and nonforfeitable after the Participant has
been credited with five (5) Years of Service for Vesting.
The Accrued Benefit of a Participant which is not vested as
above provided shall be retained by the Trustee for
allocation as a Forfeiture, in accordance with the
provisions of Section 7.4.
6.2 Restoration of Forfeitures:
If a Participant is less than 100% vested and he receives a
distribution from the Plan and forfeits part of his Accrued Benefit,
and then, if the Participant resumes employment with the Employer
before the occurrence of five consecutive One Year Breaks in
Service, until such time as there is a fifth consecutive One Year
Break in Service, the Participant's vested portion of the balance in
his account at any time shall be equal to an amount ("X") determined
by the formula X = P(AB + D) - D, where "P" is the vested percentage
of the Participant at such time, "AB" is the balance in the
Participant's account at such time and "D" is the amount distributed
as a severance of employment benefit and not previously repaid by
the Participant.
Notwithstanding the preceding paragraph, if the Participant returns
to employment prior to the time he incurs five consecutive One Year
Breaks in Service, he shall have his previously forfeited Accounts
restored. If an Employee is deemed to receive a distribution
pursuant to Section 7.1, and the Participant resumes employment
covered under the Plan before the date the Employee incurs 5
consecutive One Year Breaks in Service, upon the reemployment of
such Employee, the balance of the Participant's Accounts will be
restored to the amount on the date of such deemed distribution.
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SECTION VII
DISTRIBUTION OF BENEFITS
7.1 (a) Death, Disability or Retirement
In the event of death, Disability or Retirement,
distribution of a Participant's Accounts shall be
distributed in a single lump sum not later than one year
after the close of the Plan Year in which such event
occurs. If a Participant dies after the distribution of
his Plan Benefit has commenced, the remaining portion of
his Plan Benefit shall be distributed at least as rapidly
as under the method being used at the date of his death.
(b) Other Termination of Participation.
In the event a Participant terminates employment for
reasons other than death, Disability or Retirement, his
Accounts will be distributed in a single lump sum as soon
as possible after the close of the Plan Year in which he
incurs a one year Break in Service.
7.2 Method of Distribution:
Distribution of a Participant's Company Stock Account and Other
Investments Account may be made entirely in cash unless a
Participant elects to receive his distribution in the form of
Company Stock, in which case his Plan Benefit will be distributed in
the form of whole shares of Company Stock with the value of any
fractional shares paid in cash; provided, however, that if the
Company's charter or bylaws restrict ownership of substantially all
outstanding Company Stock to employees or to a trust under a
qualified plan under Section 401(a) of the Code, distribution of
Plan Benefits may be made entirely in cash.
Notwithstanding the foregoing provisions of this Section 7.2, the
Plan shall not be required to distribute any Employer Stock acquired
with the proceeds of a Securities Acquisition Loan until the close
of the Plan Year in which such Securities Acquisition Loan has been
repaid in full.
7.3 Deferring Distribution:
Notwithstanding the foregoing, effective for Plan Years beginning
between January 1, 1987 and January 1, 1996, at the request of a
Participant, the Committee may direct that the distribution be
deferred and commence not later than April 1 of the calendar year
following the calendar year in which such Participant attains age
70-1/2. If a Participant had attained age 70-1/2 prior to January
1, 1988 or for Plan Years beginning after December 31, 1996,
distributions must begin not later than April 1 of the calendar
year following the later of (i) the calendar year in which the
Participant attains age 70-1/2 or (ii) the calendar year in which
the Participant retires unless he was a five percent (5%) owner at
any time during the Plan Year (or calendar year). If a Participant
dies after the distribution of his Plan Benefit has commenced, the
remaining portion of his Plan Benefit shall be distributed at least
as rapidly as under the method being used at the date of his death.
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<PAGE> 24
Notwithstanding the foregoing, the Committee may, at the
request of a Participant, direct that the distribution of the
Participant's Plan Benefit be distributed in substantially equal
annual installments, plus net income (or loss), over a longer period
of years, provided that the period of installments may not exceed
his life expectancy or the joint life expectancy of the Participant
and his designated beneficiary, as determined annually under life
expectancy tables promulgated under Section 72 of the Code and
provided that if a Participant dies after the distribution of his
Plan Benefit has commenced, the remaining portion of his Plan
Benefit shall be distributed at least as rapidly as under the method
being used at the date of his death. The method of distribution
described in this paragraph shall not be construed as a Joint and
Survivor Annuity.
Notwithstanding anything in this Section 7.3 to the contrary, in the
event that the Plan Benefit of a Participant is distributed over the
joint life expectancy of the Participant and his designated
Beneficiary, the present value of benefits payable to such
Beneficiary shall not exceed forty-nine percent (49%) of the present
value of the total benefits payable to the Participant and his
Beneficiary.
7.4 Suspense Account for Terminated Participants:
If a Participant has terminated his employment but his Other
Investments Account is not 100 percent vested and he has not had 5
consecutive One Year Breaks in Service subsequent to his
termination, all funds in his Other Investments Account shall be
held in suspense until the happening of the earliest of the
following: (i) the Participant returning to employment with the
Employer, or (ii) the occurrence of 5 consecutive One Year Breaks in
Service with respect to the Participant, or (iii) the Participant
attaining Normal Retirement Age. At such time the Participant's
Accounts shall cease to be held in suspense. If a Participant has
returned to employment prior to incurring 5 consecutive One Year
Breaks in Service, his Other Investments Account which has been held
in suspense shall be restored to his credit. If 5 consecutive One
Year Breaks in Service occur, the non-vested portion of the Other
Investments Account held in suspense will be forfeited and
reallocated in accordance with Section 4.1 for the Plan Year in
which such Forfeiture occurs; the vested portion shall be
distributed in accordance with the provisions of Section 7.1. In
the case of a Participant attaining Normal Retirement Age while his
Other Investments Account is being held in suspense, the entire
amount will be distributed in accordance with the provisions of
Section 7.1.
Such account shall share in any appreciation, depreciation, or net
income or loss as if it were not in suspense, except that an account
which is in suspense shall have no Forfeitures allocated to it for a
Plan Year in which the Employee does not have a Year of Service for
Company Contributions.
7.5 Unable to Locate Participant or Beneficiary:
If the Participant or Beneficiary to whom benefits are to be
distributed cannot be located, and reasonable efforts have been made
to find him, including the sending of notification by
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<PAGE> 25
certified or registered mail to his last known address, the
Administrative Committee may direct the Trustee to take any of the
following actions:
(a) Distribute the benefits in question to an interest bearing
savings account established in the name of the Participant
or Beneficiary; or, if the benefits are payable to a
Participant (as reasonably determined by the Administrative
Committee) the Administrative Committee may instruct the
Trustee to distribute the funds to the Participant by
placing them in a savings account in the Participant's name
or by purchasing U.S. Savings Bonds in the Participant's
name and holding them for the Participant;
(b) If the Administrative Committee has taken the reasonable
efforts, as described in the preceding sentence, to locate
the Participant, the Administrative Committee may allocate
the Participant's Accrued Benefits to a segregated account
in the manner described in Section VII, as if an
installment distribution were being made; however, such
funds shall be held in the segregated account for
distribution to the Participant when located;
(c) The Participant's Accrued Benefits may be forfeited and
reallocated pursuant to Section 7.4; if the Participant
subsequently returns, such Forfeiture shall be restored
pursuant to Section 7.4 and the restoration shall be made
first out of Forfeitures, if any, and then by additional
Employer contributions.
7.6 Options of Participants to Sell Stock:
(a) The Company shall provide a "put option" to any Participant
(or Beneficiary) who receives a distribution of Company
Stock. The put option shall permit the Participant (or
Beneficiary) to sell such Company Stock to the Company at
any time during two option periods, at the then Fair Market
Value. The first put option period shall be for at least
60 days beginning on the date of distribution. The second
put option period shall be for at least 60 days beginning
after the new determination of Fair Market Value (and
notice to the Participant thereof) in the following Plan
Year. The Company may allow the Trustee to purchase shares
of Company Stock tendered to the Company under a put
option. The payment for any Company Stock sold under a put
option shall be made within 30 days if the shares were
distributed as part of an installment distribution. If the
shares were distributed in a lump sum distribution, payment
shall commence within 30 days and may be made in a lump sum
or in substantially equal, annual installments over a
period not exceeding five years, with adequate security
provided and interest payable at a reasonable rate on any
unpaid installment balance (as determined by the Company or
the Trustee).
(b) Any shares of Company Stock distributed by the Trust shall
be subject to a "right of first refusal." The right of
first refusal shall provide that, prior to any subsequent
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<PAGE> 26
transfer, the shares must first be offered for purchase in
writing to the Company, and then to the Trust, at the then
fair market value as determined by an independent appraiser
pursuant to Code Section 401(a)(28). The Company and the
Committee (on behalf of the Trust) shall have a total of
fourteen (14) days to exercise the right of first refusal
on the same terms offered by a prospective buyer. The
Company may require that a Participant entitled to a
distribution of Company Stock execute an appropriate stock
transfer agreement (evidencing the right of first refusal)
prior to receiving a certificate for Company Stock.
(c) Shares of Company Stock held or distributed by the Trustee
may include such legend restrictions on transferability as
the Company may reasonably require in order to assure
compliance with applicable Federal and state securities
laws. Except as otherwise provided in this Section 7.6, no
shares of Company Stock held or distributed by the Trustee
may be subject to a put, call or other option, or buy sell
or similar arrangement. The provisions of this Section 7.6
shall continue to be applicable to Company Stock even if
the Fixed Contribution Portion and the Variable
Contribution Portion cease to be an employee stock
ownership plan under Section 4975(e)(7) of the Code.
7.7 Distribution of Dividends
On or before the thirtieth day after the close of each Plan Year the
Administrative Committee shall direct the Trustee as to whether any
or all of the cash dividends received on any Company Stock, if any,
owned by the Plan shall be (i) retained by the Plan and allocated
pursuant to Section 4.1, (ii) distributed to each Participant, or
(iii) used to make payments on an Exempt Loan. In the event the
Administrative Committee elects to cause the cash dividends to be
distributed to Participants, each Participant shall receive, no
later than 90 days after the close of the Plan Year in which the
dividend is paid, his pro rata share, computed in accordance with
the provisions of Section 5.3(d), of such cash dividend (excluding
earnings thereon).
7.8 Diversification of Investments
(a) Within ninety (90) days after the close of each Plan Year
in the Qualified Election Period, each Qualified
Participant shall be permitted to direct the Plan as to the
investment of not more than twenty-five percent (25%) of
the value of his Company Stock Account which is
attributable to Company Stock which were acquired by the
Plan after December 31, 1986, to the extent such value
exceeds the amount to which a prior election, if any,
applies. In the case of the sixth (6th) year of the
Qualified Election Period, the preceding sentence shall be
applied by substituting "fifty percent (50%)" for
"twenty-five percent (25%)." The Participant's direction
shall be completed no later than ninety (90) days after the
close of the ninety (90) day election period.
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(b) The Plan Committee may direct that all amounts subject to
Participant elections under this Subsection be distributed
to Qualified Participants. All such distributions shall
be distributed within ninety (90) days after the close of
the ninety (90) day election period and shall be made in
cash. The Plan Committee may also direct that any amounts
subject to Participant elections under this Subsection be
transferred to Qualified Participants' accounts under the
Cash or Deferred Arrangement (401(k) Plan) sponsored by the
Company.
(c) The portion of a Participant's account balance attributable
to Company Stock which were acquired by the Plan after
December 31, 1986, shall be determined by multiplying the
number of shares of such securities held in the account by
a fraction, the numerator of which is the number of shares
acquired by the Plan after December 31, 1986, and allocated
to Participants' accounts (not to exceed the number of
shares held by the Plan on the date the individual becomes
a Qualified Participant) and the denominator of which is
the total number of shares held by the Plan at the date the
individual becomes a Qualified Participant.
7.9 Qualified Domestic Relations Orders
Notwithstanding any other provisions of Section VII, any Accrued
Benefit of a Participant may be apportioned between the Participant
and the alternate payee (as defined in IRC Section 414(p)(8)) either
through separate Accounts or by providing the alternate payee a
percentage of the Participant's Account. The Administrative
Committee may direct distributions to an alternate payee pursuant to
a qualified domestic relations order as defined in IRC Section
414(p)(1)(A) prior to the date on which the Participant attains the
earliest Retirement Age, provided that Administrative Committee has
properly notified the affected Participant and each alternate payee
of the order and has determined that the order is a qualified
domestic relations order as defined in IRC Section 414(p)(1)(A).
The alternate payee shall be paid his separate Account or his
percentage of the Participant's Account, computed as of the most
recent June 30 valuation date, in a lump sum payment notwithstanding
the value of such lump sum payment unless the domestic relations
order specifies a different manner of payment permitted by the Plan;
the alternate payee shall not be required to consent to such lump
sum payment. Administrative Committee shall adopt reasonable
procedures to determine the qualified status of domestic relations
orders and to administer the distributions thereunder. In no event
will a domestic relations order which provides that a former spouse
is to be treated as the current spouse of a Participant be
considered a qualified domestic relations order under this Plan
notwithstanding that such domestic relations order is a qualified
domestic relations order as defined in IRC Section 414(p)(1)(A).
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SECTION VIII
DUTIES AND AUTHORITY OF TRUSTEE
8.1 Named Fiduciaries for Administration of Plan and for Investment and
Control of Plan Assets
(1) Board of Directors:
The Board of Directors shall have the following duties and
responsibilities in connection with the administration of
the Plan:
(A) Making decisions with respect to amending or
terminating the Plan.
(B) Making decisions with respect to the selection,
retention or removal of the Trustee and the
Committee.
(C) Periodically reviewing the performance of the
Trustee, the members of the Committee, persons to
whom duties have been allocated or delegated and
any advisers appointed pursuant to paragraph (f)(1)
below.
(D) Determining the form and amount of Employer
Contributions.
The Board of Directors may by written resolution allocate its duties
and responsibilities to one or more of its members or delegate such
duties and responsibilities to any other persons; provided, however,
that any such allocation or delegation shall be terminable upon such
notice as the Board of Directors deems reasonable and prudent under
the circumstances.
(2) Plan Committee:
(A) General:
The Company shall administer the Plan and is
designated as the "Plan Administrator" within the
meaning of Section 3(16) of ERISA and Section
414(g) of the Code. The Committee and the Company
shall each be a "named fiduciary" within the
meaning of Section 402 of ERISA, but each party's
role as a named fiduciary shall be limited solely
to the exercise of its own authority and
discretion, as defined under this Plan, to control
and manage the operation and administration of this
Plan. A named fiduciary may designate other
persons who are not named fiduciaries to carry out
its fiduciary duties hereunder, and any such person
shall become fiduciary under the Plan with respect
to such delegated responsibilities. The members
of the Committee shall be comprised of at least one
person who shall be appointed by the Board of
Directors and who shall serve, without
compensation, until such time as they resign, die
or become incapable of exercising their duties or
are removed by the Board of Directors. All members
of the Committee are designated as agents of the
Plan for purposes of service of legal process. The
Company shall certify
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to the Trustee the names and specimen signatures of
the members of the Committee. Any member may
resign at any time by submitting an appropriate
written instrument to the Company, and while any
vacancy exists, the remaining members of the
Committee may perform any act which the Committee
is authorized to perform. Any vacancy on the
Committee shall be filled by appointment by the
remaining members of the Committee. All decisions
required to be made by the Committee involving the
interpretation, application and administration of
the Plan shall be resolved by majority vote either
at a meeting or in writing without a meeting.
(B) Duties and Responsibilities:
The Committee shall have the following duties and
responsibilities in connection with the
administration of the Plan:
(i) Establishing and implementing a funding
policy as described in Paragraph (c)
below.
(ii) Determining the eligibility of Employees
for participation in the Plan.
(iii) Determining the eligibility of Employees
for benefits provided by the Plan
including such duties and
responsibilities as are necessary and
appropriate under the Plan's claims
procedures.
(iv) Making recommendations to the Board of
Directors with respect to amendment or
termination of the Plan, including
recommendations with respect to
contributions under the Plan.
(v) Assuring that bonding requirements
imposed by ERISA are satisfied.
(vi) Authorizing, allocating and reviewing
expenses incurred by the Plan.
(vii) Communicating with Participants and other
persons.
(viii) Reviewing periodically any allocation or
delegation of duties and responsibilities
and any appointment of advisers.
(ix) Investing and controlling the Plan
assets.
(x) Directing the Trustee with respect to
voting shares of Company Stock, in
accordance with the provisions of Section
5.6.
The Committee may establish rules and regulations and may
take any other necessary or proper action to carry out its
duties and responsibilities. Notwithstanding the
foregoing provisions, the Trustee shall have the primary
responsibility for the
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withholding of income taxes from Plan distributions, for
the payment of withheld income taxes on Plan distributions
to the Internal Revenue Service, and for notification to
Participants of their right to elect not to have income tax
withheld from Plan distributions. Compliance with record
keeping and reporting requirements of ERISA shall be the
primary responsibility of the Company.
(C) Allocation and Delegation of Responsibilities:
The Committee may, by written resolution, allocate
its administrative duties and responsibilities to
one or more of its members or it may delegate such
duties and responsibilities to any other persons;
provided, however, that any such allocation or
delegation shall be terminable upon such notice as
the Committee deems reasonable and prudent under
the circumstances.
(D) Investment of Plan Assets:
The Plan assets shall be invested and controlled by
the Committee; provided, however, that the actual
management of Trust investments, other than Company
Stock, may be delegated to the Trustee or may be
delegated to one or more investment managers
appointed by the Committee. Any investment
manager appointed hereunder shall have the power to
manage, acquire or dispose of assets of the Plan
and shall be either an investment adviser
registered under the Investment Advisers Act of
1940, or a bank, as defined in that Act, or an
insurance company qualified to perform such
services under the laws of one or more states. If
an investment manager has been appointed, the
Trustee shall neither be liable for acts or
omissions of such investment manager nor be under
any obligation to invest or otherwise manage any
asset of the Trust fund, nor shall the Committee be
liable for any act or omission of the investment
manager in carrying out such responsibility. The
custody of Plan assets shall at all times be
retained by the Trustee, unless they consist of
insurance contracts or policies issued and held by
an insurance company authorized to conduct an
insurance business in a state. In addition to
appointment of investment managers, the Committee
shall have the following duties and
responsibilities:
(1) Periodically reviewing the investment of
Plan assets and the performance of the
Trustee and any investment managers.
With respect to the Trustee, the
Committee shall advise the Board of
Directors of any matters which might be
relevant to the decision as to whether
the services of the Trustee should be
retained. Based on its review, the
Committee shall determine the
desirability of appointing or retaining
investment managers.
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(2) Determining an investment policy to be
followed with respect to the Plan assets
and communicating this policy to the
person or persons responsible for
investing the Plan assets.
The Committee may by written resolution, allocate its
investment duties and responsibilities to one or more of
its members or delegate such duties and responsibilities to
any other persons; provided, however, that any such
allocation or delegation shall be terminable upon such
notice as the Committee deems reasonable and prudent under
the circumstances.
8.2 Expenses:
All brokerage costs, transfer taxes and similar expenses incurred in
connection with the investment and reinvestment of the Trust Fund
and all taxes of any kind whatsoever which may be levied or assessed
under existing or future laws upon or in respect of the Trust Fund,
and any interest which may be payable on money borrowed by the
Trustee for the purpose of the Trust (however, such funds may not be
borrowed for the purpose of purchasing Company Stock), shall be paid
from the Trust Fund, and, until paid, shall constitute a charge upon
the Trust Fund. All other administrative expenses incurred by the
Trustee in the performance of its duties, including such
compensation to the Trustee as may be agreed upon from time to time
between the Employer and the Trustee (in accordance with the
Trustee's standard schedule of fees in effect from time to time
during the time it administers this Trust, if applicable) and all
proper charges and disbursements of the Trustee, shall be paid by
the Employer, but until paid shall constitute a charge upon the
Trust Fund. If the Employer advises the Trustee in writing of its
determination to make no further contribution to this Trust, the
expenses of the Trustee shall thereafter be charged against and paid
out of the Trust Fund and a lien for the payment thereof shall be
impressed upon the assets of the Trust to be charged proportionately
against the amount standing to the credit of each Participant.
However, no person who is a disqualified person (as defined in IRC
Section 4975(e)(2) ) and who received full-time pay from the
Employer, may receive compensation from the Trust, except for
reimbursement of expenses properly and actually incurred.
The Trustee may inspect the records of the Employer whenever such
inspection may be reasonably necessary in order to determine any
fact pertinent to the performance of its duties as the Trustee. The
Trustee, however, shall not be required to make such inspection, but
may, in good faith, rely on any statement of the Employer or any of
its officers.
8.3 Litigation:
The Trustee shall not be required to participate in any litigation
either for the collection of moneys or other property due the Trust
Fund, or in defense of any claim against the Trust Fund unless the
Trustee shall have been indemnified to its satisfaction against all
expenses and liability to which the Trustee might become subject.
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<PAGE> 32
8.4 Written Instructions:
When any act of the Trustee is based upon instructions of the
Employer or the Administrative Committee, the Trustee may rely upon
instructions in writing, signed by an officer of the Employer, or
upon written instructions from the Administrative Committee, as
appropriate.
8.5 Appointment of Investment Manager:
The Trustee, with the written concurrence of the Administrative
Committee, may appoint an Investment Manager (as defined in ERISA
Section 3(38)), who shall have responsibility for investment of the
Trust Fund. The Investment Manager shall have the investment powers
granted the Trustee in Section 8.1 except to the extent the
Investment Manager's powers are specifically limited by an agreement
between the Trustee and Investment Manager.
8.6 Removal and Resignation of the Trustee:
The Employer may at any time remove any Trustee acting hereunder or
appoint a corporation and/or an individual or individuals to be
successor Trustee hereunder in the place of any removed or resigning
Trustee. Any Trustee may at any time resign by giving written
notice to the Employer, which resignation shall take effect on the
date therein specified and which shall not be less than 30 days from
the date of notice unless the Employer shall agree to an earlier
date.
SECTION IX
DUTIES AND AUTHORITY OF ADMINISTRATIVE COMMITTEE
9.1 Appointment:
This Plan shall be administered by an Administrative Committee,
which shall consist of at least one person appointed by the Board of
Directors of the Employer, who shall signify in writing their
acceptance of such appointment. Any member of the Administrative
Committee may resign upon giving written notice to the Board of
Directors of the Employer. Each appointee shall hold office at the
pleasure of the board of directors. Members of the board of
directors of the Employer may be appointed members of the
Administrative Committee. Vacancies arising in the Administrative
Committee from death, resignation, removal or otherwise, shall be
filled by the Board of Directors, but the Administrative Committee
may act notwithstanding the existence of vacancies so long as there
is at least one member of the Administrative Committee.
At any time the Board of Directors of the Employer may adopt a
resolution abolishing the Administrative Committee and assigning all
of the duties of the Administrative Committee to the Trustee; such
resolution shall be effective as soon as it is communicated in
writing to both the Administrative Committee and Trustee, or at any
such subsequent effective date as is provided in the resolution.
Whenever such a resolution is effective as to the Plan, the term
"Trustee" shall be deemed to replace the term "Administrative
Committee." Such a resolution may be rescinded by the board of
directors and shall be effective as soon as it is
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<PAGE> 33
communicated in writing to the Trustee, or shall be effective at
such later date as is provided in the resolution.
9.2 No Discrimination:
The Administrative Committee shall not take any action nor direct
the Trustee to take any action that would result in benefiting one
Participant or group of Participants at the expense of another, or
discriminating between Participants similarly situated, or applying
different rules to substantially similar sets of facts.
9.3 Majority Action:
The Administrative Committee shall act by a majority (or by all
members if there be only one or two members) of the number of
members constituting the Administrative Committee at the time of
such action, and such action may be taken either by vote at a
meeting or in writing without a meeting.
9.4 Powers:
Except as otherwise provided in the Plan, the Administrative
Committee shall have control of the administration of the Plan, with
all powers necessary to enable it to carry out its duties in that
respect. Not in limitation, but in amplification of the foregoing,
the Administrative Committee shall have power to interpret or
construe the Plan and to determine all questions that may arise
hereunder as to the status and rights of Participants and others
hereunder. The Administrative Committee may inspect the records of
the Employer or Trustee whenever such inspection may be reasonably
necessary in order to determine any fact pertinent to the
performance of the duties of the Administrative Committee. The
Administrative Committee, however, shall not be required to make
such inspection, but may, in good faith, rely on any statement of
the Trustee or Employer or any of its officers or employees.
9.5 Information to Participants:
The Administrative Committee shall direct the maintenance of
separate accounts of the Participants. It shall give each
Participant, at least once every year, information as to the balance
of his Accounts.
9.6 Compensation of Members:
The members of the Administrative Committee shall serve without
compensation for their services as such, but shall be reimbursed by
the Employer for all necessary expenses incurred in the discharge of
their duties.
9.7 Review of Participant's Claims:
A Participant (or Beneficiary) who does not receive a distribution
of benefits to which he believes he is entitled may present a claim
to the Trustee. The claim for benefits must be in writing and
addressed to the Trustee or to the Company. If the claim for
benefits is denied, the Trustee shall notify the Participant (or
Beneficiary) in writing within 90 days after the Trustee initially
received the benefit claim. Any notice of a denial of benefits
shall advise the
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<PAGE> 34
Participant (or Beneficiary) of the basis for the denial, any
additional material or information necessary for the Participant (or
Beneficiary) to perfect his claim and the steps which the
Participant (or Beneficiary) must take to have his claim for
benefits reviewed. Each Participant (or Beneficiary) whose claim
for benefits has been denied may file a written request for a review
of his claim by the Trustee. The request for review must be filed
by the Participant (or Beneficiary) within 60 days after he receives
the written notice denying his claim. The decision of the Trustee
will be made within 60 days after receipt of a request for review
and shall be communicated in writing to the claimant. Such written
notice shall set forth the basis for the Trustee's decision. If
there are special circumstances (such as the need to hold a hearing)
which require an extension of time for completing the review, the
Trustee's decision shall be rendered not later than 120 days after
receipt of a request for review.
SECTION X
AMENDMENT AND TERMINATION
10.1 Rights to Suspend or Terminate Plan:
It is the present intention of the Employer to maintain this Plan
throughout its corporate existence. Nevertheless, the Employer
reserves the right, at any time, to discontinue or terminate the
Plan, to terminate the Employer's liability to make further
contributions to this Plan, to suspend contributions for a fixed or
indeterminate period of time. In any event, the liability of the
Employer to make contributions to this Plan shall automatically
terminate upon its legal dissolution or termination, upon its
adjudication as a bankrupt, upon the making of a general assignment
for the benefit of creditors, or upon its merger or consolidation
with any other corporation or corporations.
10.2 Successor Corporation:
In the event of the termination of the liability of the Employer to
make further contributions to this Plan, the Employer's liability
may be assumed by any other corporation or organization which
employs a substantial number of the Participants of this Plan. Such
assumption of liability shall be expressed in an agreement between
such other corporation or organization and the Trustee under which
such other corporation or organization assumes the liabilities of
this Trust with respect to the Participants employed by it.
10.3 Amendment:
To provide for contingencies which may require the clarification,
modification, or amendment of this Plan, the Employer reserves the
right to amend this Plan at any time. The Employer, however, shall
not have the right to amend this Plan in any way which would deprive
any Participant of the right to receive his Accrued Benefits under
the Plan, or which would alter the basic purpose of the Plan, or
which would give the Employer any rights in the Trust Fund.
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<PAGE> 35
Each Participant having at least three Years of Service for Vesting
at the time of the adoption of any amendment changing any vesting
schedule under the Plan shall have the right to elect at any time,
but no later than 60 days after the later of (a) the date the
amendment is adopted (b) the date on which the amendment is
effective or (c) the date on which the Participant is given written
notice the amendment, to have his vested percentage computed under
the Plan without regard to such amendment.
10.4 Termination of Plan:
Upon termination or partial termination of the Plan and Trust by
formal action of the Employer or for any other reason, or if
Employer contributions to the Plan and Trust are permanently
discontinued for any reason, each effected Participant shall be 100%
vested in his Accounts, and payment to such Participant shall be
made in cash as soon as practicable after liquidation of the assets
of the Trust but not later than one year following the date of
termination.
10.5 Plan Merger or Consolidation:
In the case of any merger or consolidation with, or transfer of any
assets or liabilities to, any other plan, each Participant in this
Plan must be entitled to receive (if the surviving plan is then
terminated) a benefit immediately after the merger, consolidation,
or transfer which is equal to or greater than the benefit he would
have been entitled to receive immediately before the merger,
consolidation, or transfer (if this Plan had terminated).
SECTION XI
MISCELLANEOUS
11.1 Laws of Delaware to Apply:
This Plan shall be construed according to the laws of the State of
Delaware, to the extent Federal laws do not control.
11.2 Participant Cannot Transfer or Assign Benefits:
None of the benefits, payments, proceeds, claims, or rights of any
Participant hereunder shall be subject to any claim of any creditor
of the Participant, nor shall any Participant have any right to
transfer, assign, encumber, or otherwise alienate, any of the
benefits or proceeds which he may expect to receive, contingently or
otherwise under this Plan.
Notwithstanding any other provisions of this Section 11.2, the
Trustee may make distributions pursuant to a qualified domestic
relations order (as defined in IRC Section 414(p)) pursuant to the
provisions outlined in Section 7.9.
11.3 Right to Perform Alternative Acts:
In the event it becomes impossible for the Employer, the
Administrative Committee or the Trustee to perform any act required
by this Plan, then the Employer, the Administrative
30
<PAGE> 36
Committee or the Trustee may perform such alternative act which most
clearly carries out the intent and purpose of this Plan.
11.4 Reversion of Contributions Under Certain Circumstances:
If this restated Plan is not approved and qualified by the Internal
Revenue Service as meeting the requirements of IRC Section 401 and
IRC Section 501, the Plan will continue as previously established
and the Trustee or Administrative Committee shall effect such
amendments to the Plan as are necessary to obtain the approval and
qualification of the Plan by the Internal Revenue Service.
All contributions made pursuant to Section 4.1 are conditioned on
deductibility of such contributions under IRC Section 404. To the
extent that the deduction under IRC Section 404 for any year is
disallowed, the contribution shall be returned to the Employer
within one year after disallowance of the deduction. If a
contribution is made by an Employer by a mistake of fact, the
contribution may be returned to the Employer within one year after
the payment of the contribution.
11.5 Plan Administrator Agent for Service of Process:
The Plan Administrator is designated agent to receive service of
legal process on behalf of the Plan.
11.6 Filing Tax Returns and Reports:
If the Trustee is not a corporate fiduciary, the Plan Administrator
shall prepare, or cause to have prepared, all tax returns, reports,
and related documents, except as otherwise specifically provided in
this Plan or unless the Administrative Committee provides to the
contrary.
11.7 Indemnification
The Employer agrees to indemnify all Employees, who serve as members
of the Administrative Committee or who serve as Trustee, against all
liability arising in connection with their duties under the Plan,
except that this indemnification shall not include acts of
embezzlement, or diversion of Trust Funds by the Employee, nor shall
it include acts of gross negligence.
SECTION XII
EXEMPT LOANS
12.1 Use of Proceeds:
(a) The proceeds of an Exempt Loan must be used within a
reasonable time after their receipt by the Plan only for
any or all of the following purposes:
(a) To acquire Company Stock;
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(b) To repay such Exempt Loan;
(c) To repay a prior Exempt Loan.
If the proceeds of a loan are used to repay an Exempt Loan,
the new loan must constitute an Exempt Loan.
(b) Participants and Beneficiaries who have received a
distribution of Company Stock which were acquired with the
proceeds of a loan from a disqualified person, along with
individuals who have acquired such securities by reason of
the Participant's or Beneficiary's death, shall have the
right to sell such securities to the Employer, by
delivering written notice to the Employer any time during
the 15-month period beginning on the date such securities
are distributed by the Plan. The price paid by the
Employer for such securities shall be their Fair Market
Value.
12.2 Non-recourse:
An Exempt Loan must be without recourse against the Plan. The only
assets of the Plan that may be given as collateral on an Exempt Loan
are Company Stock which were either (i) acquired with the proceeds
of the Exempt Loan or (ii) were used as collateral on a prior Exempt
Loan repaid with the proceeds of the current Exempt Loan. No person
entitled to payment under the Exempt Loan shall have any right to
assets of the Plan other than:
(a) collateral given for the Exempt Loan;
(b) contributions (other than contributions of Company
Stock) that are made under the Plan to meet the
obligations of the Exempt Loan; and
(c) earnings attributable to such collateral and the
investment of such contributions.
12.3 Limitations on Payments:
Payments made with respect to an Exempt Loan by the Plan during a
Plan Year must not exceed an amount equal to the sum of such
contributions and earnings received during or prior to the Plan Year
less such payments in prior Plan Years. Such contributions and
earnings shall be accounted for separately by the Employer in the
books of account of the Plan until the Exempt Loan is repaid.
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<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this agreement this 30th day of
September, 1996.
EXTENDED SYSTEMS INCORPORATED
By /s/ Douglas B. Winterrowd ATTEST: /s/ Karla K. Rosa
----------------------------------- ----------------------------
TRUSTEE WITNESSES AS TO TRUSTEE:
By /s/ Douglas B. Winterrowd /s/ Karla K. Rosa
----------------------------------- ----------------------------
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PROPOSED AMENDMENT NUMBER 1
EXTENDED SYSTEMS, INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
Extended Systems, Incorporated, pursuant to and in accordance with the
provisions of Section X of the Extended Systems, Incorporated Employee Stock
Ownership Plan, does hereby amend said Plan, effective as of July 1, 1995, as
follows:
1. The second paragraph of the preamble to the Plan is amended in its
entirety to read as follows:
"Therefore, generally effective July 1, 1989 (with the exception of
the provisions of the Plan that were amended to comply with the Small
Business Protection Act of 1996, which are effective as of July 1,
1995), the Company hereby amends and restates the Extended Systems
Incorporated Employee Stock Ownership Plan on the following terms:"
2. Section 2.7 of the Plan, "Break in Service" is amended by adding the
following new paragraph to the end thereof:
"Solely for the purpose of determining whether a Break In Service has
occurred, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which
would otherwise have been credited to such individual but for such
absence, or, in any case in which such hours cannot be determined,
eight (8) hours of service per day of such absence. For purposes of
this paragraph, absence from work for maternity or paternity reasons
means an absence (i) by reason of the pregnancy of the individual,
(ii) by reason of a birth of the child of the individual, (iii) by
reason of the placement of a child with the individual in connection
with the adoption of such child by such individual or (iv) for
purposes of caring for such child for a period beginning immediately
following such birth or placement. This paragraph shall not apply to
any Employee with respect to any period unless such Employee furnishes
to the Committee such timely information as the Committee may require
to establish that the absence from work was for a reason permitted
under the paragraph. The Hours of Service credited under this
paragraph shall be credited in the Plan Year in which the absence
begins if a crediting is necessary to prevent a Break In Service in
that Plan Year, or, in all other cases, solely in the following Plan
Year."
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<PAGE> 40
3. Section 2.14(b) of the Plan, "Compensation" is amended in its entirety
to read as follows:
"(b) Determination of Highly Compensated Employees and Key Employees:
For the purpose of determining Highly Compensated Employees, the
Top Paid Group and Officers, Compensation shall be determined in
accordance with the general definition in paragraph (a)
(unaltered by Board discretion) but substituting "Affiliated
Company" for "Company" where it appears therein. For Plan Years
beginning before January 1, 1996, Compensation for earned by
Highly Compensated Employees will include Compensation earned by
Family Members of such Highly Compensated Employee and allocated
per Family Member based on a Compensation ratio where the
numerator is the individual Family Member's compensation and the
denominator is the total compensation for all Family Members
(calculated for purposes of this ratio allocation only as if
there were no limit on the amount of compensation pursuant to
subsection (d) of this definition.) For Plan Years beginning on
or after January 1, 1996, Compensation for determination of
Highly Compensated Employees shall not include Compensation
earned by Family Members.
4. Section 2.18 of the Plan is amended in its entirety to read as follows:
"Entry Date
"Entry Date" shall be the first day of each calendar quarter during
the Plan Year (each July 1, October 1, January 1 and April 1)
coincident with or following an Employee's completion of a Year of
Service."
5. Section 2.39 of the Plan "Year of Service" is amended to add the
following new paragraph to the end thereof:
"A "Year of Service" for purposes of Section III, means 1,000 Hours of
Service in either (a) or (b) as follows:
(a) A twelve (12) consecutive month period commencing on the
Employee's first date on which he is first employed by the
Employer, or
(b) In the case of an Employee who is not credited with at least
one thousand (1,000) Hours of Service in the twelve (12) month
period described in paragraph (a) above, a Plan Year
commencing with the Plan Year beginning on or after the
Employee's first date on which he is first employed by the
Employer."
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6. Section 3.2 of the Plan is deleted in its entirety and renamed
"Reserved."
7. Section 7.2 of the Plan is amended to add the following new paragraph (a)
to the beginning of the subsection and to rename subsequent paragraphs (b) and
(c):
"(a) In general:
All distributions shall comply with Code Section 401(a)(9) and
401(a)(14), and the regulations promulgated thereunder. The payment
of benefits under the Plan to the Participant will begin not later
than the 60th day after the latest of the close of the Plan Year in
which:
(1) the Participant attains the earlier of sixty-five (65) or
Normal Retirement Age;
(2) occurs the tenth (10th) anniversary of the year in which the
Participant entered the Plan; or
(3) the Participant terminates employment with the Employer.
Alternatively, a Participant may elect to defer receipt of a Plan
distribution, provided that such election is in writing, describes the
form of benefit payment, indicates the date the distribution is to
commence, and is signed by the Participant."
8. Section VII of the Plan is amended by adding the following new subsection
to the end thereof:
"7.10 Direct Rollover of Eligible Rollover Distributions
(a) This section 3.4 applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's
election under this section, a distributee may elect, at the
time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid directly
to an eligible retirement plan specified by the distributee in
a direct rollover.
(b) Eligible Rollover Distribution. An Eligible Rollover
Distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an
Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated Beneficiary, or for a specified
period of ten years or more; any distribution to the extent
such distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
3
<PAGE> 42
(c) Eligible Retirement Plan. An Eligible Retirement Plan is an
individual retirement account described in Section 408(a) of
the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an
Eligible Rollover Distribution to the surviving spouse, an
Eligible Retirement Plan is an individual retirement account
or individual retirement annuity.
(d) Distributee. A Distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(e) Direct rollover. A Direct Rollover is a payment by
the Plan to the Eligible Retirement Plan specified by
the Distributee."
9. The Plan is amended to add the following new Section XIII:
"SECTION XIII
Top Heavy Plan
13.1 Precedence of Section:
If the Plan is or becomes a Top-Heavy Plan (as defined in
Section 13.3 below), the following provisions will apply:
(a) the vesting schedule no less favorable than that
described in Section 13.4;
(b) the minimum benefit provisions of Section 13.5; and
(c) the limitation on benefits described in Section 13.6.
13.2 Definitions:
For purposes of determining whether the Plan is a Top Heavy
Plan for any Plan Year, the following terms, wherever
capitalized, shall have the following meaning:
4
<PAGE> 43
(a) "Determination Date" means the last day of the Plan
Year preceding the year for which a top heavy
determination is made.
(b) "Key Employee" means an Employee or former Employee
(or Beneficiary of such individual) who, at any time
during a Plan Year or any of the four (4) preceding
Plan Years, is or was:
(1) One (1) of the ten (10) Employees who is an
Owner of both one the largest interests in
the Company and at least one-half of one
percent (0.5%) of the Company, provided that
his annual Compensation during the Plan Year
of such Ownership is greater than the
limitation specified in Code Section
415(c)(1)(A) (thirty thousand dollars
($30,000) or such greater amount as may be
recognized for increases in the cost of
living in accordance with Code Section
416(i)(1)(A)(ii)). (For purposes of this
paragraph, if two (2) Employees have the same
ownership interests, the Employee with the
greater annual Compensation shall be treated
as having a larger interest);
(2) An Employee who is a five percent (5%) or
more Owner of the Company;
(3) An Employee who is a one percent (1%) or more
Owner of the Company and who has annual
Compensation in excess of one hundred fifty
thousand dollars ($150,000); or
(4) An Officer.
(c) "Former Key Employee" means a Participant in the Plan
who, at any time during the four (4) preceding Plan
Years, was a Key Employee but who is not a Key
Employee in the current Plan Year or who terminated
his service with the Company in one of the four (4)
preceding Plan Years and was not a Key Employee in
the Plan Year in which he terminated.
(d) "Non-Key Employee" means an Employee or Former Key
Employee (or the Beneficiary of either) who is not a
Key Employee.
13.3 Determination of Top Heavy Plan:
With respect to any Plan Year, the Plan shall be a Top Heavy
Plan if, as of the Determination Date, the aggregate Account
Balances of Key Employees (excluding Former Key Employees)
under the Plan exceeds sixty percent (60%) of the aggregate
Account Balances of all Employees. In making such
determination, distributions made during the five (5) year
period ending on
5
<PAGE> 44
the Determination Date shall be included and the Account
Balances of all individuals who were not employed by the
Company during the five (5) year period ending on the
Determination Date shall be excluded. The Plan shall be
aggregated with each other plan of the Company in the required
aggregation group (as described below) and may aggregated with
any other plan of the Company in the permissive aggregation
group (as described below.
Required aggregation group means (1) each qualified plan of
the Company in which at least one Key Employee participates,
and (2) any other qualified plan of the Company which enables
a plan described in (1) to meet the requirements of Code
Sections 401(a)(4) or 410. Permissive aggregation group means
the required aggregation group of plans plus any other plan or
plans of the Company which, when considered as a group with
the required aggregation group, would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410.
13.4 Vesting in Top Heavy Plan Year:
With respect to any Plan Year in which the Plan is a Top Heavy
Plan, each Participant's Company Stock Account and Other
Investments Account shall vest in accordance with the
following vesting schedule, to the extent it is faster than
the schedule that would otherwise apply under Section 6:
<TABLE>
<CAPTION>
Vesting
Years of Service Percentage
---------------- ----------
<S> <C>
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
</TABLE>
13.5 Minimum Benefit Under Top Heavy Plan:
For any Plan Year in which the Plan is a Top Heavy Plan, the
Company Retirement Contributions allocated to the Accounts of
a Participant who is a Non-Key Employee and who is employed by
the Company on the last day of the Plan Year (regardless of
the number of Hours of Service earned by such Non-Key Employee
for such Plan Year) shall be at least:
(a) Three percent (3%) of each such Participant's
Compensation, or
(b) If the Plan does not enable any defined benefit plan
to meet Code Section 401(a)(4) or 410, the highest
percentage of Compensation contributed on behalf of
any Key Employee (including and Forfeitures), if less
than 3%.
(c) In computing the amount contributed on behalf of any
Non-Key Employee, all contributions made to any
defined contribution plan of
6
<PAGE> 45
the Company that meets the vesting requirement of
Code Section 416(b) and that limits compensation as
described in Code Section 416(d) shall be aggregated
with the Plan.
13.6 Maximum Limitation Under Top Heavy Plan:
A 1.0 limitation shall be substituted for the 1.25 limitation
in Section 4.2(d) for any Plan Year for which the Plan is
determined to be a Top Heavy Plan."
EXTENDED SYSTEMS, INCORPORATED
Date 2/20/97 By /s/ Steven D. Simpson
------------------------------ ------------------------------
President
By /s/ Robert G. Hamlin
------------------------------
Secretary
7
<PAGE> 1
EXHIBIT 10.9
ADOPTION AGREEMENT - ARTICLE 1
NON-STANDARDIZED PROFIT SHARING PLAN
1.1 PLAN INFORMATION:
(a) Name of Plan: This is the
Extended Systems, 401K Plan (the "Plan").
(b) Type of Plan:
(1) [X] 401(k) and Profit Sharing
(2) [ ] Profit Sharing Only
(3) [ ] 401(k) Only
(c) Name of Plan Administrator, if not the Employer:
Name: Extended Systems of Idaho, Inc.
Address: P.O. Box 4937, Boise, Idaho 83711
-----------------------------------------
Phone Number: (208) 322-7575
The Plan Administrator is the agent for service of legal process
for the Plan.
(d) Limitation Year (check one):
(1) [X] Calendar Year
(2) [ ] Plan Year
(3) [ ] Other:
(e) Three-Digit Plan Number: 002
(f) Plan Year End (month/day): 12/31
(g) Plan Status (check one):
(1) [ ] Effective Date of new Plan:
-1-
<PAGE> 2
(2) [X] Amendment Effective Date: 04/01/96 This is (check
one):
(A) [ ] an amendment of The CORPORATE plan for
Retirement Adoption Agreement previously
executed by the Employer; or
(B) [X] a conversion from another plan document
into The CORPORATE plan for Retirement.
The original Effective Date of the Plan: 01/01/91
The substantive provisions of the Plan shall apply prior
to the Effective Date to the extent required by the Tax
Reform Act of 1986 or other applicable laws.
1.2 EMPLOYER:
(a) The Employer is: Extended Systems, Inc. of Delaware
Address: 5777 North Meeker Avenue
Boise, ID 83713
Contact's Name: Stephen M. Shaffer
Telephone Number: (208) 322-7575
(1) Employer's Tax Identification Number: 82-0399670
(2) Business form of Employer (check one):
(A) [X] Corporation (B) [ ] Governmental
(C) [ ] Sole Proprietor or (D) [ ] Tax-exempt
Partnership Organization
(E) [ ] Subchapter S (F) [ ] Rural Electric
Corporation Cooperative
(3) Employer's fiscal year end: June 30
(4) Date business commenced: 03/01/85
(b) The term "Employer" includes the following Related Employer(s)
(as defined in Section 2.01(a)(26)):
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<PAGE> 3
Extended Systems Inc. of Delaware
Extended Systems of Idaho, Inc.
1.3 COVERAGE:
(a) All Employees who meet the conditions specified below will be
eligible to participate in the Plan:
(1) Service requirement (check one):
(A) [ ] no service requirement.
(B) [ ] three consecutive months of service (no
minimum number Hours of Service can be
required).
(C) [X] six consecutive months of service (no
minimum number Hours of Service can be
required).
(D) [ ] one Year of Service.
(1,000 Hours of Service is required during
the Eligibility Computation Period.)
(2) Age requirement: (check one)
(A) [ ] no age requirement.
(B) [X] must have attained age 21 (not to exceed
21).
(3) The class of Employees eligible to participate in the Plan
(check one):
(A) [ ] includes all Employees of the Employer.
(B) [X] includes all Employees of the Employer
except for (check the appropriate box(es)):
(i) [X] Employees covered by a collective
bargaining agreement.
(ii) [ ] Highly Compensated Employees as
defined in Code Section 414(q).
-3-
<PAGE> 4
(iii) [X] Leased Employees as defined in
Section 2.01(a)(18).
(iv) [X] Nonresident aliens who do not
receive any earned income from the
Employer which constitutes United
States source income.
(v) [X] Other: Student Hires and Temporary
Employees
Note: No exclusion in this section may create a discriminatory
class of Employees. An Employer's Plan must still pass the
Internal Revenue Code coverage and participation requirements if
one or more of the above groups of Employees have been excluded
from the Plan.
(b) The Entry Date(s) shall be (check one):
(1) [ ] the first day of each Plan Year (do not select if
Section 1.03(a)(1)(D) is elected or if there is an
age requirement of greater than 20 1/2 in Section
1.3(a)(2)(13)).
(2) [ ] the first day of each Plan Year and the date six
months later.
(3) [ ] the first day of each Plan Year and the first day
of the fourth, seventh, and tenth months.
(4) [X] the first day of each month.
(c) Date of Initial Participation - An Employee will become a
Participant unless excluded by Section 1.3(a)(3) above on the
Entry Date immediately following the date the Employee completes
the service and age requirement(s) in Section 1.3(a), if any,
except (check one):
(1) [X] No exceptions.
(2) [ ] Employees employed on the Effective Date in
Section l.1(g) will become Participants on that
date.
(3) [ ] Employees who meet the age and service
requirement(s) of Section 1.3(a) on the Effective
Date in Section 1.1(g) will become Participants on
that date.
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<PAGE> 5
1.4 COMPENSATION:
(a) For purposes of determining contributions under the Plan,
Compensation shall be as defined in Section 2.1(a)(7), but
excluding (check the appropriate box(es)):
(1) [ ] Overtime Pay.
(2) [ ] Bonuses.
(3) [ ] Commissions.
(4) [X] The value of a qualified or a non-qualified
stock option granted to an Employee by the Employer
to the extent such value is includable in the
Employee's taxable income.
Note: These exclusions shall not apply for purposes of the
"Top-Heavy" requirements in Section 9.3 or for allocating
Discretionary Employer Contributions if an Integrated Formula is
elected in Section 1.5(a)(29).
(5) [ ] No exclusions.
(b) Compensation for the First Year of Participation
Contributions for the Plan Year in which an Employee first
becomes a Participant shall be determined based on the Employee's
Compensation (check one):
(1) [ ] For the entire Plan Year.
(2) [X] For the portion of the Plan Year in which the
Employee is eligible to participate in the Plan.
1.5 CONTRIBUTIONS:
(a) [ ] Employer Contributions:
(1) [ ] Fixed Formula - Nonintegrated Formula (check (A) or
(B) and fill in the blank):
(A) [ ] Fixed Percentage Employer Contribution:
For each Plan Year, the Employer will contribute
for each eligible Participant an amount equal to
____% (not to exceed 15%) of such Participant's
Compensation.
-5-
<PAGE> 6
(B) [ ] Fixed Flat Dollar Employer Contribution:
For each Plan Year, the Employer will contribute
for each eligible Participant all amount equal
to $__________.
(2) [X] Discretionary Formula
The Employer may decide each Plan Year whether to make a
discretionary Employer contribution on behalf of eligible
Participants in accordance with Section 4.6. Such contribution
shall be allocated to eligible Participants based upon the
following (check (A) or (B)):
(A) [X] Nonintegrated Allocation Formula:
In the ratio that each eligible
Participant's Compensation bears to the
total Compensation paid to all eligible
Participants for the Plan Year.
(B) [ ] Integrated Allocation Formula:
In accordance with Section 4.6.
Note: An Employer who maintains any other plan that provides for
Social Security Integration (permitted disparity) may not elect
(2)(B).
(3) Eligibility Requirement(s)
A Participant shall be entitled to Employer contributions for a
Plan Year under this Subsection (a) if the Participant satisfies
the following requirement(s) (Check the appropriate box(es) -
Options (B) and (C) may not be elected together):
(A) [ ] is employed by the Employer on the last day of the
Plan Year.
(B) [ ] earns at least 500 Hours of Service during the
Plan Year.
(C) [X] earns at least 1,000 Hours of Service during the
Plan Year.
(D) [ ] no requirements.
Note: If option (A), (B), or (C) above is selected, then Employer
contributions can only be funded by the Employer after Plan Year
end. Employer contributions funded during the Plan Year Shall not
be subject to the eligibility requirements of this section
1.5(a)(3).
-6-
<PAGE> 7
(b) [X] Deferral Contributions
(1) Regular Contributions
The Employer shall make a Deferral Contribution in accordance
with Section 4.1 on behalf of each Participant who has an
executed salary reduction agreement in effect with the Employer
for the payroll period in question, not to exceed 15% (no more
than 15%) of Compensation for that period.
(A) A Participant may increase or decrease, on a
prospective basis, his salary reduction agreement
percentage (check one):
(i) [ ] As of the beginning of each payroll
period.
(ii) [X] As of the first day of each month.
(iii) [ ] As of the next Entry Date.
(iv) [ ] (Specify, but must be at least once per
Plan Year.)
--------------------------------------------------
--------------------------------------------------
(B) A Participant may revoke, on a prospective basis, a
salary reduction agreement at any time upon proper
notice to the Administrator but in such case may
not file a new salary reduction agreement until
(check one):
(i) [ ] The first day of the next Plan Year.
(ii) [X] Any subsequent Plan Entry Date.
(iii) [ ] (Specify, but must be at least once
per Plan Year.)
--------------------------------------------------
--------------------------------------------------
(2) [X] Catch-Up Contributions
The Employer may allow Participants upon proper notice and
approval to enter into a special salary reduction agreement to
make additional Deferral Contributions in an amount up to 100% of
their Compensation for the payroll period(s) in the final month
of the Plan Year.
-7-
<PAGE> 8
(3) [X] Bonus Contributions
The Employer may allow Participants upon proper notice and
approval to enter into a special salary reduction agreement to
make Deferral Contributions in an amount up to 100% of any
Employer-paid cash bonuses made for such Participants during the
Plan Year. The Compensation definition elected by the Employer in
Section 1.4(a) must include bonuses if bonus contributions are
permitted.
Note: A Participant's contributions under (2) and/or (3) may not
cause the Participant to exceed the percentage limited specified
by the Employer in (1) after the Plan Year. The Employer has the
right to restrict a Participant's right to make Deferral
Contributions if they will adversely affect the Plan's ability to
pass the actual deferral percentage test and/or the actual
contribution percentage test.
(4) [ ] Qualified Discretionary Contributions
The Employer may contribute an amount which it designates as a
Qualified Discretionary Contribution to be included in the actual
deferral percentage or actual contribution percentage test.
Qualified Discretionary Contributions shall be allocated to
Non-highly Compensated Employees (check one):
(A) [ ] in the ratio which each such Participant's
Compensation for the Plan Year bears to the
total of all such Participants' Compensation
for the Plan Year.
(B) [ ] as a flat dollar amount for each such
Participant for the Plan Year.
(c) [X] Matching Contributions (only if Section 1.5(b) is checked)
(1) The Employer shall make a Matching Contribution on behalf
of each Participant in an amount equal to the following
percentage of a Participant's Deferral Contributions
during the Plan Year (check one):
(A) [ ] 50%
(B) [X] 100%
(C) [ ] ___%
(D) [ ] (Tiered Match) ____% of the first ____% of
the Participant's Compensation contributed
to the Plan, ____% of the next ____% of the
Participant's Compensation contributed to
the
-8-
<PAGE> 9
Plan, ____% of the next % of the
Participant's Compensation contributed to
the Plan.
Note: The percentages specified above for Matching
Contributions may not increase as the percentage of
Compensation contributed increases.
(E) [ ] The percentage declared for the year, if
any, by a Board of Directors' Resolution or
by a Letter of Intent for a Sole Proprietor
or Partnership.
(2) [X] The Employer may at Plan Year end make an
additional Matching Contribution equal to a
percentage declared by the Employer, through a
Board of Directors' Resolution or by a Letter of
Intent for a Sole Proprietor or Partnership, of the
Deferral Contributions made by each Participant
during the Plan Year (only if an option is checked
under Section 1.5(c)(1)).
(3) [X] Matching Contribution Limits (check the appropriate
box):
(A) [X] Deferral Contributions in excess of 3%
of the Participant's Compensation for the
period in question shall not be considered
for Matching Contributions.
Note: If the Employer elects a percentage limit in (A)
above and requests the Trustee to account separately for
matched and unmatched Deferral Contributions, the Matching
Contributions allocated to each Participant must be
computed, and the percentage limit applied, based upon
each payroll period.
(B) [ ] Matching Contributions for each
Participant for each Plan Year shall be
limited to $___________.
(4) [ ] Eligibility Requirement(s)
A Participant who makes Deferral Contributions during the Plan
Year under Section 1.5(b) shall be entitled to Matching
Contributions for that Plan Year if the Participant satisfies the
following requirement(s) (Check the appropriate box(es).
Options (B) and (C) may not be elected together):
(A) [ ] Is employed by the Employer on the last day of the
Plan Year.
(B) [ ] Earns at least 500 Hours of Service during the
Plan Year.
-9-
<PAGE> 10
(C) [ ] Earns at least 1,000 Hours of Service during the
Plan Year.
(D) [ ] Is not a Highly Compensated Employee for the Plan
Year.
(E) [ ] Is not a Partner of the Employer, if the
Employer is a Partnership.
(F) [X] No requirements.
Note: If option (A), (B), or (C) above is selected, then Matching
Contributions can only be funded by the Employer after the Plan
Year ends. Any Matching Contribution funded before Plan Year end
shall not be subject to the eligibility requirements of this
Section 1.5(c)(4)). If option (A), (B), or (C) is adopted during
a Plan Year, such option shall not become effective until the
first day of the next Plan Year.
(d) [ ]Employee After-Tax Contributions (check one):
(1) [ ] Future Contributions
Participants may make voluntary non-deductible Employee
contributions pursuant to Section 4.9 of the Plan. This option
may only be elected if the Employer has elected to permit
Deferral Contributions under Section 1.5(b). Matching
Contributions by the Employer are not allowed on any voluntary
non-deductible Employee contributions. Withdrawals are limited to
one per year unless Employee contributions were allowed under a
previous plan document which authorized more frequent
withdrawals.
(2) [ ] Frozen Contributions
Participants may not make voluntary non-deductible Employee
contributions, but the Employer does maintain frozen Participant
voluntary non-deductible Employee Contribution Accounts.
1.6 RETIREMENT AGE(S):
(a) [X] The Normal Retirement Age under the Plan is (check one):
(1) [X] age 65.
(2) [ ] age _____ (specify between and 64).
(3) [ ] later of the age _____ (cannot exceed 65) or the
fifth anniversary of the Participant's Employment
Commencement Date.
-10-
<PAGE> 11
(b) [X] The Early Retirement Age is the first day of the month
after the Participant attains age 55 (specify 55 or
greater) and completes 5 Years of Service for Vesting.
(c) [X] A Participant is eligible for Disability Retirement if
he/she (check the appropriate box(es)):
(1) [X] satisfies the requirements for benefits under
the Employer's Long- Term Disability Plan.
(2) [ ] satisfies the requirements for Social Security
disability benefits.
(3) [ ] is determined to be disabled by a physician
approved by the Employer.
1.7 VESTING SCHEDULE:
(a) The Participant's vested percentage in Employer contributions
(Fixed or Discretionary) elected in Section 1.5(a) and/or
Matching Contributions elected in Section 1.5(c) shall be based
upon the schedule(s) selected below, except with respect to any
Plan Year during which the Plan is Top-Heavy. The schedule
elected in Section 1.12(d) shall automatically apply for a
Top-Heavy Plan Year and all Plan Years thereafter unless the
Employer has already elected a more favorable Vesting Schedule
below.
<TABLE>
<CAPTION>
(1) Employer Contributions (2) Matching Contributions
(check one): (check one):
<S> <C>
(A) [ ] N/A - No Employer Contributions (A) [ ] N/A - No Matching Contributions
(B) [X] 100% Vesting immediately (B)[ ] 100% Vesting immediately
(C) [ ] 3-year cliff (see C below) (C)[ ] 3-year cliff (see C below)
(D) [ ] 5-year cliff (see D below) (D)[ ] 5-year cliff (see D below)
(E) [ ] 6-year graduated (see E below) (E)[ ] 6-year graduated (see E below)
(F) [ ] 7-year graduated (see F below) (F)[ ] 7-year graduated (see F below)
(G) [ ] Other vesting (complete G1 below) (G)[X] Other vesting (complete G2 below)
</TABLE>
-11-
<PAGE> 12
VESTING SCHEDULE
<TABLE>
<CAPTION>
YEARS OF
SERVICE FOR
VESTING C D E F G1 G2
- -------------- ------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
0 0% 0% 0% 0% _____ 0%
1 0% 0% 0% 0% _____ 20%
2 0% 0% 20% 0% _____ 40%
3 100% 0% 40% 20% _____ 60%
4 100% 0% 60% 40% _____ 100%
5 100% 100% 80% 60% _____ N/A
6 100% 100% 100% 80% _____ _____
7 100% 100% 100% 100% 100% 100%
============== ============= ============== ============== ============== ============== ==============
</TABLE>
Note: A schedule elected under GI or G2 above must be at least as favorable as
one of the schedules in C, D, E, or F above.
(b) [ ] Years of Service for Vesting shall exclude (check one):
(1) [ ] for new plans, service prior to the Effective
Date as defined in Section 1.1(g)(1).
(2) [ ] for existing plans converting from another plan
document, service prior to the original Effective
Date as defined in Section 1.1(g)(2).
1.8 PREDECESSOR EMPLOYER SERVICE:
Service for purposes of eligibility in Section 1.3(a)(1) and vesting in Section
1.7(a) of this Plan shall include service with the following employer(s):
(a)
------------------------------------------------------------------
(b)
------------------------------------------------------------------
(c)
------------------------------------------------------------------
(d)
------------------------------------------------------------------
-12-
<PAGE> 13
1.9 PARTICIPANT LOANS:
Participant loans (check (a) or (b)):
(a) [X] will be allowed in accordance with Section 7.9,
subject to a $1,000 minimum amount, and will be granted
(check (1) or (2)):
(1) [X] for any purpose.
(2) [ ] for hardship withdrawal (as defined in Section
7.10) purposes only.
(b) [ ] will not be allowed.
1.10 HARDSHIP WITHDRAWALS:
Participant withdrawals for hardship prior to termination of employment (check
one):
(a) [X] will be allowed in accordance with Section 7.10,
subject to a $1,000 minimum amount.
(b) [ ] will not be allowed.
1.11 DISTRIBUTIONS:
(a) Subject to Articles 7 and 8 and (b) below, distributions under
the Plan will be paid (check the appropriate box(es)):
(1) [X] as a lump sum.
(2) [X] under a systematic withdrawal plan (installments).
(b) [X] Check if a Participant will be entitled to receive a
distribution of all or any portion of the following
Accounts without terminating employment upon attainment of
age 59 1/2 (check one):
(1) [ ] Deferral Contribution Account.
(2) [X] All Accounts.
(c) [X] Check if the Plan was converted (by Plan amendment)
from another defined contribution plan, and the benefits
were payable as (check the appropriate box(es)):
-13-
<PAGE> 14
(1) [ ] a form of single or joint and survivor life annuity.
(2) [ ] an in-service withdrawal of vested Employer
contributions maintained in a Participant's Account
(check (A) and/or (B)):
(A) [ ] for at least _________ (24 or more) months.
(B) [ ] after the Participant has at least 60 months
of participation.
(3) [X] another distribution option that is a
"protected benefit" under Section 411(d)(6) of the
Internal Revenue Code. Please attach a separate
page identifying the distribution option(s). These
additional forms of benefit may be provided for
such plans under Articles 7 or 8.
Note: Under Federal Law, distributions to Participants must
generally begin no later than April 1 following the year in which
the Participant attains age 70 1/2.
1.12 TOP-HEAVY STATUS:
(a) The Plan shall be subject to the Top-Heavy Plan requirements of
Article 9 (check one):
(1) [ ] for each Plan Year
(2) [X] for each Plan Year, if any, for which the Plan
is Top-Heavy as defined in Section 9.2.
(3) [ ] Not, applicable. (This option is available for
plans converting only employees subject to a
collective bargaining agreement and there are no
Employer or Matching Contributions elected in
Section 1.5.)
(b) In determining Top-Heavy status, if necessary for an Employer
with at least one defined benefit plan, the following assumptions
shall apply:
(1) [ ] Interest rate: % per annum.
(2) [ ] Mortality table: .
--------------
(3) [X] Not applicable.
(c) In the event that the Plan is treated as Top-Heavy for a Plan
Year, each Non-Key Employee shall receive an Employer
contribution of at least 3 (3, 4, 5, or 7 1/2) % of Compensation
for the Plan Year in accordance with Section 9.3 (check one):
-14-
<PAGE> 15
(1) [ ] under this Plan in any event.
(2) [X] under this Plan only if the Participant is not
entitled to such contribution under another
qualified plan of the Employer.
(3) [ ] Not applicable. (This option is available for
plans covering only Employees subject to a
collective bargaining agreement and there are no
Employer or Matching Contributions elected in
Section 1.5.)
Note: Such minimum Employer contribution may be less than the
percentage indicated in (c) above to the extent provided in
Section 9.3(a).
(d) In the event that the Plan is treated as Top-Heavy for a Plan
Year, the following Vesting Schedule shall apply instead of the
schedule(s) elected in Section 1.7(a) for such Plan Year and each
Plan Year thereafter (check one):
(1) [X] 100% vested after zero (0) (not in excess of 3)
Years of Service for Vesting.
(2) [ ]
<TABLE>
<CAPTION>
YEARS OF
SERVICE VESTING MUST BE
FOR VESTING PERCENTAGE AT LEAST
- ---------------- -----------------------------------
<S> <C> <C>
0 _____ 0%
1 _____ 0%
2 _____ 20%
3 _____ 40%
4 _____ 60%
5 _____ 80%
6 _____ 100%
</TABLE>
Note: If the schedule(s) elected in Section 1.7(a) is (are) more
favorable in all cases than the schedule elected in (d) above,
then the schedule(s) in Section 1.7(a) will continue to apply
even in Plan Years in which the Plan is Top-Heavy.
1.13 TWO OR MORE PLANS
Code Section 415 limitation an annual additions:
If the Employer maintains or ever maintained another qualified plan in
which any Participant in this Plan is (or was) a participant or could
become a participant, the Employer must complete this section. The
Employer must also complete this section if it maintains a welfare
benefit fund, as defined in Section 419(e) of the Code, or an individual
medical account, as defined in Section 415(l)(2) of the Code, under
which amounts are treated as Annual Additions with respect to any
Participant in this Plan.
-15-
<PAGE> 16
(a) If the Employer maintains, or maintained, any other defined
contribution plan which is not a Master or Prototype Plan, Annual
Additions for any Limitation Year to this Plan will be limited
(check one):
(1) [ ] in accordance with Section 5.3 of this Plan.
(2) [X] in accordance with another method set forth attached.
(3) [ ] Not applicable.
(b) If the, Employer maintains, or maintained, any defined benefit
plan(s), the sum of the Defined Contribution Fraction and Defined
Benefit Fraction for a Limitation Year may, not exceed the
limitation specified in Code Section 415(e), modified by section
416(h)(1) of the Code. This combined plan limit will be met as
follows (check one):
(1) [ ] Annual Additions to this Plan are limited so that
the sum of the Defined Contribution Fraction and
the Defined Benefit Fraction does
not exceed 1.0.
(2) [ ] another method of limiting Annual Additions or
reducing projected annual benefits is set forth on
an attached schedule.
(3) [X] Not applicable.
1.14 ESTABLISHMENT OF TRUST AND INVESTMENT DECISIONS:
(a) Investment Directions
Participant Accounts will be invested (check one):
(1) [ ] in accordance with investment directions provided
to the Trustee by the Employer for allocating all
Participant Accounts among the options listed in
(b) below.
(2) [X] in accordance with investment directions
provided to the Trustee by each Participant for
allocating his entire Account among the options
listed in (b) below.
(3) [ ] in accordance with investment directions provided
to the Trustee by each Participant for all
contribution sources in a Participant's Account
except the following sources shall be invested as
directed by the Employer (check (A) and/or (B)):
-16-
<PAGE> 17
(A) [ ] Fixed or Discretionary Employer contributions;
(B) [ ] Employer Matching Contributions.
The Employer must direct the applicable sources among the
same investment options made available for
Participant-directed sources listed in (b) below.
(b) Plan Investment Options
The Employer hereby establishes a Trust under the Plan in accordance
with the provisions of Article 14, and the Trustee signifies acceptance
of its duties under Article 14 by its signature below. Participant
Accounts under the Trust will be invested among the Fidelity Funds
listed below pursuant to Participant and/or Employer directions.
<TABLE>
<CAPTION>
FUND NAME FUND NUMBER
- --------- -----------
<S> <C> <C>
(1) Retirement Money Market Portfolio 630
(2) Government Securities Fund 054
(3) Growth and Income Portfolio 027
(4) Blue Chip Growth Fund 312
(5) Contrafund 022
(6) Growth Company Fund 025
(7) Overseas Fund 094
(8)
(9)
(10)
</TABLE>
Note: An additional annual recordkeeping fee will be charged for each fund in
excess of seven (7) funds.
To the extent that the Employer selects as an investment option the
Managed Income Portfolio of the Fidelity Group Trust for Employee
Benefit Plans (the "Group Trust"), the Employer hereby (A) agrees to the
terms of the Group Trust and adopts said terms as a part of this
Agreement and (B) acknowledges that it has received from the Trustee a
copy of the Group Trust, the Declaration of Separate Fund for the
Managed Income Portfolio of the Group Trust, and the Circular for the
Managed Income Portfolio.
Note: The method and frequency for change of investments will be
determined under the rules applicable, to the selected funds or, if
applicable, the rules of the Employer adopted in accordance with Section
6.3. Information will be provided regarding expenses, if any, for
changes in investment options.
-17-
<PAGE> 18
1.15 RELIANCE ON OPINION LETTER:
An adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this
Plan is qualified under Section 401 of the Code. If the Employer wishes
to obtain reliance that his/her Plan(s) are qualified, application for a
determination letter should be made to the appropriate Key District
Director of the Internal Revenue Service. Failure to fill out the
Adoption Agreement properly may result in disqualification of the Plan.
This Adoption Agreement may be used only in conjunction with Fidelity
Prototype Plan Basic Plan Document No .07. The Prototype Sponsor shall
inform the adopting Employer of any amendments made to the Plan or of
the discontinuance or abandonment of the prototype plan document.
1.16 PROTOTYPE INFORMATION:
Name of Prototype Sponsor: Fidelity Management & Research Co.
Address of Prototype Sponsor: 82 Devonshire Street
Boston, MA 02109
Questions regarding this prototype document may be directed to the following
telephone number: 1 800 343-9184.
-18-
<PAGE> 19
EXECUTION PAGE
(FIDELITY'S COPY)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to
be executed
this 17th day of January , 19 96 .
------------ ------------------- ---------
Employer Extended Systems, Inc.
----------------------------------------------------------
By /s/ Stephen M. Shaffer
----------------------------------------------------------
Title Human Resources Manager
----------------------------------------------------------
Employer Extended Systems, Inc.
----------------------------------------------------------
By /s/ Karla K. Rosa
----------------------------------------------------------
Title Assistant Controller
----------------------------------------------------------
Accepted by Fidelity Management Trust Company, as Trustee
By /s/ Gary L. Yerke Date 1/30/96
----------------------------------------------------------
Title Senior Legal Counsel
----------------------------------------------------------
-19-
<PAGE> 20
EXECUTION PAGE
(FIDELITY'S COPY)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to
be executed
this 17th day of January , 19 96 .
------------ -------------------- ---------
Employer Extended Systems, Inc.
----------------------------------------------------------
By /s/ Stephen M. Shaffer
----------------------------------------------------------
Title Human Resources Manager
----------------------------------------------------------
Employer Extended Systems, Inc.
----------------------------------------------------------
By /s/ Karla K. Rosa
----------------------------------------------------------
Title Assistant Controller
----------------------------------------------------------
Accepted by Fidelity Management Trust Company, as Trustee
By /s/ Gary L. Yerke Date 1/30/96
----------------------------------------------------------
Title Senior Legal Counsel
----------------------------------------------------------
-20-
<PAGE> 21
1.13(a) If the Employer maintains, or maintained, any other defined contribution
plan which is not a Master or Prototype Plan, Annual Additions for any
Limitation Year to this Plan will be limited (check one):
(2) in accordance with another method set forth on an attached separate sheet.
100% of excess annual additions will be allocated from the Extended Systems 401K
Plan the April 1 next following the close of such Plan Year, whether or not such
Participant has retired.
9.7 Notice to Trustee. The Administrator will notify the Trustee
whenever any Participant or Beneficiary is entitled to receive a distribution
under the Plan. In giving such notice, the Administrator will specify the name
and last known address of the person receiving such distribution. Upon receipt
of such notice from the Administrator, the Trustee will, as soon as is
reasonably practicable, distribute such amount.
Article X. Withdrawals.
10.1 Hardship Withdrawals. Any Participant who suffers a financial
hardship, as defined in this Section, may request a withdrawal from, his Share
of the Trust Fund of any sum not in excess of his nonforfeitable interest in
such share (determined as of the Valuation Date coinciding with or immediately
preceding the date of the Participant's request) by written notice to the
Administrator setting forth the amount requested and the fact establishing the
existence of such hardship. Upon receipt of such a request, the Administrator
shall determine whether a financial hardship exists; if the Administrator
determines that such a hardship does exist, it shall further determine what
portion of the amount requested by the Participant is required to meet the need
created by the hardship, and shall direct the Trustee to distribute to the
Participant in a single lump sum payment the amount so determined to be
required. For purposes of this Section, the term "financial hardship" includes
any financial need arising from
(a) the post secondary education of a dependent of the Participant,
(b) the purchase of a primary residence for the Participant,
(c) major medical expenses of the Participant or a dependent which
are not covered by insurance, or
(d) any other cause which, in the Administrator's determination, has
produced an immediate and heavy financial need;
provided, that the Administrator may, in its sole discretion, alter the
foregoing definition of financial hardship or otherwise limit the amount, time
or manner of any distribution under this section to the extent deemed necessary
by the Administrator to satisfy the requirements of Section 401(k) of the Code
or of the Treasury Regulation promulgated thereunder. No distribution under this
Section 10.1
-21-
<PAGE> 22
shall be made after December 31, 1988 from any income allocable to Elective
Contribution (or, to the extent provided in
-22-
<PAGE> 23
SERVICE AGREEMENT
PROFIT SHARING/401(K) PLAN
This Agreement is between Fidelity Management Trust Company ("Fidelity") and
Extended Systems Incorporated
- --------------------------------------------------------------------------------
(the "Employer"), who maintains the Plan designated below.
Plan Name: Extended Systems, 401K Plan
--------------------------------------------
Implementation Date: 4/1/96
--------------------------------------------
Number of Eligible Employees: 135
--------------------------------------------
Select One: [ ] Start Up Plan
[X] Conversion Plan or Start Up plan
with assets transferred
from another plan.
ARTICLE I. IMPLEMENTATION SERVICE FEES:
Set Up Fee: $2,000
Includes:
- Camera-ready copy of all relevant Administrative Forms
- Employee Communication Materials
- Fidelity Retirement Services Workbench Software and Reference
Manuals
- Implementation Conference Call - Issues covered include
electronic data transmission, contribution processing cycles,
ordering communication materials, plan administrative needs,
plan profile, project timetables, and resource coordination.
- One Administrative Manual
- One original Summary Plan Description
- Prototype plan document (updated as required to ensure
compliance with the Internal Revenue Code)
Conversion Fee: $2,000*
-1-
<PAGE> 24
(For Conversion Plans or Start-up Plans with Assets Transferred From
Another Plan)
Includes:
- Establishment of historical data on the Fidelity Participant
Recordkeeping System FPRS)
- Implementation Meeting, if necessary - Issues covered include
data transmission, contribution processing cycles, plan
administrative needs, plan profile, project timetables, and
resource coordination.
- Preparation of Participant and plan records for FPRS.
- Reconciliation of all contribution data.
- Transfer of assets from current Trustee.
* To be completed and initialed by a Fidelity Representative.
ARTICLE II. ADMINISTRATIVE SERVICE FEES:
Annual Fees (Sum of (1) through (4)):
(1) Base Fee $2,000
(2) Per Participant Fee:
Contributions will be remitted to Fidelity via wire transfer on a
(select one):
[ ] Monthly (or less frequent) Cycle [ ] $28 per Participant
[X] Biweekly or Semimonthly Cycle [X] $35 per Participant
[ ] Weekly Cycle [ ] $40 per Participant
The minimum fee under Sections (1) and (2) is $4,500 except if
the Employer elected a biweekly, semimonthly or weekly
contribution cycle. If a biweekly or semimonthly cycle is
selected then the minimum fee is $4,500 plus an additional $7 per
participant. If a weekly cycle is selected then the minimum fee
is $4,500 plus an additional $12 per participant.
Includes:
- Contribution processing on the designated cycle
-2-
<PAGE> 25
- Daily valuation
- Investment exchanges of existing Participant account balances
- Investment direction of future contributions
- Monthly Trial Balance Report
- Monthly withdrawals
- Quarterly Administrative Report
- Quarterly Statements mailed directly to Participants' homes
- Twenty-four hour Participant telephone access to account balance
and fund price information
The Quarterly Administrative Report and Quarterly Statements will be
generated based on a (select one):
[ ] January 31, April 30, July 31 or October 31 cycle
[X] February 28, May 31, August 31 or November 30 cycle
(3) (Optional)
<TABLE>
<CAPTION>
AMOUNT
PARTICIPANTS PER FUND
- ------------------------------------------------ ----------------- -------------
<S> <C> <C>
Additional Fee for each Fidelity Fund offered 1 - 1,000 $ 500
for the Plan in excess of seven 1,001 - 2,000 $1,000
more than 2,000 $1,500
</TABLE>
Indicate the number of funds offered under the Plan in excess of
seven: 0.
(4) (Optional)
Additional Per-Participant Fee For Frozen Employee
Voluntary After-Tax Contribution (frozen or active) Account: $10
(Only for those Participants with active or inactive after-tax
balances.)
-3-
<PAGE> 26
ARTICLE III. TRUSTEE SERVICE FEES:
Annual Fee: $2,800
Includes:
- Annual Plan-Year-End Summary Reporting Package on a cash basis.
- Custody of plan assets held in trust at Fidelity.
- Distribution checks and annual IRS Form 1099-R Tax reporting.
- Plan assets invested at the direction of Participants, or the
Employer if Employer direction is elected.
- Service for Exiting Employees (SEE) Kit for IRA Rollovers.
ARTICLE IV. ADDITIONAL FEES:
(1) EMPLOYEE COMMUNICATION
<TABLE>
<S> <C> <C>
- Initial Employee enrollment meeting No charge for one day-one
presentations. city meetings**
- Meetings for additional consecutive days $500 per day for same city**
of initial Employee enrollment meetings $750 per day for additional sites**
**Limit of four meetings per day. *According to account executive Peter
Lu, we would not need for one site in
Boseman, MT
approved per Jennifer Bechtol 1/18/96
</TABLE>
(2) PARTICIPANT LOANS
- Participant loan application fee processed $75 setup
via batched hardcopy
- Participant loan maintenance $25 per year
(Loan fees must be paid by the Employer unless paid by the
Participant.)
(3) RECORDKEEPING GUARANTEED INSURANCE CONTRACT (GIC)
-4-
<PAGE> 27
- Annual Fee
$ NA
(Based upon Fidelity's review of the GIC.
Three percent of the GIC assets will be maintained as a Reserve
Fund by Fidelity in a money market portfolio for Participant
redemptions. The annual GIC recordkeeping fee will not apply to
this Reserve Fund. Instead, an investment management fee of up to
18 basis points will be charged and deducted from the Reserve
Fund's interest income.
(4) MISCELLANEOUS DISTRIBUTIONS
<TABLE>
<S> <C> <C>
- Refund of Participant 401 (k) excess deferrals, $25 per Participant
contributions, or annual additions. This fee
will be changed to the Employer. (Only for those Participants
who receive refunds.)
(5) NON-DISCRIMINATION TESTING (select one): [X] Yes [ ] No
</TABLE>
By indicating "yes" in the above box, the Employer authorizes
Fidelity to perform the Core and/or Additional Tests listed
below. PLEASE CHOOSE EITHER PACKAGE TESTING SERVICES (OPTION "A")
OR ONE OR MORE OF THE TESTS OFFERED UNDER THE INDIVIDUAL TESTING
SERVICES (OPTION "B"). (Note: The services included under option
"a" include all of the individual tests listed under option "b").
The Employer understands that the non-discrimination tests'
results are based upon the information provided to Fidelity by
the Employer. Fidelity cannot be responsible for invalid test
results that are based upon incorrect or incomplete information
provided to Fidelity. Fidelity has no obligation to solicit data,
nor does it have an obligation to ascertain the accuracy or
completeness of the data received. The Employer must complete a
Fidelity nondiscrimination testing questionnaire before the
initial test can be performed.
(a) [X] Package Testing
(Effective for plan years beginning on or after January 1, 1994)
If the Package Testing Service is elected, Fidelity will perform
SEMI-ANNUAL Actual Deferral Percentage, Actual Contribution
Percentage, Annual Addition and Deferral Contribution Limitation
tests (as outlined in the Core Testing Services section below)
and, as necessary, the ANNUAL Top Heavy, Minimum and Minimum
Participation tests (as outlined in the Testing Services section
below) for the Employer's Plan. The fees
for these services are as follows:
-5-
<PAGE> 28
Initial test date for semi-annual test: 9/1/96 (Please specify.)
<TABLE>
<CAPTION>
PLAN SIZE
(BASED ON NUMBER OF ELIGIBLE EMPLOYEES) PACKAGE TESTS
- --------------------------------------- -------------
<S> <C> <C>
1 - 500 $2,250
501 - 1,000 $3,300
1,001 - 2,000 $4,350
============== ============
</TABLE>
(b) [ ] Individual Testing Services
1. SEMI-ANNUAL OR ANNUAL CORE TESTING SERVICES
If elected, Fidelity will perform the non-discrimination
test required by Internal Revenue Code (IRC) Section
401(k)(3) (Actual Deferral Percentage Test (ADP)) and, if
applicable, by IRC Section 401(m)(2) (Actual Contribution
Percentage Test (ACP)). The annual fee for performing the
tests is listed below. Fidelity must receive complete and
accurate data in the required format thirty days prior to
the anticipated distribution date of Participant refunds
due to the Plan's failure of the non-discrimination tests
under IRC Section 401(k)(3) and/or 401(m)(2). Fidelity
must receive proper written authorization from the
Employer before making any such distributions.
There are two Core Testing Service Options, Semi-Annual or
Annual Testing. You may elect one of the following
options.
[ ] Semi-Annual ADP, ACP, IRC Section 415(c)(1) and IRC
Section 402(g) Limit Testing
[ ] Annual ADP, ACP, IRC Section 415(c)(1) and IRC
Section 402(g) Limit Testing
Initial test date for semi-annual test: (Please specify.)
<TABLE>
<CAPTION>
PLAN SIZE ANNUAL SEMI-ANNUAL
(BASED ON NUMBER OF ELIGIBLE (ONE TEST) (TWO TEST)
EMPLOYEES) CYCLE* CYCLES*
---------------------------- --------------------- ------------
<S> <C> <C>
1 - 500 $1,300 $1,500
501 - 1,000 $1,800 $2,200
1,001 - 2,000 $2,000 $2,950
============== ======= ============
</TABLE>
-6-
<PAGE> 29
*Each CORE TESTING SERVICES Cycle includes an ADP Test, an ACP
Test, IRC Section 402(g) Deferral Limitation Monitoring (for
calendar year plans only), and IRC Section 415(c)(1) Limitation
Monitoring (for Defined Contribution Plans only). A quarterly
testing cycle is available, and the fee will be quoted upon
request.
2. ADDITIONAL TESTING SERVICES
[ ] IRC Section 416(c)(2) Top-Heavy Test (Annual
Top-Heavy Test for Defined Contribution Plan(s)).
Fidelity will perform the top-heavy test for an
Employer that also has a defined benefit plan that
is aggregated with the defined contribution plan.
However, the Employer must timely provide Fidelity
with the relevant defined benefit plan information.
[ ] IRC Section 410(b)(1) Minimum Coverage Test
(Annual Ratio Percentage Test only) and IRC Section
401(a)(26) Minimum Participation Test.
The fees for the Additional Testing Services, if they are
elected individually, are as follows:
<TABLE>
<CAPTION>
PLAN SIZE IRC MINIMUM COVERAGE
(BASED ON NUMBER OF SECTION 416(C)(2) (RATIO PERCENTAGE TEST ONLY)
ELIGIBLE EMPLOYEES) TOP-HEAVY TEST AND MINIMUM
PARTICIPATION TEST**
- ------------------------------ ------------------- ------------------------------
<S> <C> <C>
1 - 500 $ 750 $ 750
501 - 1,000 $1,100 $1,100
1,001 - 2,000 $1,450 $1,450
=============== ========= =========
</TABLE>
**This fee includes the Minimum Coverage Test and the Minimum
Participation Test.
Any annual IRC tests not elected in options "a" or "b" are the
responsibility of the Employer. The data for the Core and/or
Additional Testing Services must be transmitted to Fidelity on
magnetic tape or via Fidelity Retirement Service Workbench
Software.
The Employer will be billed a pro-rata portion of the entire
annual Non-Discrimination Testing Service fee at the end of each
quarter based upon the number of tests elected in the Employer's
Authorization for Non-discrimination Tests. If testing is
required for more than one plan of the Employer, a fee will be
charged for each plan based upon the number of Employees eligible
to participate in that plan. If extraordinary consulting
regarding the results of the non-discrimination tests is provided
by Fidelity personnel to the Employer, then such consulting will
be provided at the rate of $100 per hour. In
-7-
<PAGE> 30
addition, any correction or manipulation of Plan data by
Fidelity personnel at the request of the Employer will be
charged at the rate of $100 per hour.
ARTICLE V. BILLING INFORMATION:
Fidelity's quarterly invoice for services rendered will be sent to the
following address:
Contact Name: Stephen M. Shaffer
Telephone Number: (208) 322-7575
Title: Human Resources Manager
Address: 5777 North Meeker Ave.
City / State / Zip Code Boise, Id. 83713
ARTICLE VI. CONTACTS:
Prior Recordkeeper: Extended Systems of Idaho, Inc.
Contact Name: Karla Rosa
Telephone Number: (208) 322-7575
Title: Assistant Controller
Address: 5777 North Meeker Ave.
City / State / Zip Code Boise, Id. 83713
Prior Trustees: Douglas B. Winterrowd
Contact Name: Douglas B. Winterrowd
Telephone Number: (208) 322-7575
Title: Corporate Secretary, Extended Systems of
Idaho, Inc.
Address: 5777 North Meeker Ave.
City / State / Zip Code Boise, Id. 83713
Prior Custodian: (If not Trustee) Piper - Jaffrey, Inc.
Contact Name: James Gannon
Telephone Number: (208) 336-2400
Title: Managing Director
Address: 1161 River St., Suite 340
City / State / Zip Code Boise, Id. 83702
External Payroll Vendor: ADP (Automatic Data Processing)
Contact Name: Sandy Hertz
Telephone Number: (800) 736-3694
Title: Client Services Representative
Address: 12250 E. Iliff Ave.
City / State / Zip Code Aurora, CO 80014
-8-
<PAGE> 31
Internal Payroll Contact: Darren Oke
Contact Name: Darren Oke
Telephone Number: (208) 322-7575
Title: Staff Accountant
Address: 5777 North Meeker Ave.
City / State / Zip Code: Boise, Id. 83713
Payroll Frequency / Dates: Semi monthly (1st and 16th of each month)
ARTICLE VII. TERMS OF AGREEMENT:
The Implementation, Administrative, Trustee Services, and Additional
Fees specified on pages one through eight are contingent upon both
parties fulfilling their respective responsibilities in following
sections:
(1) Data Submission:
The Employer or Plan Administrator will provide Fidelity with accurate
and complete data via electronic data transmission, magnetic tape, or
the Fidelity Retirement Services Workbench Software on a timely basis.
As of the Implementation Date, the Employer or Plan Administrator must
send Fidelity the following required data for each new or existing
Participant: name, Social Security Number, address, employment dates,
employment status, and initial investment elections. After the
Implementation Date, the Employer or Plan Administrator may only send
Fidelity the aforementioned information for a new Participant or changes
to the name, address, employment dates, or employment status for an
existing Participant. Investment election changes may only be made as
provided in this Article VII, Section Four. Fidelity will not be
responsible for any losses and/or expenses that arise due to the
submission of incorrect or incomplete data, or data transmitted to
Fidelity in an improper format.
(2) Services:
Fidelity will have the responsibility to perform only the services set
forth in Articles I, II, III, and IV of this Agreement, effective as of
the Implementation Date. All other regulatory and admin istrative
matters relating to the Plan shall be the responsibility of the Employer
and the Plan Administrator. If so elected, the Employer may engage
Fidelity to perform the required annual Internal Revenue Code tests
offered by its Non-discrimination Testing Services Group.
(3) Initial Investment Election:
If Participant direction is elected by the Employer, each Participant in
the Plan shall submit his/her initial investment elections to the
Employer or Plan Administrator. These elections will then be submitted
to Fidelity by the Employer or Plan Administrator in accordance with the
terms set forth in Section One. All subsequent investment elections for
existing Participants must be made
-9-
<PAGE> 32
in accordance with Section Four using the Fidelity telephone exchange
system. Existing Participants must use the Fidelity telephone exchange
in Section Four to make investment changes.
(4) Telephone Directions by Participants:
If Participant direction is chosen by the Employer, each Participant in
the Plan shall be permitted to direct the investment of his/her
individual account balance and investment of future contributions among
available investment options through the use of Fidelity's telephone
exchange system. The Employer hereby directs Fidelity to act upon such
telephonic instructions without questioning the authenticity of such
direction other than as provided in the third paragraph of this section.
Fidelity will not be responsible for any losses and/or expenses that
arise for clients who provide changes for existing Participant
investment elections via the Fidelity Retirement Services Workbench
Application, electronic data transmission or magnetic tape.
This service allows Participants to telephone Fidelity between the hours
of 8:30 AM and 8:00 PM Eastern Time on any business day. The number of
exchanges from a Participant's existing account balance will be governed
by the mutual fund prospectus unless otherwise limited by the Employer
in accordance with Section 6.03 of The CORPORATEplan for Retirement(SM)
Prototype Basic Plan Document. Fidelity reserves the right to modify or
withdraw the exchange privilege in the future. All telephone
conversations will be recorded for the protection of Fidelity and the
Participants. Fidelity will not be responsible for determining the
authenticity of Participant and his/her telephone instructions. A
confirmation of the exchange of existing account balances and/or a
change in investment of future contributions will be mailed to the
Participant within seven business days of the call. If the telephone
call is received prior to 4:00 PM Eastern Time, the requested exchange
will be effective with that day's mutual fund closing prices. If the
telephone call is received after 4:00 PM Eastern Time, the exchange will
be effective with the next business day's closing prices.
A Participant will be required to provide the Fidelity telephone
exchange system representative with his/her Employer's plan number,
Social Security Number and personal identification number. For security
purposes, upon proper notice to Fidelity, the Employer shall have the
right to require a Participant to respond to additional questions (i.e.,
date of birth, date of hire, etc.) before being able to access his/her
accounts. Only authorized Plan contact(s) and the Participant shall have
access to a Participant's account. A Participant's ex-spouse who has a
segregated account in the Plan under a Qualified Domestic Relations
Order (QDRO) shall have access only to this account. A Participant's
spouse or any other third party may not have access to the Participant's
account or make exchanges of existing account balances and/or changes in
the investment of future contributions. Upon proper documentation and
notice to the Employer, an individual who becomes an active Beneficiary
in accordance with Section 2.01(a)(5) of the Basic Plan Document due to
the death of the Participant shall have the right to access the deceased
Participant's account. Fidelity reserves the right to establish a
separate account for the Beneficiary based upon his/her entitlement to
the deceased Participant's account.
-10-
<PAGE> 33
A Participant may not change his/her address through the telephone
exchange system. All such changes must be submitted to the Employer in
writing. The Employer shall then send such changes to Fidelity in the
required format.
(5) Employer Investment Direction:
If Employer investment direction is chosen by the Employer, then all
Participant accounts must be invested in Fidelity Fund(s) elected in
Section 1.14(b) of the Adoption Agreement. A Participant will not be
allowed to make any telephone exchanges of his/her account balance.
Fidelity will provide the Employer with procedures for exchanging
Participant account balances between/among Fidelity Fund(s) offered
under the Plan. Exchanges requested by an authorized Plan representative
will be executed within the time period specified in the procedures.
Fidelity reserves the right to modify the procedures upon notice to the
Employer.
(6) Contributions:
The Employer will be responsible for computing Employer contributions
for eligible Participants unless Fidelity provides such a service.
Contribution information must be received by Fidelity in an acceptable
media: diskette, electronic data transmission, Fidelity Retirement
Services Workbench Software or magnetic tape in the required Fidelity
format. The Employer must consolidate the contribution information for
multiple payrolls and/or multiple payroll sites onto one diskette,
electronic data transmission, Fidelity Retirement Services Workbench
Software or magnetic tape before sending it to Fidelity. The Employer
will remit contributions by wire transfer to Fidelity after receiving
notification and approval from Fidelity to wire the funds. Employer
contributions may be sent on a quarterly or a less frequent cycle. The
trade date of the transaction will be the day the funds are received by
Fidelity. Unsolicited or unidentified wire transfers of contributions
will not be invested until they can he properly identified and
reconciled by Fidelity.
(7) Withdrawals:
Withdrawal requests, including loans, will be processed monthly based
upon a mutually acceptable date determined immediately after the
implementation period by Fidelity and the Plan Administrator except no
withdrawal will be processed between December 15 and January 1. Fidelity
will process all withdrawals and mail the checks to the Participants
within ten business days of the monthly processing date. Withdrawals
will only be processed if there is complete, accurate and properly
authorized data received by Fidelity in the required media. AR
withdrawal requests received after the monthly cutoff date will be
processed the following month. The monthly withdrawal date may be
changed once each Plan Year based upon the written consent of Fidelity
and the Employer. Fidelity reserves the right to process withdrawals on
a more frequent basis.
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<PAGE> 34
(8) IRS Determination Letter Filing:
The Employer must use the Fidelity CORPORATEplan for Retirement(SM)
Prototype Basic Plan Document and corresponding Adoption Agreement. The
Employer can not add, delete, or modify them in any way. The Employer
will be responsible for completing and executing the Adoption Agreement
Standardized or Non-Standardized. Fidelity as the Prototype Plan Sponsor
is responsible for updating and amending the Prototype Plan Documents.
If the Nonstandardized Adoption Agreement is used, or if the
Standardized Adoption Agreement is used and the Employer maintains, or
has ever maintained, another plan, the Employer may not rely on the
opinion letter issued by the National Office of the Internal Revenue
Service as evidence that this Plan is qualified Under section 401 of the
Internal Revenue Code. The Employer is responsible for filing a request
with the appropriate Internal Revenue Service office to obtain an
individual determination letter for its Plan.
(9) Initial Employee Communication Meetings:
The initial day of Employee enrollment meetings will be limited to four
meetings. Additional fees will be incurred if meetings are held on
additional consecutive days or at multiple sites. Initial meetings
represent those meetings conducted by Fidelity before or immediately
after the Implementation Date of the Plan. Additional fees will be
charged for all re-enrollment meetings or meetings conducted sixty days
after the Implementation Date.
(10) Transition Period:
An existing Employer Plan converting to Fidelity's CORPORATEplan for
Retirement(SM) will be subject to a transition period to facilitate the
movement of Participant records and Plan assets from the prior
recordkeeper and/or trustee to Fidelity. The Employer will be
responsible for ensuring the prior recordkeeper provides Fidelity with
all of the required Participant account balance history and related
information. The Plan assets must be converted to cash and wired to
Fidelity on the Implementation Date unless the assets are already
invested in a Fidelity mutual fund offered under The CORPORATEplan for
Retirement(SM) (Fidelity reserves the right, upon sufficient written
notice, to require the Employer to liquidate all holdings in Fidelity
mutual funds as of the Implementation Date). The assets will be invested
in a money market fund until the transition period is completed. The
transition period will be from the Effective Date in Section 1.01(g) of
the Adoption Agreement through the date the conversion process is
completed and approved by the Employer. Participants will not be able to
make withdrawals, exchanges, or redirect future contributions during the
transition period. Fidelity will provide the Employer with information
about the conversion process and the transition period.
The duration of the transition period is dependent upon the cooperation
of the prior recordkeeper, prior trustee, the Employer and the Plan
Administrator. Fidelity can not guarantee that the transition period
will end as of a specified date, or the length of time required to
complete the implementation period.
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<PAGE> 35
(11) Fees:
As consideration for its services under this Agreement, Fidelity shall
be entitled to the fees computed in accordance with Articles I, II, III
and IV of this Agreement and any additional fees described in this
Section. A reasonable additional fee will be charged if Fidelity has to
reprocess any contribution data transmission due to excessive errors of
the Employer or payroll vendor. Additional services and special reports
or statements may be provided if Fidelity and Employer enter into a
separate written agreement identifying such services and the associated
fees. Fidelity shall be entitled to reasonable compensation for its
costs and expenses incurred in the event of termination of this
Agreement. Fidelity reserves the right to charge a termination fee equal
to a full year of fees identified under Articles I, II, III and IV in
the event the Employer terminates its relationship with Fidelity within
one year after the Implementation Date.
Fidelity will charge an additional Conversion Fee under Article I if
either the Employer acquires another Company and merges the acquired
Company's plan with its Plan or the Employer receives additional assets
to be added to its existing Plan. The Conversion Fee will be determined
after the relevant information has been received by Fidelity. This fee
will be communicated to the Employer prior to the conversion of
additional assets into the Employer's Plan.
The implementation service fee in Article I will be billed during the
implementation process. The annual base fees in Article II will become
effective as of the earlier of the date the telephone exchange service
becomes available to Participants and/or the Employer, or the date
Fidelity processes withdrawals. These fees will be prorated through the
end of the initial quarter. All Fidelity fees in Articles II, III and IV
will be billed in arrears to the Employer on a quarterly basis. An
Employee is treated as a Participant for purposes of the annual
per-participant fee if he/she has an account balance on any day of the
quarter or any previous quarter in the twelve-month annual billing
cycle. Therefore a Participant receiving a distribution will be
considered a Participant in each quarter in which he/she had an account
and each quarter thereafter in the
billing cycle. The trustee fees in Article III will become effective as
of the later of the Plan's Effective Date in Section 1.01(g) of the
Adoption Agreement or the Implementation Date.
If payment of the aforementioned fees is not received by Fidelity within
sixty days of receipt of Fidelity's quarterly invoice, or the fees are
to be paid by the Participants, then the fees shall be paid from the
Trust fund. Unless allocable to the accounts of particular Participants,
such fees shall be charged against the respective accounts of all
Participants in such reasonable manner as the Trustee may determine.
(12) Duration and Amendment:
This Agreement shall remain in effect for the remainder of the current
calendar year and shall thereafter lie automatically extended for
Successive one-year terms. Either party, however, by sixty days prior
written notice to the other, may terminate this Agreement unless the
receiving party agrees to a shorter notice period. This Agreement may be
amended or modified at any time and from time to time instrument
executed by the parties. Notwithstanding the foregoing, Fidelity
-13-
<PAGE> 36
reserves the right to amend unilaterally the fee schedule upon sixty
days prior written notice to the Employer.
(13) Participant Loans:
The Employer or Plan Administrator shall act as the Trustee's agent for
the purpose of holding Participant loans and the related documentation
and as such shall (1) hold physical custody of and keep safe the
promissory notes and other loan documents, (2) collect and remit all
principal and interest payments to the Trustee, (3) advise the Trustee
of the date, amount and payee of the checks to be drawn representing
loans, and (4) cancel and surrender the promissory, note and other loan
documentation to the Participant when a loan has been paid in full.
(14) Beneficiary Designation Forms:
The Employer or Plan Administrator will be responsible for physical
custody of all Participant beneficiary designation forms.
(15) Recordkeeping Guaranteed Investment Contracts:
Fidelity may provide recordkeeping services for an additional fee for a
guaranteed investment contract ("GIC') held in an existing plan that
converts to The CORPORATEplan for RetirementSM. The Employer's Plan must
meet all of the criteria established by Fidelity before the GIC can be
recordkept. Fidelity will review the GIC to determine any required
changes. Fidelity will then notify the Employer of the required changes.
The Employer will be responsible for negotiating directly with the
Insurance Company for any changes that will be required to the GIC for
Fidelity to recordkeep it. Fidelity will not conduct any Employee
communication meetings until after all of the required changes have been
agreed to by the Employer and the Insurance Company.
Upon maturity of the GIC all proceeds must be invested into Fidelity
Funds. Fidelity will not trustee the GIC assets and the Employer will be
responsible for the establishment of a separate trust or fund under The
CORPORATEplan for RetirementSM Prototype Basic Plan Document. The
Employer will be required to sign a Consent to a Separate Trust/Fund and
GIC Operating Agreement with Fidelity prior to the Effective Date listed
in Section 1.01(g) of the Adoption Agreement. The former Agreement will
identify the procedures and conditions for Fidelity to recordkeep the
GIC.
(16) Use of Service Agreement:
The use of this Service Agreement is contingent upon the use of The
CORPORATEplan for RetirementSM Prototype Basic Plan Document and
corresponding, Adoption Agreement. Fidelity shall have no responsibility
whatsoever if the Employer attempts to use a plan document other than
The CORPORATEplan for RetirementSM Document.
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<PAGE> 37
(17) Investments:
Fidelity shall have no discretion or authority with respect to the
investment of the Plan assets but shall act solely as a directed trustee
of the contributed funds. All Plan assets must be invested in allowable
Fidelity Funds under The CORPORATEplan for RetirementSM as selected by
the Employer unless a separate trust or fund is established under the
Prototype Basic Plan Document with the written consent of Fidelity. The
Employer may add, delete or replace any Fidelity Fund with another by
providing Fidelity with proper written direction at least thirty days
prior to the effective date of the change. Fidelity may charge the
Employer a reasonable additional fee to facilitate the replacement of
mutual fund(s).
(18) Service Providers:
Fidelity Management Trust Company is the Trustee of the Employer's Plan
under The CORPORATEplan for RetirementSM. Fidelity may use its
affiliates in providing the services described in this Agreement.
-15-
<PAGE> 38
SPECIMEN SIGNATURES:
At least one person is required to be authorized to provide instructions
to Fidelity Management Trust Company regarding The CORPORATEplan for
RetirementSM Account. Only the following person(s) designed below is/are
authorized to advise Fidelity on all plan administrative matters:
Name & Title Specimen Signature
Stephen M. Shaffer /s/ Stephen M. Shaffer
--------------------------------- --------------------------------
Human Resources Manager
--------------------------------- --------------------------------
Karla K. Rosa /s/ Karla K. Rosa
--------------------------------- --------------------------------
Assistant Controller
---------------------------------
--------------------------------- --------------------------------
---------------------------------
--------------------------------- --------------------------------
---------------------------------
PROCEDURE FOR CHANGING SPECIMEN SIGNATURES
The specimen signatures can be changed by the Employer at any time. To
add a new authorized signer, the Employer must send a letter of
instruction signed by an authorized individual to the Account Manager,
with an original specimen signature of the new authorized signer. To
delete or replace a signer, the Employer should identify the name(s) of
the individual(s) who is/are no longer authorized signer(s). The
Employer must provide any change at least ten business days prior to the
date the change will become effective.
-16-
<PAGE> 39
EXECUTION PAGE
(FIDELITY'S COPY)
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts except to the extent such laws are superseded by Section 514 of
ERISA. This Agreement shall be effective for the Plan as of the later of the
Effective Date in Section 1.01(g) of the Adoption Agreement or the
Implementation Date.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED
BY THEIR DULY AUTHORIZED OFFICERS.
<TABLE>
<CAPTION>
EMPLOYER: EMPLOYER:
<S> <C>
Print Name: Stephen M. Shaffer Print Name: Karla K. Rosa
------------------------------- -------------------------------
Signature: /s/ Stephen M. Shaffer Signature: /s/ Karla K. Rosa
------------------------------- -------------------------------
Title: Human Resources Manager Title: Assistant Controller
------------------------------- -------------------------------
Date: January 17, 1996 Date: January 17, 1996
------------------------------- -------------------------------
</TABLE>
Note: Only one authorized signature is required to execute this Agreement unless
the Employer's corporate policy mandates two authorized signatures.
FIDELITY MANAGEMENT TRUST COMPANY
Print Name: Gary L. Yerke
---------------------------------
Signature: /s/ Gary L. Yerke
---------------------------------
Title: Senior Legal Counsel
---------------------------------
Date: January 30, 1996
---------------------------------
<PAGE> 40
EXECUTION PAGE
(EMPLOYER'S COPY)
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts except to the extent such laws are superseded by Section 514 of
ERISA. This Agreement shall be effective for the Plan as of the later of the
Effective Date in Section 1.01(g) of the Adoption Agreement or the
Implementation Date.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED
BY THEIR DULY AUTHORIZED OFFICERS.
<TABLE>
<CAPTION>
EMPLOYER: EMPLOYER:
<S> <C>
Print Name: Stephen M. Shaffer Print Name: Karla K. Rosa
------------------------------- -------------------------------
Signature: /s/ Stephen M. Shaffer Signature: /s/ Karla K. Rosa
------------------------------- -------------------------------
Title: Human Resources Manager Title: Assistant Controller
------------------------------- -------------------------------
Date: January 17, 1996 Date: January 17, 1996
------------------------------- -------------------------------
</TABLE>
Note: Only one authorized signature is required to execute this Agreement unless
the Employer's corporate policy mandates two authorized signatures.
FIDELITY MANAGEMENT TRUST COMPANY
Print Name: Gary L. Yerke
---------------------------------
Signature: /s/ Gary L. Yerke
---------------------------------
Title: Senior Legal Counsel
---------------------------------
Date: January 30, 1996
---------------------------------
Note: This page should be signed by both the Employer and Fidelity. The Employer
should forward this page to Fidelity after signing it. Fidelity will return it
to the Employer after it is executed by an authorized Fidelity representative.
<PAGE> 41
The CORPORATEplan for Retirement
THE PROFIT SHARING/401(K) PLAN
FIDELITY BASIC PLAN DOCUMENT No. 07
<PAGE> 42
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 - ADOPTION AGREEMENT............................................................... 1
ARTICLE 2 - DEFINITIONS...................................................................... 1
2.01 Definitions...................................................................... 1
ARTICLE 3 - PARTICIPATION.................................................................... 9
3.01 Date of Participation............................................................ 9
3.02 Resumption of Participation Following Reemployment............................... 9
3.03 Cessation or Resumption of Participation Following a Change in Status............10
3.04 Participation by Owner-Employee; Controlled Businesses...........................10
3.05 Omission of Eligible Employee....................................................10
ARTICLE 4 - CONTRIBUTIONS....................................................................11
4.01 Deferral Contributions...........................................................11
4.02 Additional Limit on Deferral Contributions.......................................12
4.03 Matching Contributions...........................................................15
4.04 Limit on Matching Contributions and Employee Contributions.......................15
4.05 Special Rules....................................................................19
4.06 Fixed/Discretionary Employer Contributions.......................................20
4.07 Time of Making Employer Contributions............................................21
4.08 Return of Employer...............................................................21
4.09 Employee Contributions...........................................................21
4.10 Rollover Contributions...........................................................22
4.11 Deductible Voluntary Employee Contributions......................................22
4.12 Additional Rules for Paired Plans................................................23
ARTICLE 5 - PARTICIPANTS' ACCOUNTS...........................................................23
5.01 Individual Accounts..............................................................23
5.02 Valuation of Accounts............................................................23
5.03 Code Section 415 Limitations.....................................................23
ARTICLE 6 - INVESTMENT OF CONTRIBUTIONS......................................................30
6.01 Manner of Investment.............................................................30
6.02 Investment Decisions.............................................................30
6.03 Participant Directions to Trustee................................................31
</TABLE>
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<PAGE> 43
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 7 - RIGHT TO BENEFITS................................................................31
7.01 Normal or Early Retirement.......................................................31
7.02 Late Retirement..................................................................32
7.03 Disability Retirement............................................................32
7.04 Death............................................................................32
7.05 Other Termination of Employment..................................................32
7.06 Separate Account.................................................................33
7.07 Forfeitures......................................................................33
7.08 Adjustment for Investment Experience.............................................34
7.09 Participant Loans................................................................34
7.10 In-Service/Hardship Withdrawals..................................................36
7.11 Prior Plan in-Service Distribution Rules.........................................38
ARTICLE 8 - DISTRIBUTION OF BENEFITS PAYABLE
AFTER TERMINATION OF SERVICE..................................................38
8.01 Distribution of Benefits to Participants and Beneficiaries.......................38
8.02 Annuity Distributions............................................................39
8.03 Joint and Survivor Annuities/Preretirement Survivor Annuities....................40
8.04 Installment Distributions........................................................42
8.05 Immediate Distributions..........................................................44
8.06 Determination of Method of Distribution..........................................44
8.07 Notice to Trustee................................................................45
8.08 Time of Distribution.............................................................45
8.09 Whereabouts of Participants and Beneficiaries....................................46
ARTICLE 9 - TOP-HEAVY PROVISIONS.............................................................46
9.01 Application......................................................................46
9.02 Definitions......................................................................46
9.03 Minimum Contribution.............................................................49
9.04 Adjustment to the Limitation on Contributions And Benefits.......................50
9.05 Minimum Vesting..................................................................50
</TABLE>
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<PAGE> 44
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 10 - AMENDMENT AND TERMINATION.......................................................50
10.01 Amendment by Employer...........................................................50
10.02 Amendment by Prototype Sponsor..................................................51
10.03 Amendments Affecting Vented and/or Accrued Benefits.............................51
10.04 Retroactive Amendments..........................................................52
10.05 Termination.....................................................................52
10.06 Distribution upon Termination of the Plan.......................................52
10.07 Merger or Consolidation of Plans Transfer of Plan Assets........................52
ARTICLE 11 - AMENDMENT AND CONTINUATION OF PREDECESSOR PLANS
TRANSFER OF FUNDS TO OR FROM OTHER QUALIFIED PLANS...........................52
11.01 Amendment and Continuation of Predecessor Plan..................................52
11.02 Transfer of Funds from an Existing Plan.........................................53
11.03 Acceptance of Assets by Trustee.................................................54
11.04 Transfer of Assets from Trust...................................................54
ARTICLE 12 - MISCELLANEOUS...................................................................54
12.01 Communication to Participants...................................................54
12.02 Limitation of Rights............................................................54
12.03 Nonalienability of Benefits and Qualified Domestic Relations Orders.............55
12.04 Facility of Payment.............................................................55
12.05 Information between Employer and Trustee........................................56
12.06 Effect of Failure to Qualify Under Code.........................................56
12.07 Notices.........................................................................56
12.08 Governing Law...................................................................56
ARTICLE 13 - PLAN ADMINISTRATION.............................................................57
13.01 Powers and Responsibilities of the Administrator................................57
13.02 Nondiscriminatory Exercise of Authority.........................................57
13.03 Claims and Review, Procedural..................................................58
13.04 Named Fiduciary.................................................................58
13.05 Costs of Administration.........................................................58
</TABLE>
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<PAGE> 45
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 14 - TRUST AGREEMENT.................................................................59
14.01 Acceptance of Trust Responsibilities............................................59
14.02 Establishment of Trust Fund.....................................................59
14.03 Exclusive Benefit...............................................................59
14.04 Powers of Trustee...............................................................59
14.05 Accounts........................................................................60
14.06 Approving of Accounts...........................................................60
14.07 Distribution from Trust Fund....................................................61
14.08 Transfer of Amounts from Qualified Plan.........................................61
14.09 Transfer of Assets from Trust...................................................61
14.10 Separate Trust or Fund for Existing Plan Assets.................................61
14.11 Votings; Delivery of Information................................................62
14.12 Compensation and Expenses of Trustee............................................63
14.13 Reliance by Trustee on Other Persons............................................63
14.14 Indemnification by Employer.....................................................63
14.15 Consultant on by Trustee with Counsel...........................................63
14.16 Persons Dealing with the Trustee................................................64
14.17 Resignation or Removal of Trustee...............................................64
14.18 Fiscal Year of the Trust........................................................64
14.19 Discharge of Duties by Fiduciaries..............................................64
14.20 Amendment.......................................................................64
14.21 Plan Termination................................................................64
14.22 Permitted Reversion of Funds to Employer........................................65
14.23 Governing Law...................................................................65
</TABLE>
-iv-
<PAGE> 46
ARTICLE 1
ADOPTION AGREEMENT
ARTICLE 2
DEFINITIONS
2.01 Definitions.
(a) Wherever used herein, the following terms have the meanings
set forth below, unless a different meaning is clearly required by the context:
(1) "Account" means an account established on the books of
the Trust for the purpose of recording contributions made on behalf of a
Participant and any income, expenses, gains or losses incurred thereon.
(2) "Administrator" means the Employer adopting this Plan,
or other person designated by the Employer in Section 1.01(c).
(3) "Adoption Agreement" means Article 1, under which the
Employer establishes and adopts, or amends, the Plan and Trust and designates
the optional provisions selected by the Employer, and the Trustee accepts its
responsibilities under Article 14. The provisions of the Adoption Agreement
shall be an integral part of the Plan.
(4) "Annuity Starting Date" mean the first day of the first
period for which an amount is payable as an annuity or in any other form.
(5) "Beneficiary" means the person or persons entitled under
Section 7.04 to receive benefits under the Plan upon the death of a Participant,
provided that for purposes of Section 7.04 such term shall be applied in
accordance with Section 401(a)(9) of the Code and the regulations thereunder.
(6) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(7) "Compensation" shall mean
(A) for purposes of Article 4 (Contributions),
compensation as defined in Section 5.03(e)(2) excluding any items elected by the
Employer in Section 1.04(a), reimbursements or other expense allowances, fringe
benefits (cash and non-cash), moving expenses, deferred compensation and welfare
benefits, but including amounts that are not includable in the gross
<PAGE> 47
income of the Participant under a salary reduction agreement by reason of the
application of Sections 125, 402(a)(8), 402(h), or 403(b) of the Code; and
(B) for purposes of Section 2.01(a)(16)(Highly
Compensated Employees), Section 5.03 (Code Section 415 Limitations), and Section
9.03 (Top-Heavy Plan Minimum Contribution), compensation as defined in Section
5.03(e)(2).
Compensation shall generally be based on the amount
actually paid to the Participant during the Plan Year or, for purposes of
Article 4 if so elected by the Employer in Section 1.04(b), during that portion
of the Plan Year during which the Employee is eligible to participate.
Notwithstanding the preceding sentence, compensation for purposes of Section
5.03 (Code Section 415 Limitations) shall be based on the amount actually paid
or made available to the Participant during the Limitation Year. Compensation
for the initial Plan Year for a new plan shall be based upon eligible
Participant Compensation, subject to Section 1.04(b), from the Effective Date
listed in Section 1.01(g)(1) through the end of the first Plan Year.
In the case of any Self-Employed Individual,
Compensation shall mean the Individual's Earned Income.
For years beginning after December 31, 1988, the annual
Compensation of each Participant taken into account for determining all benefits
provided under the plan for any determination period shall not exceed $200,000.
This limitation shall be adjusted by the Secretary at the same time and in the
same manner as under Section 415(d) of the Code, except that the dollar increase
in effect on January 1 of any calendar year is effective for years beginning in
such calendar year and the first adjustment to the $200,000 limitation is
effected on January 1, 1990. If a plan determines Compensation on a period of
time that contains fewer than 12 calendar months, then the annual Compensation
limit is the amount equal to the annual Compensation limit for the calendar year
in which the Compensation period begins multiplied by the ratio obtained by
dividing the number of full months in the period by 12.
If Compensation for any prior determination period is
taken into account in determining an Employee's allocations or benefits for the
current determination period, the Compensation for such prior year is subject to
the applicable annual compensation limit in effect for that prior year. For this
purpose, for years beginning before January 1, 1990, the applicable annual
compensation limit is $200,000.
In determining the Compensation of a Participant for
purposes of this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying such rules, the term "family" shall include only
the spouse of the Participant and any lineal descendants of the Participant who
have not attained age 19 before the close of the year. If the $200,000
limitation is exceeded as a result of the application of these rules, then the
limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation as determined under this Section prior to
the application of this limitation.
-2-
<PAGE> 48
(8) "Earned Income" means the net earnings of a
Self-Employed Individual derived from the trade or business with respect to
which the Plan is established and for which the personal services of such
individual are a material income-providing factor, excluding any items not
included in gross income and the deductions allocated to such items, except that
for taxable years beginning after December 31, 1989 net earnings shall be
determined with regard to the deduction allowed under Section 164(f) of the
Code, to the extent applicable to the Employer. Net earnings shall be reduced by
contributions of the Employer to any qualified plan, to the extent a deduction
is allowed to the Employer for such contributions under Section 404 of the Code.
(9) "Eligibility Computation Period" means each 12
consecutive month period beginning with the Employment Commencement Date and
each anniversary thereof or, in the case of an Employee who, before completing
the eligibility requirements set forth in Section 1.03(a)(1), incurs a break in
service for participation purposes and thereafter returns to the employ of the
Employer or Related Employer, each 12 consecutive month period beginning with
the first day of reemployment and each anniversary thereof.
A "break in service for participation purposes" shall
mean an Eligibility Computation Period during which the participant does not
complete more than 500 Hours of Service with the Employer.
(10) "Employee" means any employee of the Employer, any Self
Employed Individual or Owner-Employee. The Employer must specify in Section
1.03(a)(3) any Employee or class of Employees not eligible to participate in the
Plan. If the Employer elects to exclude collective bargaining employees, the
exclusion applies to any employee of the Employer included in a unit of
employees covered by an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or more
employers unless the collective bargaining agreement requires the employee to be
included within the Plan. The term "employee representatives" does not include
any organization more than half the members of which are owners, officers, or
executives of the Employer.
For purposes of the Plan, an individual shall be
considered to become an Employee on the date on which he first completes an Hour
of Service and he shall be considered to have ceased to be an Employee on the
date on which he last completes an Hour of Service. The term also includes a
Leased Employee, such that contributions or benefits provided by the leasing
organization which are attributable to services performed for the Employer shall
be treated as provided by the Employer. Notwithstanding the above, a Leased
Employee shall not be considered an Employee if Leased Employees do not
constitute more than 20-percent of the Employer's non- highly compensated
work-force (taking into account all Related Employers) and the Leased Employee
is covered by a money purchase pension plan maintained by the leasing
organization and providing (A) a nonintegrated employer contribution rate of at
least 10-percent of compensation, as defined for purposes of Section 415(c)(3)
of the Code, but including amounts contributed pursuant to a salary reduction
agreement which are excludable from gross income under Section 125, Section
402(a)(8), Section 402(h) or Section 403(b) of the Code, (B) full and immediate
vesting, and (C) immediate participation by each employee of the leasing
organization.
-3-
<PAGE> 49
(11) "Employer" means the employer named in Section 1.02(a)
and any Related Employers required by this Section 2.01(a)(11). If Article 1 of
the Employer's Plan is the Standardized Adoption Agreement, the term "Employer"
includes all Related Employers. If Article 1 of the Employer's Plan is the
Non-standardized Adoption Agreement, the term "Employer" includes those Related
Employers designated in Section 1.02(b).
(12) "Employment Commencement Date" means the date on which
the Employee first performs an Hour of Service.
(13) "ERISA" means the Employee Retirement Income Security
Act of 1974, as from time to time amended.
(14) "Fidelity Fund" means any Registered Investment Company
or Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit
Plans which is made available to plans utilizing the CORPORATEplan for
Retirement.
(15) "Fund Share" means the share, unit, or other evidence of
ownership in a Fidelity Fund.
(16) "Highly Compensated Employee" means both highly
compensated active Employees and highly compensated former Employees.
A highly compensated active Employee includes any
Employee who performs service for the Employer during the determination year and
who, during the "look-back year," (A) received compensation from the Employer in
excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code), (B)
received compensation from the Employer in excess of $50,000 (as adjusted
pursuant to Section 415(d) of the Code) and was a member of the top-paid group
for such year, or (C) was an officer of the Employer and received compensation
during such year that is greater than 50-percent of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code. The term "Highly Compensated
Employee" also includes (i) Employees who are both described in the preceding
sentence if the term "determination year" is substituted for the term "look-back
year" and the Employee is one of the 100 Employees who received the most
compensation from the Employer during the determination year, and (ii) Employees
who are 5-percent owners at any time during the look-back year or determination
year.
If no officer has satisfied the compensation requirement
of (C) above during either a determination year or look-back year, the highest
paid officer for such year shall be treated as a highly compensated Employee.
For this purpose, the determination year shall be the
Plan Year. The look-back year shall be the twelve-month period immediately
preceding the determination year. The Employer may elect to make the look-back
year calculation for a determination on the basis of the calendar year ending
with or within the applicable determination year, as prescribed by Section
414(q) of the code and the regulations issued thereunder.
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A highly compensated former Employee includes any
Employee who separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer during the
determination year, and was a highly compensated active Employee for either the
separation year or any determination year ending on or after the Employee's 55th
birthday.
If an Employee is, during a determination year or
look-back year, a family member of either a 5-percent owner who is an active or
former Employee or a highly compensated Employee who is one of the 10 most
highly compensated Employees ranked on the basis of compensation paid by the
Employer during such year, then the family member and the 5- percent owner or
top-ten highly compensated Employee shall be aggregated. In such case, the
family member and 5-percent owner or top-ten highly compensated Employee shall
be treated as a single Employee receiving compensation and plan contributions or
benefits equal to the sum of such compensation and contributions or benefits of
the family member and 5-percent owner or top-ten highly compensated Employee.
For purposes of this Section, family member includes the spouse, lineal
ascendants and descendants of the Employee or former Employee and the spouses of
such lineal ascendants and descendants.
The determination of who is a highly compensated
Employee, including the determinations of the number and identity of Employees
in the top-paid group, the top 100 Employees, the number of Employees treated as
officers, and the compensation that is considered, will be made in accordance
with Section 414(q) of the Code and the regulations thereunder.
(17) "Hour of Service" means, with respect to any Employee,
(A) Each hour for which the Employee is directly or
indirectly paid, or entitled to payment, for the performance of duties for the
Employer or a Related Employer, each such hour to be credited to the Employee
for the Eligibility Computation Period in which the duties were performed;
(B) Each hour for which the Employee is directly or
indirectly paid, or entitled to payment, by the Employer or Related Employer
(including payments made or due from a trust fund or insurer to which the
Employer contributes or pays premiums) on account of a period of time during
which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity,
disability, layoff, jury duty, military duty, or leave of absence, each such
hour to be credited to the Employee for the Eligibility Computation Period in
which such period of time occurs, subject to the following rules:
(i) No more than 501 Hours of service shall be
credited under this paragraph (B) on account of any single continuous period
during which the Employee performs no duties;
(ii) Hours of Service shall not be credited under
this paragraph (B) for a payment which solely reimburses the Employee for
medically-related expenses, or
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which is made or due under a plan maintained solely for the purpose of complying
with applicable workmen's compensation, unemployment compensation or disability
insurance laws; and
(iii) If the period during which the Employee
performs no duties falls within two or more Eligibility Computation Periods and
if the payment made on account of such period is not calculated on the basis of
units of time, the Hours of Service credited with respect to such period shall
be allocated between not more than the first two such Eligibility Computation
Periods on any reasonable basis consistently applied with respect to similarly
situated Employees; and
(C) Each hour not counted under paragraph (A) or (B)
for which back pay, irrespective of mitigation of damages, has been either
awarded or agreed to be paid by the Employer or a Related-Employer, shall be
credited to the Employee for the Eligibility Computation Period to which the
award or Agreement pertains rather than the Eligibility Computation Period in
which the award agreement or payment is made.
For purposes of determining Hours of Service,
Employees of the Employer and of all Related Employers will be treated as
employed by a single employer. For purposes of paragraphs (B) and (C) above,
Hours of Service will be calculated in accordance with the provisions of Section
2530.200b-2(b) of the Department of Labor regulations, which are incorporated
herein by reference.
Solely for purposes of determining whether a break
in service for participation purposes has occurred in a computation period, an
individual who is absent from work for maternity or paternity reasons shall
receive credit for the hours of service which would otherwise have been credited
to such individual but for such absence, or in any case in which such hours
cannot be determined, 8 hours of service per day of such absence. For purposes
of this paragraph, an absence from work for maternity or paternity reasons means
an absence W by reason of the pregnancy of the individual, (ii) by reason of a
birth of a child of the individual, (iii) by reason of the placement of a child
with the individual in connection with the adoption of such child by such
individual, or (iv) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The hours of service credited
under this paragraph shall be credited (a) in the computation period in which
the absence begins if the crediting is necessary to prevent a break in service
in that period, or (b)in all other cases, in the following computation period.
(18) "Leased Employee" means any individual who provides
services to the Employer or a Related Employer (the "recipient") but is not
otherwise an employee of the recipient if (A) such services are provided
pursuant to an agreement between the recipient and any other person (the
"leasing organization"), (B) such individual has performed services for the
recipient (or for the recipient and any related persons within the meaning of
Section 414(n)(6) of the Code) on a substantially full-time basis for at least
one year, and (C) such services are of a type historically performed by
employees in the business field of the recipient.
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(19) "Normal Retirement Age" means the normal retirement age
specified in Section 1.06(a) of the Adoption Agreement. If the Employer enforces
a mandatory retirement age, the Normal Retirement Age is the lesser of that
mandatory age or the age specified in Section 1.06(a).
(20) "Owner-Employee" means, if the Employer is a sole
proprietorship, the individual who is the sole proprietor, or if the Employer is
a partnership, a partner who owns more than 10-percent of either the capital
interest or the profits interest of the partnership.
(21) "Participant" means any Employee who participates in the
Plan in accordance with Article 3 hereof.
(22) "Plan" means the plan established by the Employer in the
form of the prototype plan, as set forth herein as a new plan or as an amendment
to an existing plan, by executing the Adoption Agreement, together with any and
all amendments hereto.
(23) "Plan Year" means the 12 consecutive month period ending
on the date designated by the Employer in Section 1.01(f).
(24) "Prototype Sponsor" means Fidelity Management and
Research Company or its successor.
(25) "Registered Investment Company" means any one or more
corporations, partnerships or trusts registered under the Investment Company Act
of 1940 for which Fidelity Management and Research Company serves as investment
advisor.
(26) "Related Employer" means any employer other than the
Employer named in Section 1.02(a) if the Employer and such other employer are
members of a controlled group of corporations (as defined in Section 414(b) of
the Code) or an affiliated service group (as defined in Section 414(m)), or are
trades or businesses (whether or not incorporated) which are under common
control (as defined in Section 414(c)), or such other employer is required to be
aggregated with the Employer pursuant to regulations issued under Section
414(o).
(27) "Self-Employed Individual" means an individual who has
Earned Income for the taxable year from the Employer or who would have had
Earned Income but for the fact that the trade or business had no net profits for
the taxable year.
(28) "Trust" means the trust created by the Employer in
accordance with the provisions of Section 14.01.
(29) "Trust Agreement" means the agreement between the
Employer and the Trustee, as set forth in Article 14, under which the assets of
the Plan are held, administered, and managed.
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(30) "Trust Fund" means the property held in Trust by the
Trustee for the Accounts of the Participants and their Beneficiaries.
(31) "Trustee" means the Fidelity Management Trust Company,
or its successor.
(32) "Year of Service for Participation" means, with respect
to any Employee, an Eligibility Computation Period during which the Employee has
been credited with at least 1,000 Hours of Service. If the Plan maintained by
the Employer is the plan of a predecessor employer, an Employee's Years of
Service for Participation shall include years of service with such predecessor
employer. In any case in which the Plan maintained by the Employer is not the
plan maintained by a predecessor employer, service for such predecessor shall be
treated as service for the Employer, to the extent provided in Section 1.08.
(33) "Years of Service for Vesting" means, with respect to
any Employee, the number of whole years of his periods of service with the
Employer or a Related Employer (the elapsed time method to compute vesting
service), subject to any exclusions elected by the Employer in Section 1.07(b).
An Employee will receive credit for the aggregate of all time period(s)
commencing with the Employee's Employment Commencement Date and ending on the
date a break in service begins, unless any such years are excluded by Section
1.07(b). An Employee will also receive credit for any period of severance of
less than 12 consecutive months. Fractional periods of a year will be expressed
in terms of days.
In the case of a Participant who has 5 consecutive
1-year breaks in service, all years of service after such breaks in service will
be disregarded for the purpose of vesting the Employer-derived account balance
that accrued before such breaks, but both pre-break and post- break service will
count for the purposes of vesting the Employer-derived account balance that
accrues after such breaks. Both accounts will share in the earnings and losses
of the fund.
In the case of a Participant who does not have 5
consecutive 1 year breaks in service, both the pre-break and post-break service
will count in vesting both the pre-break and post-break employer derived account
balance.
A break in service is a period of severance of at least
12 consecutive months. Period of severance is a continuous period of time during
which the Employee is not employed by the Employer. Such period begins on the
date the Employee retires, quits or is discharged, or if earlier, the 12-month
anniversary of the date on which the Employee was otherwise first absent from
service.
In the case of an individual who is absent from work for
maternity or paternity reasons, the 12 consecutive month period beginning on the
first anniversary of the first date of such absence shall not constitute a break
in service. For purposes of this paragraph, an absence from work for maternity
or paternity reasons means an absence (A) by reason of the pregnancy of the
individual, (B) by reason of the birth of a child of the individual, (C) by
reason of the placement of a
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child with the individual in connection with the adoption of such child by such
individual, or (D) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
If the Plan maintained by the Employer is the plan of a
predecessor employer, an Employee's Years of Service for Vesting shall include
years of service with such predecessor employer. In any case in which the Plan
maintained by the Employer is not the plan maintained by a predecessor employer,
service for such predecessor shall be treated as service for the Employer to the
extent provided in Section 1.08.
(b) Pronouns used in the Plan are in the masculine gender but
include the feminine gender unless the context clearly indicates otherwise.
ARTICLE 3
PARTICIPATION
3.01 Date of Participation. All Employees in the eligible class (as
defined in Section 1.03(a)(3)) who are in the service of the Employer on the
Effective Date will become Participants on the date elected by the Employer in
Section 1.03(c). Any other Employee will become a Participant in the Plan as of
the first Entry Date on which he first satisfies the eligibility requirements
set forth in Section 1.03(a). In the event that an Employee who is not a member
of an eligible class (as defined in Section 1.03(a)(3)) becomes a member of an
eligible class, the individual shall participate immediately if such individual
had already satisfied the eligibility requirements and would have otherwise
previously become a Participant.
If an eligibility requirement other than one Year of Service is
elected in 1.03(a)(1), an Employee may not be required to complete a minimum
number of Hours of Service before becoming a Participant. An otherwise eligible
Employee subject to a minimum months of service requirement shall become a
Participant on the first Entry Date following his completion of the required
number of consecutive months of employment measured from his Employment
Commencement Date to the coinciding date in the applicable following month. For
purposes of determining consecutive months of service, the Related Employer and
predecessor employer rules contained in Sections 2.01(a)(17) and 2.01(a)(32)
shall apply.
3.02 Resumption of Participation Following Reemployment. If a Participant
ceases to be an Employee and thereafter returns to the employ of the Employer he
will be treated as follows:
(a) he will again become a Participant on the first date on which
he completes an Hour of Service for the Employer following his reemployment and
is in the eligible class of Employees as defined in Section 1.03(a)(3), and
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(b) any distribution which he is receiving under the Plan will
cease except as otherwise required under Section 8.08.
3.03 Cessation or Resumption of Participation Following a Change in
Status. If any Participant continues in the employ of the Employer or Related
Employer but ceases to be a member of an eligible class as defined in Section
1.03(a)(3), the individual shall continue to be a Participant for most purposes
until the entire amount of his benefit is distributed; however, the individual
shall not be entitled to receive an allocation of contributions or forfeitures
during the period that he is not a member of the eligible class. Such
Participant shall continue to receive credit for service completed during the
period for purposes of determining his vested interest in his Accounts. In the
event that the individual subsequently again becomes a member of an eligible
class of Employees, the individual shall resume full participation immediately
upon the date of such change in status.
3.04 Participation by Owner-Employee; Controlled Businesses. If the Plan
provides contributions or benefits for one or more Owner Employees who control
both the trade or business with respect to which the Plan is established and one
or more other trades or businesses, the Plan and any plan established with
respect to such other trades or businesses must, when looked at as a single
plan, satisfy Sections 401(a) and 401(d) of the Code with respect to the
employees of this and all such other trades or businesses. If the Plan provides
contributions or benefits for one or more Owner-Employees who control one or
more other trades or businesses, the Employees of each such other trade or
business must be included in a plan which satisfies Sections 401(a) and 401(d)
of the Code and which provides contributions and benefits not less favorable
than provided for Owner-Employees under the Plan.
If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
Employees under the plan of the trades or businesses which are controlled must
be as favorable as those provided for him under the most favorable plan of the
trade or business which is not controlled.
For purposes of this Section, an Owner-Employee, or two or more
Owner-Employees, shall be considered to control a trade or business if such
Owner-Employee, or such Owner-Employees together, (a) own the entire interest
in an unincorporated trade or business or (b) in the case of a partnership, own
more than 50-percent of either the capital interest or the profits interest in
such partnership. For this purpose, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership controlled by such
Owner-Employee or such Owner-Employees.
3.05 Omission of Eligible Employee. If any Employee who should be
included as a Participant in the Plan is erroneously omitted and discovery of
such omission is not made until after a contribution by his Employer for the
year has been made, the Employer shall make a subsequent contribution, if
necessary, so that the omitted Employee receives the total amount which the said
Employee would have received had he not been omitted. For purposes of this
Section 3.05, the term
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"contribution" shall not include Deferral Contributions and Matching
Contributions made pursuant to Sections 4.01 and 4.03, respectively.
ARTICLE 4
CONTRIBUTIONS
4.01 Deferral Contributions.
(a) If so provided by the Employer in Section 1.05(b), each
Participant may elect to execute a salary reduction agreement with the Employer
to reduce his Compensation by a specified percentage not exceeding 15% per
payroll period, subject to any exceptions elected by the Employer in Section
1.05(b)(2) and 1.05(b)(3) and equal to a whole number multiple of one (1)
percent. Such agreement shall become effective on the first day of the first
payroll period for which the Employer can reasonably process the request. The
Employer shall make a Deferral Contribution on behalf of the Participant
corresponding to the amount of said reduction, subject to the restrictions set
forth below. Under no circumstances may a salary reduction agreement be adopted
retroactively.
(b) A Participant may elect to change or discontinue the
percentage by which his Compensation is reduced by notice to the Employer as
provided in Section 1.05(b)(1).
(c) No Participant shall be permitted to have Deferral
Contributions made under the Plan, or any other qualified plan maintained by the
Employer, during the taxable year, in excess of the dollar limitation contained
in Section 402(g) of the Code in effect at the beginning of such taxable year.
A Participant may assign to the Plan any Excess Deferrals made
during the taxable year of the Participant by notifying the Plan Administrator
on or before March 15 following the taxable year of the amount of the Excess
Deferrals to be assigned to the Plan. A Participant is deemed to notify the
Administrator of any Excess Deferrals that arise by taking into account only
those Deferral Contributions made to the Plan and any other plan of the
Employer. Notwithstanding any other provision of the Plan, Excess Deferrals,
plus any income and minus any loss allocable thereto, shall be distributed no
later than April 15 to any Participant to whose Account Excess Deferrals were so
assigned for the preceding year and who claims Excess Deferrals for such taxable
year.
"Excess Deferrals" shall mean those Deferral Contributions
that are includable in a Participant's gross income under Section 402(g) of the
Code to the extent such Participant's Deferral Contributions for a taxable year
exceed the dollar limitation under such Code section. For purposes of
determining Excess Deferrals, the term "Deferral Contributions" shall include
the sum of all Employer Contributions made on behalf of such Participant
pursuant to an election to defer under any qualified CODA as described in
Section 401(k) of the Code, any simplified employee pension cash or deferred
arrangement as described in Section 402(h)(1)(B) of the Code, any eligible
deferred compensation plan under Section 457 of the Code, any plan as described
under Section 501(c)(18) of
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the Code, and any Employer Contributions made on the behalf of a Participant for
the purchase of an annuity contract under Section 403(b) of the Code pursuant to
a salary reduction agreement. Deferral Contributions shall not include any
deferrals properly distributed as excess annual additions. Excess Deferrals
shall be treated as annual additions under the Plan, unless such amounts are
distributed no later than the first April 15 following the close of the
Participant's taxable year.
Excess Deferrals shall be adjusted for any income or loss up
to the date of distribution. The income or loss allocable to Excess Deferrals is
(1) income or loss allocable to the Participant's Deferral Contributions Account
for the taxable year multiplied by a fraction, the numerator of which is such
Participant's Excess Deferrals for the year and the denominator is the
Participant's Account balance attributable to Deferral Contributions without
regard to any income or loss occurring during such taxable year, or (2) such
other amount determined under any reasonable method, provided that such method
is used consistently for all Participants in calculating the distributions
required under this Section 4.01(c) and Sections 4.02(d) and 4.04(d) for the
Plan Year, and is used by the Plan in allocating income or loss to Participants'
Accounts. Income or loss allocable to the period between the end of the Plan
Year and the date of distribution shall be disregarded in determining income or
loss.
(d) In order for the Plan to comply with the requirements of
Sections 401(k), 402(g) and 415 of the Code and the regulations promulgated
thereunder, at any time in a Plan Year the Administrator may reduce the rate of
Deferral Contributions to be, made on behalf of any Participant, or class of
Participants, for the remainder of that Plan Year, or the Administrator may
require that all Deferral Contributions to be made on behalf of a Participant be
discontinued for the remainder of that Plan Year. Upon the close of the Plan
Year or such earlier date as the Administrator may determine, any reduction or
discontinuance in Deferral Contributions shall automatically cease until the
Administrator again determines that such a reduction or discontinuance of
Deferral Contributions is required.
4.02 Additional Limit on Deferral Contributions.
(a) The Actual Deferral Percentage (hereinafter "ADP") for
Participants who are Highly Compensated Employees for each Plan - Year and the
ADP for participants who are Non- highly Compensated Employees for the same Plan
Year must satisfy one of the following tests:
(1) The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for Participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by 1.25; or
(2) The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for Participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by 2.0,
provided that the ADP for Participants who are Highly Compensated Employees does
not exceed the ADP for Participants who are Non-highly Compensated Employees by
more than two (2) percentage points.
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(b) The following special rules apply for the purposes of this
Section:
(1) The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Deferral Contributions
(and Qualified Discretionary Contributions if treated as Deferral Contributions
for purposes of the ADP test) allocated to his or her accounts under two or more
arrangements described in Section 401(k) of the Code that are maintained by the
Employer, shall be determined as if such Deferral Contributions (and, if
applicable, such Qualified Discretionary Contributions) were made under a single
arrangement. If a Highly Compensated Employee participates in two or more cash
or deferred arrangements that have different Plan Years, all cash or deferred
arrangements ending with or within the same calendar year shall be treated as a
single arrangement. Notwithstanding the foregoing, certain plans shall be
treated as separate if mandatorily disaggregated under regulations under Section
401(k) of the Code.
(2) In the event that this Plan satisfies the requirements
of Sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one
or more other plans, or if one or more other plans satisfy the requirements of
such Sections of the Code only if aggregated with this plan, then this Section
shall be applied by determining the ADP of Employees as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy section 401(k) of the Code only if they have the
same Plan Year.
(3) For purposes of determining the ADP of a Participant who
is a 5- percent owner or one of the ten most highly-paid Highly Compensated
Employees, the Deferral Contributions (and Qualified Discretionary Contributions
if treated as Deferral Contributions for purposes of the ADP test) and
Compensation of such Participant shall include the Deferral Contributions (and,
if applicable, Qualified Discretionary Contributions) and Compensation for the
Plan Year of Family Members (as defined in Section 414(q)(6) of the Code).
Family members, with respect to between the end of the Plan Year and the date of
distribution shall be disregarded in determining income or loss.
Excess Contributions shall be distributed from the
Participant's Qualified Discretionary Contribution account only to the extent
that such Excess Contributions exceed the balance in the Participant's Deferral
Contributions account.
(4) For purposes of determining the ADP test, Deferral
Contributions and Qualified Discretionary Contributions must be made before the
last day of the twelve-month period immediately following the Plan Year to which
contributions relate.
(5) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of Qualified
Discretionary Contributions used in such test.
(6) The determination and treatment of the ADP amounts of
any Participant shall satisfy such other requirements as may be prescribed by
the Secretary of the Treasury.
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(c) The following definitions shall apply for purposes of this
Section:
(1) "Actual Deferral Percentage" shall mean, for a specified
group of Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in such group) of (A) the amount of Employer
contributions actually paid over to the Trust on behalf of such Participant for
the Plan Year to (B) the Participant's Compensation for such Plan Year. Employer
contributions on behalf of any Participant shall include W any Deferral
Contributions made pursuant to the Participant's deferral election, including
Excess Deferrals of Highly Compensated Employees, but excluding (a) Excess
Deferrals of Non-highly Compensated Employees that arise solely from Deferral
Contributions made under the Plan or plans of the Employer and W Deferral
Contributions that are taken into account in the Contribution Percentage test
(provided the ADP test is satisfied both with and without exclusion of these
Deferral Contributions) and (ii) at the election of the Employer, Qualified
Discretionary Contributions. Matching Contributions, whether or not
non-forfeitable when made, shall not be considered as Employer Contributions for
purposes of this paragraph. For purposes of computing Actual Deferral
Percentages, an Employee who would be a Participant but for the failure to make
Deferral Contributions shall be treated as a Participant on whose behalf no
Deferral Contributions are made.
(2) "Excess Contributions" shall mean, with respect to any
Plan Year, the excess of
(a) The aggregate amount of Employer contributions
actually taken into account in computing the ADP of Highly Compensated
Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted
by the ADP test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the ADPs, beginning with the
highest of such percentages).
(3) "Qualified Discretionary Contributions" shall mean
contributions made by the Employer as elected in Section 1.05(b)(4) and
allocated to Participant Accounts of Non-highly Compensated Employees that such
Participants may not elect to receive in cash until distributed from the Plan,
that are nonforfeitable when made, and that are distributable only in accordance
with the distribution provisions that are applicable to Deferral Contributions.
Participants shall not be required to satisfy any hours of service or employment
requirement in order to receive an allocation of such contributions.
(d) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan Year to Participants to
whose Accounts such Excess Contributions were allocated for the preceding Plan
Year if such excess amounts are distributed more than 2 1/2 months after the
last day of the Plan Year in which such excess amounts arose, a ten (10) percent
excise tax will be imposed on the Employer maintaining the Plan with respect to
such amounts. Such distributions shall be made to
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Highly Compensated Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such employees. Excess
Contributions of Participants who are subject to the family member aggregation
rules of Section 414 (q)(6) of the Code shall be allocated among the family
members in proportion to the Deferral Contributions (and amounts treated as
Deferral Contributions) of each family member that is combined to determine the
combined ADP.
Excess Contributions shall be treated as annual additions
under the Plan.
Excess Contributions shall be adjusted for any income or loss
up to the date of distribution. The income or loss allocable to Excess
Contributions is (1) income or loss allocable to the Participant's Deferral
Contribution Account (and if applicable, the Qualified Discretionary
Contribution Account) for the Plan Year multiplied by a fraction, the numerator
of which is such Participant's Excess Contributions for the year and the
denominator is the Participant's Account balance attributable to Deferral
Contributions without regard to any income or loss occurring during such Plan
Year, or (2) an amount determined under any reasonable method, provided that
such method is used consistently for all Participants in calculating any
distributions required under Section 4.02(d) and Sections 4.01(c) and 4.04(d)
for the Plan Year, and is used by the Plan in allocating income or loss to the
Participants' Accounts. Income or loss allocable to the period between the end
of the Plan Year and the date of distribution shall be disregarded in
determining income or loss.
Excess Contributions shall be distributed from the
Participant's Qualified Discretionary Contribution Account only to the extent
that such Excess Contributions exceed the balance in the Participant's Deferral
Contributions Account.
4.03 Matching Contributions. If so provided by the Employer in Section
1.05(c), the Employer shall make a Matching Contribution on behalf of each
Participant who had Deferral Contributions made on his behalf during the year
and who meets the requirement, if any, of Section 1.05(c)(4). The amount of the
Matching Contribution shall be determined in accordance with Section 1.05(c),
subject to the limitations set forth in Section 4.04 and Section 404 of the
Code. Matching Contributions will not be allowed to be made by the Employer on
any voluntary non deductible Employee Contributions.
4.04 Limit on Matching Contributions and Employee Contributions.
(a) The Average Contribution Percentage (hereinafter "ACP") for
Participants who are Highly Compensated Employees for each Plan Year and the ACP
for Participants who are Non-highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(1) The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for Participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by 1.25; or
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(2) The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for Participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by two (2),
provided that the ACP for Participants who are Highly Compensated Employees does
not exceed the ACP for Participants who are Non-highly Compensated Employees by
more than two (2) percentage points.
(b) The following special rules apply for purposes of this
section:
(1) If one or more Highly-Compensated Employees participate
in both a qualified cash or deferred arrangement described in Section 401(k) of
the Code (hereafter "CODA") and a plan subject to the ACP test maintained by the
Employer and the sum of the ADP and ACP of those Highly Compensated Employees
subject to either or both tests exceeds the Aggregate Limit, then the ACP of
those Highly Compensated Employees who also participate in a CODA will be
reduced (beginning with such Highly Compensated Employee whose ACP is the
highest) so that the limit is not exceeded. The amount by which each Highly
Compensated Employee's Contribution Percentage Amounts is reduced shall be
treated as an Excess Aggregate Contribution. The ADP and ACP of the Highly
Compensated Employees are determined after any corrections required to meet the
ADP and ACP tests. Multiple use does not occur if either the ADP or ACP of the
Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP
of the Non-highly Compensated Employees.
(2) For purposes of this section, the Contribution
Percentage for any Participant who is a Highly Compensated Employee and who is
eligible to have Contribution Percentage Amounts allocated to his or her account
under two or more plans described in section 401(a) of the Code, or arrangements
described in section 401(k) of the Code that are maintained by the Employer,
shall be determined as if the total of such Contribution Percentage Amounts was
made under each plan, if a Highly Compensated Employee participates in two or
more cash or deferred arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar year shall be
treated as a single arrangement. Notwithstanding the foregoing, certain plans
shall be treated as separate if mandatorily disaggregated under regulations
under Section 401(m) of the Code.
(3) In the event that this Plan satisfies the requirements
of Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one
or more other plans, or if one or more other plans satisfy the requirements of
such sections of the Code if aggregated with this Plan, then this section shall
be applied by determining the Contribution Percentage of Employees as if all
such plans were a single plan. For plan years beginning after December 31, 1989,
plans may be aggregated in order to satisfy Section 401.(m) of the Code only if
they have the same Plan Year.
(4) For purposes of determining the Contribution percentage
of a Participant who is a five-percent owner or one of the ten most highly-paid
Highly Compensated Employees, the Contribution Percentage Amounts and
Compensation of such Participant shall include the Contribution Percentage
Amounts and Compensation for the Plan Year of family members (as defined in
Section 414(q)(6) of the Code). Family members, with respect to Highly
Compensated
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Employees, shall be disregarded as separate Employees in determining the
Contribution Percentage both for Participants who are Non-highly Compensated
Employees and for Participants who are Highly Compensated Employees.
(5) For purposes of determining the Contribution Percentage
test, Employee Contributions made pursuant to Section 1.05(d)(1) are considered
to have been made in the Plan Year in which contributed to the Trust. Matching
Contributions and Qualified Discretionary Contributions will be considered made
for a Plan Year if made no later than the end of the twelve-month period
beginning on the day after the close of the Plan Year.
(6) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of Qualified
Discretionary Contributions used in such test.
(7) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of Treasury.
(c) The following definitions shall apply for purposes of this
Section:
(1) "Aggregate Limit" shall mean the greater of (A) or (B)
where (A) is the sum of (i) 125-percent of the greater of the ADP of the
Non-highly Compensated Employees for the Plan Year or the ACP of Non-highly
Compensated Employees under the Plan subject to Section 401(m) of the Code for
the Plan Year beginning with or within the Plan Year of the CODA and (ii) the
lesser of 200% or two plus the lesser of such ADP or ACP and where (B) is the
sum of (i) 125-percent of the lesser of the ADP of the Non-highly Compensated
Employees for the Plan Year or the ACP of Non-highly Compensated Employees under
the Plan subject to Section 401(m) of the Code for the plan Year beginning with
or within the Plan Year of the CODA and (ii) the lesser of 200% or two plus the
greater of such ADP or ACP.
(2) "Average Contribution Percentage" or "ACP" shall mean
the average of the Contribution Percentages of the Eligible Participants in a
group.
(3) "Contribution Percentage" shall mean the ratio
(expressed as a percentage) of the Participant's Contribution Percentage Amounts
to the Participant's Compensation for the Plan Year.
(4) "Contribution Percentage Amounts" shall mean the sum of
the Employee Contributions and Matching Contributions made under the plan on
behalf of the Participant for the Plan Year. Such Contribution Percentage
Amounts shall not include Matching Contributions that are forfeited either to
correct Excess Aggregate Contributions or because the contributions to which
they relate are Excess Deferrals, Excess Contributions or Excess Aggregate
Contributions. If so elected by the Employer in Section 1.05(b)(4), the Employer
may include Qualified Discretionary Contributions in the Contribution Percentage
Amounts. The Employer also may elect to use Deferral Contributions in the
Contribution Percentage Amounts so long as the ADP test is met before the
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Deferral Contributions are used in the ACP test and continues to be met
following the exclusion of those Deferral Contributions that are used to meet
the ACP test.
(5) "Deferral Contribution" shall mean any contribution made
at the election of the Participant pursuant to a salary reduction agreement in
accordance with Section 4.01(a).
(6) "Eligible Participant" shall mean any Employee who is
eligible to make an Employee Contribution, or a Deferral Contribution (if the
Employer takes such contributions into account in the calculation of the
Contribution Percentage), or to receive a Matching Contribution.
(7) "Employee Contribution" shall mean any voluntary
nondeductible contribution made to the plan by or on behalf of a Participant
that is included in the Participant's gross income in the year in which made and
that is maintained in a separate Account to which earnings and losses are
allocated.
(8) "Matching Contribution" shall mean an Employer
contribution made to this or any other defined contribution plan on behalf of a
Participant on account of a Participant's Deferral Contribution.
(9) "Excess Aggregate Contributions" shall mean, with
respect to any Plan Year, the excess of
(A) The aggregate Contribution Percentage Amounts
taken into account in computing the numerator of the Contribution Percentage
actually made on behalf of Highly Compensated Employees for such Plan Year, over
(B) The maximum Contribution Percentage Amounts
permitted by the ACP test (determined by reducing contributions made on behalf
of Highly Compensated Employees in the order of their Contribution Percentages
beginning with the highest of such percentages).
Such determination shall be made after first
determining Excess Deferrals pursuant to Section 4.01 and then determining
Excess Contributions pursuant to Section 4.02.
(d) Notwithstanding any other provision of the Plan, Excess
Aggregate Contributions, plus any income and minus any loss allocable thereto,
shall be forfeited, if forfeitable, or if not forfeitable, distributed no later
than the last day of each Plan Year to Participants to whose Accounts such
Excess Aggregate Contributions were allocated for the preceding Plan Year.
Excess Aggregate Contributions of Participants who are subject to the family
member aggregation rules of Section 414(q)(6) of the Code shall be allocated
among the family members in proportion to the Employee and Matching
Contributions of each family member that is combined to determine the combined
ACP. If such Excess Aggregate Contributions are distributed more than 2 1/2
months after
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the last day of the Plan Year in which such excess amounts arose, a ten (10)
percent excise tax will be imposed on the employer maintaining the Plan with
respect to those amounts. Excess Aggregate Contributions shall be treated as
annual additions under the Plan.
Excess Aggregate Contributions shall be adjusted for any
income or loss up to the date of distribution. The income or loss allocable to
Excess Aggregate Contributions is (1) income or loss allocable to the
Participant's Employee Contribution Account, Matching Contribution Account (if
any, and if all amounts therein are not used in the ADP test) and if applicable,
Qualified Nonelective Contribution Account for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's Excess Aggregate
Contributions for the year and the denominator is the Participant's Account
balance(s) attributable to Contribution Percentage Amounts without regard to
income or loss occurring during such Plan Year, or (2) such other amount
determined under any reasonable method, provided that such method is used
consistently for all Participants in calculating any distributions required
under Section 4.04(d) and Sections 4.01(c) and 4.02(d) for the Plan Year, and is
used by the Plan in allocating income or loss to the Participants' Accounts.
Income or loss allocable to the period between the end of the Plan Year and the
date of distribution shall be disregarded in determining income or loss.
Forfeitures of Excess Aggregate Contributions shall be applied
to reduce Employer contributions; the forfeitures shall be held in the money
market fund, if any, listed in Section 1.14(b) pending such application.
Excess Aggregate Contributions shall be forfeited, if
forfeitable, or distributed on a pro rata basis from the Participant's Employee
Contribution Account, Matching Contribution Account and if applicable, the
Participant's Deferral Contributions Account or Qualified Discretionary
Contribution Account or both.
4.05 Special Rules. Deferral Contributions and Qualified. Discretionary
Contributions and income allocable to each are not distributable to a
Participant or his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or beneficiary's or beneficiaries, election, earlier than upon
separation from service, death, or disability, except as otherwise provided in
Section 7.10, 7.11 or 10.06. Such amounts may also be distributed, but after
March 31, 1988, in the form of a lump sum only, upon
(a) Termination of the Plan without establishment of another
defined contribution plan, other than an employee stock ownership plan (as
defined in Section 4975(e) or Section 409 of the Code) or a simplified employee
pension plan as defined in section 408(k) of the Code.
(b) The disposition by a corporation to an unrelated corporation
of substantially all of the assets (within the meaning of Section 409(d)(2) of
the Code) used in a trade or business of such corporation if such corporation
continues to maintain this Plan after the disposition, but only with respect to
Employees who continue employment with the corporation acquiring such assets.
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(c) The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary (within the meaning of Section
409(d)(2) of the Code) if such corporation continues to maintain this Plan, but
only with respect to Employees who continue employment with such subsidiary.
The Participant's accrued benefit derived from Deferral
Contributions, Qualified Discretionary Contributions and Employee Contributions
(as defined in Section 4.09) is nonforfeitable. Separate Accounts for Deferral
Contributions, Qualified Discretionary Contributions, Employee Contributions and
Matching Contributions will be maintained for each Participant. Each Account
will be credited with the applicable contributions and earnings thereon.
4.06 Fixed/Discretionary Employer Contributions. If so provided by the
Employer in Sections 1.05(a)(1) or 1.05(a)(2), for the Plan Year in which the
Plan is adopted and for each Plan Year thereafter, the Employer will make Fixed
or Discretionary Employer contributions to the Trust in accordance with Section
1.05 to be allocated as follows:
(a) Fixed Employer contributions shall be allocated among eligible
Participants (as determined in accordance with Section 1.05(a)(3)) in the manner
specified in Section 1.05(a).
(b) Discretionary Employer contributions shall be allocated among
eligible Participants, as determined in accordance with Section 1.05(a)(3), as
follows:
(1) If the Non-Integrated Formula is elected in Section
1.05(a)(2)(A), such contributions shall be allocated to eligible Participants in
the ratio that each Participant's Compensation bears to the total Compensation
paid to all eligible Participants for the Plan Year; or
(2) If the Integrated Formula is elected in Section
1.05(a)(2)(B), such contributions shall be allocated in the following steps:
(A) First, to each eligible Participant in the same
ratio that the sum of the Participant's Compensation and Excess Compensation for
the Plan Year bears to the sum of the Compensation and Excess Compensation of
all Participants for the Plan Year. This allocation as a percentage of the sum
of each Participant's Compensation and Excess Compensation shall not exceed
5.7%.
(B) Any remaining Discretionary Employer Contribution
shall be allocated to each eligible Participant in the same ratio that each
Participant's Compensation for the Plan Year bears to the total Compensation of
all Participants for the Plan Year.
For purposes of this Section, "Excess Compensation"
means Compensation in excess of the taxable wage base, as determined under
Section 230 of the Social Security Act, in effect on the first day of the Plan
Year. Further, this Section 4.06(b)(2) shall be modified as provided in Section
9.03 for years in which the Plan is top heavy under Article 9.
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4.07 Time of Making Employer Contributions. The Employer will pay its
contribution for each Plan Year not later than the time prescribed by law for
filing the Employer's federal income tax return for the fiscal (or taxable) year
with or within which such Plan Year ends (including extensions thereof). The
Trustee will have no authority to inquire into the correctness of the amounts
contributed and paid over to the Trustee, to determine whether any contribution
is payable under this Article 4, or to enforce, by suit or otherwise, the
Employer's obligation, if any, to make a contribution to the Trustee.
4.08 Return of Employer. The Trustee shall, upon request by the Employer,
return to the Employer the amount (if any) determined under Section 14.22. Such
amount shall be reduced by amounts attributable thereto which have been credited
to the Accounts of Participants who have since received distributions from the
Trust, except to the extent such amounts continue to be credited to such
Participants' Accounts at the time the amount is returned to the Employer. Such
amount shall also be reduced by the losses of the Trust attributable thereto, if
and to the extent such losses exceed the gains and income attributable thereto,
but will not be increased by the gains and income of the Trust attributable
thereto, if and to the extent such gains and income exceed the losses
attributable thereto. In no event will the return of a contribution hereunder
cause the balance of the individual Account of any Participant to be reduced to
less than the balance which would have been credited to the Account had the
mistaken amount not been contributed.
4.09 Employee Contributions. If the Employer elected to permit Deferral
Contributions in Section 1.05(b) and if so provided by the Employer in Section
1.05(d), each Participant may elect to make Employee Contributions to the Plan
in accordance with the rules and procedures established by the Employer and in
an amount not less than one percent (1%) and not greater than ten percent (10%)
of such Participant's Compensation for the Plan Year. Such contributions and all
Employee Contributions for Plan Years beginning after December 31, 1986, shall
be subject to the nondiscrimination requirements of Section 401(m) of the Code
as set forth in Section 4.04.
For purposes of this Plan, "Employee Contributions" shall mean any
voluntary non-deductible contribution made to a plan by or on behalf of a
Participant that is or was included in the Participant's gross income in the
year in which made and that is maintained under a separate account to which
applicable earnings and losses are allocated. Excess Contributions may not be
recharac terized as Employee Contributions.
Employee Contributions shall be paid over to the Trustee not later
than thirty (30) days following the end of the month in which the Participant
makes the contribution. A Participant shall have a fully vested 100%
nonforfeitable right to his Employee Contributions and the earnings or losses
allocated thereon. Distributions of Employee Contributions shall be made in
accordance with Section 7.10.
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4.10 Rollover Contributions.
(a) Rollover of Eligible Distributions.
(1) An Employee who is or was a distributes of an "eligible
rollover distribution"(as defined in Section 402(c)(4) of the Code and the
regulations issued thereunder) from a qualified plan may directly transfer all
or any portion of such distribution to the Trust or transfer all or any portion
of such distribution to the Trust within sixty (60) days of payment. The
transfer shall be made in the form of cash or allowable Fund Shares only.
(2) The Employer may refuse to accept rollover contributions
or instruct the Trustee not to accept rollover contributions under the Plan.
(b) Treatment of Rollover Amount.
(1) An account will be established for the transferring
Employee under Article 5, the rollover amount will be credited to the account
and such amount will be subject to the terms of the Plan, including Section
8.01, except as otherwise provided in this Section 4.10.
(2) The rollover account will at all times be fully vested
in and nonforfeitable by the Employee.
(c) Entry into Plan by Transferring Employee. Although an amount
may be transferred to the Trust Fund under this Section 4.10 by an Employee who
has not yet become a Participant in accordance with Article 3, and such amount
is subject to the terms of the Plan as described in paragraph (b) above, the
Employee will not become a Participant entitled to share in Employer
contributions until he has satisfied such requirements.
(d) Monitoring of Rollovers.
(1) The Administrator shall develop such procedures and
require such information from transferring Employees as it deems necessary to
insure that amounts transferred under this Section 4.10 meet the requirements
for tax-free rollovers established by such Section and by Section 402(c) of the
Code. No such amount may be transferred until approved by the Administrator.
(2) If a transfer made under this Section 4.10 is later
determined by the Administrator not to have met the requirements of this section
or of the Code or Treasury regulations, the Trustee shall, within a reasonable
time after such determination is made, and on instructions from the
Administrator, distribute to the Employee the amounts then held in the Trust
attributable to the transferred amount.
4.11 Deductible Voluntary Employee Contributions. The Administrator will
not accept deductible Employee Contributions which are made for a taxable year
beginning after December 31,
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1986. Contributions made prior to that date will be maintained in a separate
Account which will be nonforfeitable at all times and which will share in the
gains and losses of the trust in the same manner as described in Section 5.02.
No part of the deductible voluntary contribution Account will be used to
purchase life insurance. Subject to Article 8, the Participant may withdraw any
part of the deductible voluntary contribution Account upon
4.12 Additional Rules for Paired Plans. If the Employer has adopted a
qualified plan under Fidelity Basic Plan Document No. 09 which is to be
considered as a paired plan with this Plan, the elections in Section 1.03 must
be identical to the Employer's corresponding elections for the other plan. When
the paired plans are top-heavy or are deemed to be top-heavy as provided in
Section 9.01, the plan paired with this Plan will provide a minimum contribution
to each non-key Employee which is equal to 3-percent (or such other percent
elected by the Employer in Section 1.12(c)) of such Employee's Compensation.
Notwithstanding the preceding sentence, the minimum contribution shall be
provided by this Plan if contributions under the other plan paired with this
Plan are frozen.
ARTICLE 5
PARTICIPANTS' ACCOUNTS
5.01 Individual Accounts. The Administrator will establish and maintain
an Account for each Participant which will reflect Employer and Employee
Contributions made on behalf of the Participant and earnings, expenses, gains
and losses attributable thereto, and investments made with amounts in the
Participant's Account. The Administrator will establish and maintain such other
accounts and records as it decides in its discretion to be reasonably required
or appropriate in order to discharge its duties under the Plan.
5.02 Valuation of Accounts. Participant Accounts will be valued at their
fair market value at least annually as of a date specified by the Administrator
in accordance with a method consistently followed and uniformly applied, and on
such date earnings, expenses, gains and losses on investments made with amounts
in each Participant's Account will be allocated to such Account. Participants
will be furnished statements of their Account values at least once each Plan
Year.
5.03 Code Section 415 Limitations. Notwithstanding any other provisions
of the Plan:
Subsections (a)(1) through (a)(4) -- (These subsections apply to
Employers who do not maintain any Qualified plan, including a Welfare Benefit
Fund, an Individual Medical Account, or a simplified employee pension in
addition to this Plan.)
(a)(1) If the Participant does not participate in, and has never
participated in any other qualified plan, Welfare Benefit Fund, Individual
Medical Account, or a simplified employee pension, as defined in section
408(k) of the Code, maintained by the Employer, which provides an annual
addition as defined in Section 5.03(e)(1), the
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amount of Annual Additions to a Participant's Account for a Limitation
Year shall not exceed the lesser of the Maximum Permissible Amount or any
other limitation contained in this Plan. If the Employer contribution that
would otherwise be contributed or allocated to the Participant's Account
would cause the Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, the amount contributed or allocated will be
reduced so that the Annual Additions for the Limitation Year will equal
the maximum Permissible Amount.
(a)(2) Prior to the determination of the Participant's actual
Compensation for a Limitation Year, the maximum Permissible Amount may be
determined on the basis of a reasonable estimation of the Participant's
compensation for such Limitation Year, uniformly determined for all
Participants similarly situated. Any Employer contributions based on
estimated annual compensation shall be reduced by any Excess Amounts
carried over from prior years.
(a)(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation Year
shall be determined on the basis of the Participant's actual Compensation
for such Limitation Year.
(a)(4) If, pursuant to subsection (a)(3) or as a result of the
allocation of forfeitures or a reasonable error in determining the total
Elective Deferrals there is an Excess Amount with respect to a Participant
for a Limitation Year, such Excess Amount shall be disposed of as follows:
(A) Any nondeductible voluntary employee contributions
("employee contributions") or Elective Deferrals, to the extent they would
reduce the Excess Amount, will be returned to the Participant. Any gains
attributable to returned employee contributions will also be returned or will be
treated as additional employee contributions for the Limitation Year in which
the employee contributions were made.
(B) If after the application of paragraph (A) an
Excess amount still exists and the Participant is in the service of the Employer
which is covered by the Plan at the end of the Limitation Year, then such Excess
Amount shall be reapplied to reduce future Employer contributions under this
Plan for the next Limitation Year (and for each succeeding year, as necessary)
for such Participant, so that in each such Year the sum of actual Employer
contributions plus the reapplied amount shall equal the amount of Employer
contributions which would otherwise be made to such Participant's Account.
(C) If after the application of paragraph (A) an
Excess Amount still exists and the Participant is not in the service of the
Employer which is covered by the Plan at the end of a Limitation Year, then such
Excess Amount will be held unallocated in a suspense account. The suspense
account will be applied to reduce future Employer contributions for all
remaining Participants in the next Limitation Year and each succeeding
Limitation Year if necessary.
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(D) If a suspense account is in existence at any time
during the Limitation Year pursuant to this subsection, it will not participate
in the allocation of the Trust Fund's investment gains and losses. All amounts
in the suspense account must be allocated to the Accounts of Participants before
any Employer contribution may be made for the Limitation Year. Except as
provided in paragraph (A), Excess Amounts may not be distributed to Participants
or former Participants.
Subsections (b)(1) through (b)(6) -- (These subsections apply to
Employers who, in addition to this Plan, maintain one or more plans, all of
which are qualified Master or Prototype defined contribution Plans, any Welfare
Benefit Fund, any Individual Medical Account, or any simplified employee
pension.)
(b)(1) If, in addition to this Plan, the Participant is covered
under any other qualified defined contribution plans (all of which are
qualified Master or Prototype Plans), welfare Benefit Funds, Individual
Medical Accounts, or simplified employee pension Plans, maintained by the
Employer, that provide an annual addition as defined in Section
5.03(e)(1), the amount of Annual Additions to a Participant's Account for
a Limitation Year shall not exceed the lesser of
(A) the Maximum Permissible Amount, reduced by the sum
of any Annual Additions to the Participant's accounts for the same
Limitation Year under such other qualified Master or Prototype defined
contribution plans, and welfare Benefit Funds, Individual Medical
Accounts, and simplified employee pensions, or
(B) any other limitation contained in this Plan.
If the annual additions with respect to the Participant under other
qualified Master or Prototype defined contribution Plans, Welfare Benefit
Funds, Individual Medical Accounts, and simplified employee pensions
maintained by the Employer are less than the maximum permissible amount
and the Employer contribution that would otherwise be contributed or
allocated to the Participant's account under this plan would cause the
annual additions for the limitation year to exceed this limitation, the
amount contributed or allocated will be reduced so that the annual
additions under all such plans and funds for the limitation year will
equal the maximum permissible amount. If the annual additions with respect
to the Participant under such other qualified Master or Prototype defined
contribution Plans, Welfare Benefit Funds, Individual Medical Accounts,
and simplified employee pensions in the aggregate are equal to or greater
than the maximum permissible amount, no amount will be contributed or
allocated to the Participant's account under this plan for the limitation
year.
(b)(2) Prior to the determination of the Participant's actual
Compensation for the Limitation Year, the amounts referred to in
(b)(1)(A) above may be determined on the basis of a reasonable estimation
of the Participant's compensation for such
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Limitation Year, uniformly determined for all Participants similarly
situated. Any Employer contribution based on estimated annual compensation
shall be reduced by any Excess Amounts carried over from prior years.
(b)(3) As soon as is administratively feasible after the end of the
Limitation Year, the amounts referred to in (b)(1)(A) shall be determined
on the basis of the Participant's actual Compensation for such Limitation
Year.
(b)(4) If a Participant's Annual Additions under this Plan and all
such other plans result in an Excess Amount, such Excess Amount shall be
deemed to consist of the Annual Additions last allocated, except that
Annual Additions attributable to a simplified employee pension will be
deemed to have been allocated first, followed by Annual Additions to a
Welfare Benefit Fund or Individual Medical Account regardless of the
actual allocation date.
(b)(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of
another plan, the Excess Amount attributed to this Plan will be the
product of
(A) the total Excess Amount allocated as of such date
(including any amount which would have been allocated but for the
limitations of Section 415 of the Code), and
(B) the ratio of (i) the Annual Additions allocated to
the Participant as of such date under this Plan, and (ii) the Annual
Additions allocated as of such date under all qualified defined
contribution plans (determined without regard to the limitations of
Section 415 of the Code).
(b)(6) Any Excess Amounts attributed to this Plan shall be disposed
of as provided in subsection (a)(4).
Subsection (c) -- (This subsection applies only to Employers who, in
addition to this Plan, maintain one or more qualified plans which are qualified
defined contribution plans other than Master or Prototype Plans.)
(c) If the Employer also maintains another plan which is a
qualified defined contribution plan other than a Master or Prototype Plan,
Annual Additions allocated under this Plan on behalf of any Participant
shall be limited in accordance with the provisions of (b)(1) through
(b)(6), as though the other plan were a Master or Prototype Plan, unless
the Employer provides other limitations in the Adoption Agreement.
Subsection (d) -- (This subsection applies only to Employers who, in
addition to this Plan, maintain or at any time maintained a qualified defined
benefit plan.)
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(d) If the Employer maintains, or at any time maintained, a
qualified defined benefit plan, the sum of any Participant's Defined
Benefit Fraction and Defined Contribution Fraction shall not exceed the
combined plan limitation of 1.0 in any Limitation Year. The combined plan
limitation will be met as provided by the Employer in the Adoption
Agreement.
Subsections (e)(1) through (e)(11) -- (Definitions).
(e)(1) "Annual Additions" means the sum of the following amounts
credited to a Participant for a Limitation Year:
(A) all Employer contributions,
(B) all Employee Contributions,
(C) all forfeitures,
(D) amounts allocated, after March 31, 1984, to an
Individual Medical Account which is part of a pension or annuity plan
maintained by the Employer are treated as Annual Additions to a defined
contribution plan. Also, amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date,
which are attributable to post-retirement medical benefits allocated to
the separate account of a key employee, as defined in Section 419A(d)(3)
of the Code, under a Welfare Benefit Fund maintained by the Employer are
treated as Annual Additions to a defined contribution plan, and
(E) allocations under a simplified employee pension.
For purposes of this Section 5.03, amounts reapplied to reduce
Employer contributions under subsection (a)(4) shall also be included as Annual
Additions.
(e)(2) "Compensation" means wages as defined in Section 3401(a) of
the Code and all other payments of compensation to an employee by the
employer (in the course of the employer's trade or business) for which the
employer is required to furnish the employee a written statement under
Sections 6041(d) and 6051(a)(3) of the Code. Compensation must be
determined without regard to any rules under Section 3401(a) of the Code
that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the
exception for agricultural labor in Section 3401(a)(2) of the Code.)
For any Self-Employed Individual compensation will mean Earned
Income.
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For limitation years beginning after December 31, 1991, for purposes
of applying the limitations of this article, compensation for a limitation year
is the compensation actually paid or made available during such limitation year.
(e)(3) "Defined Benefit Fraction" means a fraction, the numerator of
which is the sum of the Participant's annual benefits (adjusted to an
actuarially equivalent straight life annuity if such benefit is expressed
in a form other than a straight life annuity or qualified joint and
survivor annuity) under all the defined benefit plans (whether or not
terminated) maintained by the Employer, each such annual benefit computed
on the assumptions that the Participant will remain in employment until
the normal retirement age under each such plan (or the Participant's
current age, if later) and that all other factors used to determine
benefits under such plan will remain constant for all future Limitation
Years, and the denominator of which is the lesser of 125-percent of the
dollar limitation determined for the Limitation Year under sections
415(b)(1)(A) and 415(d) of the Code or 140-percent of the Participant's
highest average Compensation for 3 consecutive calendar years of service
during which the Participant was active in each such plan, including any
adjustments under Section 415(b) of the Code. However, if the Participant
was a participant as of the first day of the first Limitation Year
beginning after December 31, 1986, in one or more defined benefit plans
maintained by the Employer which were in existence on May 6, 1986 then the
denominator of the Defined Benefit Fraction shall not be less than
125-percent of the Participant's total accrued benefit as of the close of
the last Limitation Year beginning before January 1, 1987, disregarding
any changes in the terms and conditions of the plan after May 5, 1986,
under all such defined benefit plans that met, individually and in the
aggregate, the requirements of Section 415 of the Code for all Limitation
Years beginning before January 1, 1987.
(e)(4) "Defined Contribution Fraction" means a fraction, the
numerator of which is the sum for the current and all prior Limitation
Years of (A) all Annual Additions (if any) to the Participant's accounts
under each defined contribution plan (whether or not terminated)
maintained by the Employer and (B) all Annual Additions attributable to
the Participant's nondeductible Employee Contributions to all defined
benefit plans (whether or not terminated) maintained by the Employer, and
the Participant's Annual Additions attributable to all Welfare Benefit
Funds, Individual Medical Accounts, and simplified employee pensions,
maintained by the Employer, and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior Limitation Years
during which the Participant was an Employee (regardless of whether the
Employer maintained a defined contribution plan in any such year).
The maximum aggregate amount in any Limitation Year is the lesser of
125-percent of the dollar limitation in effect under Section 415 (c)(1)(A) of
the Code for each such year or 35- percent of the Participant's Compensation for
each such year.
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If the Participant was a participant as of the first day of the
first Limitation Year beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in existence on May 6,
1986, then the numerator of the Defined Contribution Fraction shall be adjusted
if the sum of this fraction and the Defined Benefit Fraction would otherwise
exceed 1.0 under the terms of this Plan. Under the adjustment an amount equal to
the product of (i) the excess of the sum of the fractions over 1.0 and (ii) the
denominator of this fraction will be permanently subtracted from the numerator
of this fraction. The adjustment is calculated using the fractions as they would
be computed as of the end of the last Limitation Year beginning before January
1, 1987, and disregarding any changes in the terms, and conditions of the plan
made after May 6, 1986, but using the Section 415 limitation applicable to the
first Limitation Year beginning on or after January 1, 1987.
The annual addition for any limitation year beginning before January
1, 1987 shall not be recomputed to treat all employee contributions as annual
additions.
(e)(5) "Employer" means the Employer and any Related Employer that
adopts this Plan. In the case of a group of employers which constitutes a
controlled group of corporations (as defined in Section 414(b) of the Code
as modified by Section 415(h)) or which constitutes trades or businesses
(whether or not incorporated) which are under common control (as defined
in Section 414(c) of the Code as modified by Section 415(h) of the Code)
or which constitutes an affiliated service group (as defined in Section
43.4(m)of the Code) and any other entity required to be aggregated with
the Employer pursuant to regulations issued under section 414(o) of the
Code, all such employers shall be considered a single employer for
purposes of applying the limitations of this Section 5.03.
(e)(6) "Excess Amount" means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(e)(7) "Individual Medical Account" means an individual medical
account as defined in Section 415(l)(2) of the Code.
(e)(8) "Limitation Year" means the Plan Year. All qualified plans of
the Employer must use the same Limitation Year. If the Limitation Year is
amended to a different 12 consecutive month period, the new Limitation
Year must begin on a date within the Limitation Year in which the
amendment is made.
(e)(9) "Master or Prototype Plan" means a plan the form of which is
the subject of a favorable opinion letter from the Internal Revenue
Service.
(e)(10) "Maximum Permissible Amount" means for a Limitation Year
with respect to any Participant the lesser of (A) $30,000 or, if greater,
25-percent of the dollar limitation set forth in Section 415(b)(1) of the
Code, as in effect for the Limitation Year, or (B) 25-percent of the
Participant's Compensation for the
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Limitation Year. If a short Limitation Year is created because of an
amendment changing the Limitation Year to a different 12 consecutive month
period, the maximum Permissible Amount will not exceed the limitation in
(e)(10)(A) multiplied by a fraction whose numerator is the number of
months in the short Limitation Year and whose denominator is 12.
The compensation limitation referred to in subsection (e)(10)(B)
shall not apply to any contribution for medical benefits within the meaning of
Section 401(h) or Section 419A(f)(2) of the Code after separation from service
which is otherwise treated as an Annual Addition under Section 419A(d)(2) or
Section 415(l)(1) of the Code.
(e)(11) "Welfare Benefit Fund" means a welfare benefit fund as
defined in Section 419(e) of the Code.
ARTICLE 6
INVESTMENT OF CONTRIBUTIONS
6.01 Manner of Investment. All contributions made to the Accounts of
Participants shall be held for investment by the Trustee. The Accounts of
Participants shall be invested and reinvested only in eligible investments
selected by the Employer in Section 1.14(b), subject to Section 14.10.
6.02 Investment Decisions. Investments shall be directed by the Employer
or by each Participant or both, in accordance with the Employer's election in
Section 1.14(a). Pursuant to Section 14.04, the Trustee shall have no discretion
or authority with respect to the investment of the Trust Fund.
(a) With respect to those Participant Accounts for which Employer
investment direction is elected, the Employer has the right to direct the
Trustee in writing with respect to the investment and reinvestment of assets
comprising the Trust Fund in the Fidelity Fund(s) designated in Section 1.14(b)
and as allowed by the Trustee.
(b) If Participant investment direction is elected, each
Participant shall direct the investment of his Account among the Fidelity Funds
listed in Section 1.14(b). The Participant shall file initial investment
instructions with the Administrator, on such form as the Administrator may
provide, selecting the Funds in which amounts credited to his Account will be
invested.
(1) Except as provided in this Section 6.02, only authorized
Plan contacts and the Participant shall have access to a Participant's Account.
While any balance remains in the Account of a Participant after his death, the
Beneficiary of the Participant shall make decisions as to the investment of the
Account as though the Beneficiary were the Participant. To the extent required
by a qualified domestic relations order as defined in Section 414(p) of the
Code, an alternate payee
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shall make investment decisions with respect to a Participant's Account as
though such alternate payee were the Participant.
(2) If the Trustee receives any contribution under the Plan
as to which investment instructions have not been provided, the Trustee shall
promptly notify the Administrator and the Administrator shall take steps to
elicit instructions from the Participant. The Trustee shall credit any such
contribution to the Participant's Account and such amount shall be invested in
the Fidelity Fund selected by the Employer for such purposes or, absent Employer
selection, in the most conservative Fidelity Fund listed in Section 1.14(b),
until investment instructions have been received by the Trustee.
(c) All dividends, interest, gains and distributions of any nature
received in respect of Fund Shares shall be reinvested in additional shares of
that Fidelity Fund.
(d) Expenses attributable to the acquisition of investments shall
be charged to the Account of the Participant for which such investment is made.
6.03 Participant Directions to Trustee. All Participant initial
investment instructions filed with the Administrator pursuant to the provisions
of Section 6.02 shall be promptly transmitted by the Administrator to the
Trustee. A Participant shall transmit subsequent investment instructions
directly to the Trustee by means of the telephone exchange system maintained by
the Trustee for such purposes. The method and frequency for change of
investments will be determined under the (a) rules applicable to the investments
selected by the Employer in Section 1.14(b) and (b) the additional rules of the
Employer, if any, limiting the frequency of investment changes, which are
included in a separate written administrative procedure adopted by the Employer
and accepted by the Trustee. The Trustee shall have no duty to inquire into the
investment decisions of a Participant or to advise him regarding the purchase,
retention or sale of assets credited to his Account.
ARTICLE 7
RIGHT TO BENEFITS
7.01 Normal or Early Retirement. Each Participant who attains his Normal
Retirement Age or, if so provided by the Employer in Section 1.06(b), Early
Retirement Age, will have a 100- percent nonforfeitable interest in his Account
regardless of any vesting schedule elected in Section 1.07. If a Participant
retires upon the attainment of Normal or Early Retirement Age, such retirement
is referred to as a normal retirement. Upon his normal retirement the balance of
the Participant's Account, plus any amounts thereafter credited to his Account,
subject to the provisions of Section 7.08, will be distributed to him in
accordance with Article B.
If a Participant separates from service before satisfying the age
requirements for early retirement, but has satisfied the service requirement,
the Participant will be entitled to elect an early retirement distribution upon
satisfaction of such age requirement.
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7.02 Late Retirement. If a Participant continues in the service of the
Employer after attainment of Normal Retirement Age, he will continue to have a
100-percent nonforfeitable interest in his Account and will continue to
participate in the Plan until the date he establishes with the Employer for his
late retirement. Until he retires, he has a continuing election to receive all
or any portion of his Account. Upon the earlier of his late retirement or the
distribution date required under Section 8.08, the balance of his Account, plus
any amounts thereafter credited to his Account, subject to the provisions of
Section 7.08, will be distributed to him in accordance with Article 8 below.
7.03 Disability Retirement. If so provided by the Employer in Section
1.06(c), a Participant who becomes disabled will have a 100-percent
nonforfeitable interest in his Account, the balance of which Account, plus any
amounts thereafter credited to his Account, subject to the provisions of Section
7.08, will be distributed to him in accordance with Article 8 below. A
Participant is considered disabled if he cannot engage in any substantial,
gainful activity because of a medically determinable physical or mental
impairment likely to result in death or to be of a continuous period of not less
than 12 months, and terminates his employment with the Employer. Such
termination of employment is referred to as a disability retirement.
Determinations with respect to disability shall be made by the Administrator who
may rely on the criteria set forth in Section 1.06(c) as evidence that the
Participant is disabled.
7.04 Death. Subject, if applicable, to Section 8.04, if a Participant
dies before the distribution of his Account has commenced, or before such
distribution has been completed, his Account shall become 100-percent vested and
his designated Beneficiary or Beneficiaries will be entitled to receive the
balance or remaining balance of his Account, plus any amounts thereafter
credited to his Account, subject to the provisions of Section 7.08. Distribution
to the Beneficiary or Beneficiaries will be made in accordance with Article 8.
A Participant may designate a Beneficiary or Beneficiaries, or
change any prior designation of Beneficiary or Beneficiaries by giving notice to
the Administrator on a form designated by the Administrator. If more than one
person is designated as the Beneficiary, their respective interests shall be as
indicated on the designation form. In the case of a married Participant, the
Participant's spouse shall be deemed to be the designated Beneficiary unless the
Participant's spouse has consented to another designation in the manner
described in Section 8.03(d).
A copy of the death notice or other sufficient documentation must be
filed with and approved by the Administrator. If upon the death of the
Participant there is, in the opinion of the Administrator, no designated
Beneficiary for part or all of the Participant's Account, such amount will be
paid to his surviving spouse or, if none, to his estate (such spouse or estate
shall be deemed to be the Beneficiary for purposes of the Plan). If a
Beneficiary dies after benefits to such Beneficiary have commenced, but before
they have been completed, and, in the opinion of the Administrator, no person
has been designated to receive such remaining benefits, then such benefits shall
be paid in a lump sum to the deceased Beneficiary's estate.
7.05 Other Termination of Employment. If a Participant terminates his
employment for any reason other than death or normal, late, or disability
retirement, he will be entitled to a termination
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benefit equal to the sum of (a) the vested percentage(s) of the value of the
Matching and/or Fixed/Discretionary Contributions to his Account, as adjusted
for income, expense, gain, or loss, such percentage (s) determined in accordance
with the vesting schedule (s) selected by the Employer in Section 1.07, and (b)
the value of the Deferral, Employee, Qualified Discretionary and Rollover
Contributions to his Account as adjusted for income, expense, gain or loss. The
amount payable under this Section 7.05 will be subject to the provisions of
Section 7.08 and will be distributed in accordance with Article 8 below.
7.06 Separate Account. If a distribution from a Participant's Account has
been made to him at a time when he has a nonforfeitable right to less than
100-percent of his Account, the vesting schedule in Section 1.07 will thereafter
apply only to amounts in his Account attributable to Employer contributions
allocated after such distribution. The balance of his Account immediately after
such distribution will be transferred to a separate account which will be
maintained for the purpose of determining his interest therein according to the
following provisions.
At any relevant time prior to a forfeiture of any portion thereof
under Section 7.07, a Participant's nonforfeitable interest in his Account held
in a separate account described in the preceding paragraph will be equal to P(AB
+ (RxD))-(Red), where P is the nonforfeitable percentage at the relevant time
determined under Section 7.05; AB is the account balance of the separate account
at the relevant time; D is the amount of the distribution; and R is the ratio of
the account balance at the relevant time to the account balance after
distribution. Following a forfeiture of any portion of such separate account
under Section 7.07 below, any balance in the Participant's separate account will
remain fully vested and nonforfeitable.
7.07 Forfeitures. If a Participant terminates his employment, any portion
of his Account (including any amounts credited after his termination of
employment) not payable to him under Section 7.05 will be forfeited by him upon
the complete distribution to him of the vested portion of his Account, if any,
subject to the possibility of reinstatement as described in the following
paragraph. For purposes of this paragraph, if the value of an Employee's vested
Account balance is zero, the Employee shall be deemed to have received a
distribution of his vested interest immediately following termination of
employment. Such forfeitures will be applied to reduce the contributions of the
Employer next payable under the Plan (or administrative expenses of the Plan);
the forfeitures shall be held in a money market fund pending such application.
If a Participant forfeits any portion of his Account under the
preceding paragraph but again becomes an Employee after such date, then the
amount so forfeited, without any adjustment for the earnings, expenses, or
losses or gains of the assets credited to his Account since the date forfeited,
will be recredited to his Account (or to a separate account as described in
Section 7.06, if applicable) but only if he repays to the Plan before the
earlier of five years after the date of his reemployment or the date he incurs 5
consecutive 1-year breaks in service following the date of the distribution the
amount previously distributed to him, without interest, under Section 7.05. If
an Employee is deemed to receive a distribution pursuant to this Section 7.07
and the Employee resumes employment before 5 consecutive 1-year breaks in
service, the Employee shall be deemed to have repaid such distribution on the
date of his reemployment. Upon such an actual or deemed repayment, the
provisions of the
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Plan (including Section 7.06) will thereafter apply as if no forfeiture had
occurred. The amount to be recredited pursuant to this paragraph will be derived
first from the forfeitures, if any, which as of the date of recrediting have yet
to be applied as provided in the preceding paragraph and, to the extent such
forfeitures are insufficient, from a special Employer contribution to be made by
the Employer.
If a Participant elects not to receive the nonforfeitable portion of
his Account following his termination of employment, the non-vested portion of
his Account shall be forfeited after the Participant has incurred five
consecutive 1-year breaks in service as defined in Section 2.01(a)(33).
No forfeitures will occur solely as a result of a Participant's withdrawal
of Employee contributions.
7.08 Adjustment for Investment Experience. If any distribution under this
Article 7 is not made in a single payment, the amount retained by the Trustee
after the distribution will be subject to adjustment until distributed to
reflect the income and gain or loss on the investments in which such amount is
invested and any expenses properly charged under the Plan and Trust to such
amounts.
7.09 Participant Loans. If permitted under Section 1.09, the
Administrator shall allow Participants to apply for a loan from the Plan,
subject to the following:
(a) Loan Application. All Plan loans shall be administered by the
Administrator. Applications for loans shall be made to the Administrator on
forms available from the Administrator. Loans shall be made available to all
Participants on a reasonably equivalent basis. For this purpose, the term
"Participant" means any Participant or Beneficiary, including an alternate payee
under a qualified domestic relations order, as defined in Section 414(p) of the
Code, who is a party-in-interest (as determined under ERISA Section 3(14)) with
respect to the Plan except no loans will be made to (1) an Employee who makes a
rollover contribution in accordance with Section 4.10 who has not satisfied the
requirements of Section 3.01 or (2) a shareholder-employee or owner-Employee.
For purposes of this requirement, a shareholder-employee means an employee or
officer of an electing small business (Subchapter S) corporation who owns (or is
considered as owning within the meaning of Section 318(a)(1) of the Code), on
any day during the taxable year of such corporation, more than St of the
outstanding stock of the corporation.
A Participant with an existing loan may not apply for another
loan until the existing loan is paid in full and may not refinance an existing
loan or attain a second loan for the purpose of paying off the existing loan. A
Participant may not apply for more than one loan during each Plan Year.
(b) Limitation of Loan Amount/Purpose of Loan. Loans shall not be
made available to Highly Compensated Employees in an amount greater than the
amount made available to other Employees. No loan to any Participant or
Beneficiary can be made to the extent that such loan when added to the
outstanding balance of all other loans to the Participant or Beneficiary would
exceed the lesser of (1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of
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loans during the one-year period ending on the day before the loan is made over
the outstanding balance of loans from the plan on the date the loan is made, or
(2) one-half the present value of the nonforfeitable Account of the Participant.
For the purpose of the above limitation, all loans from all plans of the
Employer and Related Employers are aggregated. A Participant may not request a
loan for less than $1,000. The Employer may provide that loans only be made from
certain contribution sources within Participant Account(s) by notifying the
Trustee in writing of the restricted source.
Loans may be made for any purpose or if elected by the
Employer in Section 1.09(a), on account of hardship only. A loan will be
considered to be made on account of hardship only if made on account of an
immediate and heavy financial need described in Section 7.10 (b)(1).
(c) Terms of Loan. All loans shall bear a reasonable rate of
interest as determined by the Administrator based on the prevailing interest
rates charged by persons in the business of lending money for loans which would
be made under similar circumstances. The determination of a reasonable rate of
interest must be based on appropriate regional factors unless the Plan is
administered on a national basis in which case the Administrator may establish a
uniform reasonable rate of interest applicable to all regions.
All loans shall by their terms require that repayment
(principal and interest) be amortized in level payments, not less than
quarterly, over a period not extending beyond five years from the date of the
loan unless such loan is for the purchase of a Participant's primary residence,
in which case the repayment period may not extend beyond ten years from the date
of the loan. A Participant may prepay the outstanding loan balance prior to
maturity without penalty.
(d) Security. Loans must be secured by the Participant's Accounts
not to exceed 50-percent of the Participant's vested Account. A Participant must
obtain the consent of his or her spouse, if any, to use a Participant Account as
security for the loan, if the provisions of Section 8.03 apply to the
Participant. Spousal consent shall be obtained no earlier than the beginning of
the 90-day period that ends on the date on which the loan is to be so secured.
The consent must be in writing, must acknowledge the effect of the loan, and
must be witnessed by a Plan representative or notary public. Such consent shall
thereafter be binding with respect to the consenting spouse or any subsequent
spouse with respect to that loan.
(e) Default. The Administrator shall treat a loan in default if
(1) any scheduled repayment remains unpaid more than 90 days
or
(2) there is an outstanding principal balance existing on a
loan after the last scheduled repayment date.
Upon default or termination of employment, the entire
outstanding principal and accrued interest shall be immediately due and payable.
If a distributable event (as defined by the Code) has occurred, the
Administrator shall direct the Trustee to foreclose on the promissory note
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and offset the Participant's vested Account by the outstanding balance of the
loan. If a distributable event has not occurred, the Administrator shall direct
the Trustee to foreclose on the promissory note and offset the Participant's
vested Account as soon as a distributable event occurs.
(f) Pre-existing loans. The provision in paragraph (a) of this
Section 7.09 limiting a Participant to one outstanding loan shall not apply to
loans made before the Employer adopted this prototype plan document. A
Participant may not apply for a new loan until all outstanding loans made before
the Employer adopted this prototype plan have been paid in full. The Trustee may
accept any loans made before the Employer adopted this prototype plan document
except such loans which require the Trustee to hold as security for the loan
property other than the Participant's vested Account.
As of the effective date of amendment of this Plan in Section
1.01(g)(2), the Trustee shall have the right to reamortize the outstanding
principal balance of any Participant loan that is delinquent. Such
reamortization shall be based upon the remaining life of the loan and the
original maturity date may not be extended.
Notwithstanding any other provision of this Plan, the portion
of the Participant's vested Account used as a security interest held by the plan
by reason of a loan outstanding to the Participant shall be taken into account
for purposes of determining the amount of the Account payable at the time of
death or distribution, but only if the reduction is used as repayment of the
loan. If less than 100% of the Participant's vested Account (determined without
regard to the preceding sentence) is payable to the surviving spouse, then the
Account shall be adjusted by first reducing the vested Account by the amount of
the security used as repayment of the loan, and then determining the benefit
payable to the surviving spouse.
No loan to any Participant or Beneficiary can be made to the
extent that such loan when added to the outstanding balance of all other loans
to the Participant or Beneficiary would exceed the lesser of (1) $50,000 reduced
by the excess (if any) of the highest outstanding balance of loans during the
one-year period ending on the day before the loan is made over the outstanding
balance of loans from the plan on the date the loan is made or (2) one-half the
present value of the nonforfeitable Account of the Participant. For the purpose
of the above limitation, all loans from all plans of the Employer and Related
Employers are aggregated.
7.10 In-Service/Hardship Withdrawals. Subject to the provisions of
Article 8, a Participant shall not be permitted to withdraw any Employer or
Employee Contributions (and earnings thereon) prior to retirement or termination
of employment, except as follows:
(a) AGE 59 1/2. If permitted under Section 1.11(b), a Participant
who has attained the age of 59 1/2 is permitted to withdraw upon request all or
any portion of the Accounts specified by the Employer in 1.11(b).
(b) HARDSHIP. If permitted under Section 1.10, a Participant may
apply to the Administrator to withdraw some or all of his Deferral Contributions
(and earnings thereon accrued as
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of December 31, 1988) and, if applicable, Rollover Contributions and such other
amounts allowed by a predecessor plan, if such withdrawal is made on account of
a hardship. For purposes of this Section, a distribution is made on account of
hardship if made on account of an immediate and heavy financial need of the
Employee where such Employee lacks other available resources. Determinations
with respect to hardship shall be made by the Administrator and shall be
conclusive for purposes of the Plan, and shall be based on the following special
rules:
(1) The following are the only financial needs considered
immediate and heavy: expenses incurred or necessary for medical care (within the
meaning of Section 213(d) of the Code) of the Employee, the Employee's spouse,
children, or dependents; the purchase (excluding mortgage payments) of a
principal residence for the Employee; payment of tuition and related educational
fees for the next twelve (12) months of post-secondary education for the
Employee, the Employee's spouse, children or dependents; or the need to prevent
the eviction of the Employee from, or a foreclosure on the mortgage of, the
Employee's principal residence.
(2) A distribution will be considered as necessary to
satisfy an immediate and heavy financial need of the Employee only if:
(i) The Employee has obtained all distributions, other
than the hardship distributions, and all nontaxable (at the time of the
loan) loans currently available under all plans maintained by the
Employer;
(ii) The Employee suspends Deferral Contributions and
Employee Contributions to the Plan for the 12-month period following the
date of his hardship distribution. The suspension must also apply to all
elective contributions and Employee Contributions to all other qualified
plans and nonqualified plans maintained by the Employer, other than any
mandatory employer contribution portion of a defined benefit plan,
including stock option, stock purchase and other similar plans, but not
including health and welfare benefit plans (other than the cash or
deferred arrangement portion of a cafeteria plan);
(iii) The distribution is not in excess of the amount of
an immediate and heavy financial need (including amounts necessary to pay
any Federal, state or local income taxes or penalties reasonably
anticipated to result from the distribution); and
(iv) The Employee agrees to limit Deferral
Contributions (elective contributions)to the Plan and any other qualified
plan maintained by the Employer for the Employee's taxable year
immediately following the taxable year of the hardship distribution to the
applicable limit under Section 402(g) of the Code for such taxable year
less the amount of such Employee's Deferral Contributions for the taxable
year of the hardship distribution.
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(3) A Participant must obtain the consent of his or her
spouse, if any, to obtain a hardship withdrawal, if the provisions of Section
8.03 apply to the Participant.
(c) Employee Contributions. A Participant may elect to withdraw,
in cash, up to one hundred percent of the amount then credited to his Employee
Contribution Account. Such withdrawals shall be limited to one (1) per Plan Year
unless this prototype plan document is an amendment of a prior plan document, in
which case the rules and restrictions governing Employee Contribution
withdrawals, if any, are incorporated herein by reference.
7.11 Prior Plan in-Service Distribution Rules. If designated by the
Employer in Section 1.11(b), a Participant shall be entitled to withdraw at
anytime prior to his termination of employment, subject to the provisions of
Article 8 and the prior plan, any vested Employer Contributions maintained in a
Participant's Account for the specified period of time.
ARTICLE 8
DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE
8.01 Distribution of Benefits to Participants and Beneficiaries.
(a) Distributions from the Trust to a Participant or to the
Beneficiary of the Participant shall be made in a lump sum in cash or, if
elected by the Employer in Section 1.11, under a systematic withdrawal plan
(installment(s)) upon retirement, disability, or other termination of
employment, unless another form of distribution is required or permitted in
accordance with paragraph (d) of this Section 8.01 or Sections 1.11(c), 8.02,
8.03, 8.04 or 11.02. A distribution may be made in Fund Shares, at the election
of the Participant, pursuant to the qualifying rollover of such distribution to
a Fidelity Investments individual retirement account.
(b) Distributions under a systematic withdrawal plan must be made
in substantially equal annual, or more frequent, installments, in cash, over a
period certain which does not extend beyond the life expectancy of the
Participant or the joint life expectancies of the Participant and his
Beneficiary, or, if the Participant dies prior to the commencement of his
benefits the life expectancy of the Participant's Beneficiary, as further
described in Section 8.04.
(c) Notwithstanding the provisions of Section 8.01(b) above, if a
Participant's Account is, and at the time of any prior distribution(s) was,
$3,500 or less, the balance of such Account shall be distributed in a lump sum
as soon as practicable following retirement, disability, death or other
termination of employment.
(d) This paragraph (d) applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article 8, a
distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible
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retirement plan specified by the distributee in a direct rollover. The following
definitions shall apply for purposes of this paragraph (d) :
(1) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities).
(2) Eligible retirement plan: An eligible retirement plan is
an individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's eligible
distribution. However, in the case of an eligible rollover distribution to a
surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(3) Distributee: A distributee includes an Employee or
former Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former- Employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the interest of the
spouse or former spouse.
(4) Direct rollover: A direct rollover is a payment by the
plan to the eligible retirement plan specified by the distributee.
8.02 Annuity Distributions. If so provided in Section 1.11(c), a
Participant may elect distributions made in whole or in part in the form of an
annuity contract subject to the provisions of Section 8.03.
(a) An annuity contract distributed under the Plan must be
purchased from an insurance company and must be nontransferable. The terms of an
annuity contract shall comply with the requirements of the Plan and
distributions under such contract shall be made in accordance with Section
401(a)(9) of the Code and the regulations thereunder.
(b) The payment period of an annuity contract distributed to the
Participant pursuant to this Section may be as long as the Participant lives. If
the annuity is payable to the Participant and his spouse or designated
Beneficiary, the payment period of an annuity contract may be for as long as
either the Participant or his spouse or designated Beneficiary lives. Such an
annuity may provide for an annuity certain feature for a period not exceeding
the life expectancy of the Participant. If the annuity is payable to the
Participant and his spouse such period may not exceed the
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joint life and last survivor expectancy of the Participant and his spouse, or,
if the annuity is payable to the Participant and a designated Beneficiary, the
joint life and last survivor expectancy of the Participant and such Beneficiary.
If the Participant dies prior to the commencement of his benefits, the payment
period of an annuity contract distributed to the Beneficiary of the Participant
may be as long as the Participant's Beneficiary lives, and may provide for an
annuity certain feature for a period not exceeding the life expectancy of the
Beneficiary. Any annuity contract distributed under the Plan must provide for
nonincreasing payments.
8.03 Joint and Survivor Annuities/Preretirement Survivor Annuities.
(a) Application. The provisions of this Section supersede any
conflicting provisions of the Plan; however, paragraph (b) of this Section shall
not apply if the Participant's Account does not exceed or at the time of any
prior distribution did not exceed $3,500. A Participant is described in this
Section only if (i) the Participant has elected distribution of his Account in
the form of an Annuity Contract in accordance with Section 8.02, or (ii) the
Trustee has directly or indirectly received a transfer of assets from another
plan (including a predecessor plan) to which Section 401(a)(11) of the Code
applies with respect to such Participant.
(b) Retirement Annuity. Unless the Participant elects to waive the
application of this subsection in a manner satisfying the requirements of
subsection (d) below, to the extent applicable to the Participant, within the
90-day period preceding his Annuity Starting Date (which election may be
revoked, and if revoked, remade, at any time in such period), the vested Account
due any Participant to whom this subsection (b) applies will be paid to him by
the purchase and delivery to him of an annuity contract described in Section
8.02 providing a life annuity only form of benefit or, if the Participant is
married as of his Annuity Starting Date, providing an immediate annuity for the
life of the Participant with a survivor annuity for the life of the
Participant's spouse (determined as of the date of distribution of the contract)
which is 50-percent of the amount of the annuity which is payable during the
joint lives of the Participant and such spouse. The Participant may elect to
receive distribution of his benefits in the form of such annuity as of the
earliest date on which he could elect to receive retirement benefits under the
Plan. Within the period beginning 90 days prior to the Participant's Annuity
Starting Date and ending 30 days prior to such Date, the Administrator will
provide such Participant with a written explanation of (1) the terms and
conditions of the annuity contract described herein, (2) the Participant's right
to make, and the effect of, an election to waive application of this subsection,
(3) the rights of the Participant's spouse under subsection (d), and (4) the
right to revoke and the period of time necessary to revoke the election to waive
application of this subsection.
(c) Annuity Death Benefit. Unless the Participant elects to waive
the application of this subsection in a manner satisfying the requirements of
subsection (d) below at any time within the applicable election period (which
election may be revoked, and if revoked, remade, at any time in such period), if
a married Participant to whom this section applies dies before his Annuity
Starting Date, then notwithstanding any designation of a Beneficiary to the
contrary, 50-percent of his vested Account will be applied to purchase an
annuity contract described in Section 8.02 providing an annuity for the life of
the Participant's surviving spouse, which contract will then be promptly
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distributed to such spouse. In lieu of the purchase of such an annuity contract,
the spouse may elect in writing to receive distributions under the Plan as if he
or she had been designated by the Participant as his Beneficiary with respect to
50-percent of his Account. For purposes of this subsection, the applicable
election period will commence on the first day of the Plan Year in which the
Participant attains age 35 and will end on the date of the Participant's death,
provided that in the case of a Participant who terminates his employment the
Applicable election period with respect to benefits accrued prior to the date of
such termination will in no event commence later than the date of his
termination of employment. A Participant may elect to waive the application of
this subsection prior to the Plan Year in which he attains age 35, provided that
any such waiver will cease to be effective as of the first day of the Plan Year
in which the Participant attains age 35.
The Administrator will provide a Participant to whom this subsection
applies with a written explanation with respect to the annuity death benefit
described in this subsection (c) comparable to that required under subsection
(b) above. Such explanation shall be furnished within whichever of the following
periods ends last: (1) the period beginning with the first day of the Plan Year
in which the Participant reaches age 32 and ending with the end of the Plan Year
preceding the Plan Year in which he reaches age 35, (2) a reasonable period
ending after the Employee becomes a Participant, (3) a reasonable period ending
after this Section 8.04 first becomes applicable to the Participant in
accordance with Section 8.04(a), (4) in the case of a Participant who separates
from service before age 35, a reasonable period of time ending after separation
from service. For purposes of the preceding sentence, the two-year period
beginning one year prior to the date of the event described in clause (2), (3)
or (4), whichever is applicable, and ending one year after such date shall be
considered reasonable, provided, that in the case of a Participant who separates
from service under (4) above and subsequently recommences employment with the
Employer, the applicable period for such Participant shall be redetermined in
accordance with this subsection.
(d) Requirement of Elections. This subsection will be satisfied
with respect to a waiver or designation which is required to satisfy this
subsection if such waiver or designation is in writing and either
(1) the Participant's spouse consents thereto in writing,
which consent must acknowledge the effect of such waiver or designation and be
witnessed by a notary public or Plan representative, or
(2) the Participant establishes to the satisfaction of the
Administrator that the consent of the Participant's spouse cannot be obtained
because there is no spouse, because the spouse cannot be located, or because of
such other circumstances as the Secretary of Treasury may prescribe.
Any consent by a spouse, or establishment that the consent of
a spouse may not be obtained, will be effective only with respect to a specific
Beneficiary (including any class of Beneficiaries or any contingent
Beneficiaries) or form of benefits identified in the Participant's waiver or
designation, unless the consent of the spouse expressly permits designations by
the Participant without any requirement of further consent by the spouse. A
consent which permits such
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designations by the Participant shall acknowledge that the spouse has the right
to limit consent to a specific Beneficiary and form of benefits and that the
spouse voluntarily elects to relinquish both such rights. A consent by a spouse
shall be irrevocable once made. Any such consent, or establishment that such
consent may not be obtained, will be effective only with respect to such spouse.
For purposes of subsections (b) and (c) above, no consent of a spouse shall be
valid unless the notice required by whichever subsection is applicable has been
provided to the Participant.
(e) Former Spouse. For purposes of this Section 8.03, a former
spouse of a Participant will be treated as the spouse or surviving spouse of the
Participant, and a current spouse will not be so treated, to the extent required
under a qualified domestic relations order, as defined in Section 414(p) of the
Code.
(f) Vested Account Balance. For purposes of this Section, vested
Account shall include the aggregate value of the Participant's vested Account
derived from Employer and Employee Contributions (including rollovers), whether
vested before or upon death. The provisions of this Section shall apply to a
Participant who is vested in amounts attributable to Employer contributions,
Employee Contributions, or both, upon death or at the time of distribution.
8.04 Installment Distributions. This Section shall be interpreted and
applied in accordance with the regulations under Section 401(a)(9) of the Code,
including the minimum distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the Proposed Treasury Regulations, or any successor regulations
of similar import.
(a) In General. If a Participant's benefit may be distributed in
accordance with Section 8.01(b), the amount to be distributed for each calendar
year for which a minimum distribution is required shall be at least an amount
equal to the quotient obtained by dividing the Participant's interest in his
Account by the life expectancy of the Participant or Beneficiary or the joint
life and last survivor expectancy of the Participant and his Beneficiary,
whichever is applicable. For calendar years beginning before January 1, 1989, if
a Participant's Beneficiary is not his spouse, the method of distribution
selected must insure that at least 50-percent of the present value of the amount
available for distribution is paid within the life expectancy of the
Participant. For calendar years beginning after December 31, 1988, the amount to
be distributed for each calendar year shall not be less than an amount equal to
the quotient obtained by dividing the Participant's interest in his Account by
the lesser of (1) the applicable life expectancy under Section 8.01(b), or (2)
if a Participants Beneficiary is not his spouse, the applicable divisor
determined under Section 1.401(a)(9)-2, Q&A 4 of the Proposed Treasury
Regulations, or any successor regulations of similar import. Distributions after
the death of the Participant shall be made using the applicable life expectancy
under (1) above, without regard to Section 1.401(a)(9)-2 of such regulations.
The minimum distribution required under this subsection (a) for the
calendar year immediately preceding the calendar year in which the Participant's
required beginning date, as determined under Section 8.08(b), occurs shall be
made on or before the Participant is required beginning date, as so determined.
Minimum distributions for other calendar years shall be made on or before the
close of such calendar year.
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(b) Additional Requirements for Distributions After Death of
Participant.
(1) Distribution beginning before Death. If the Participant
dies before distribution of his benefits has begun, distributions shall be made
in accordance with the provisions of this paragraph. Distributions under Section
8.01(a) shall be completed by the close of the calendar year in which the fifth
anniversary of the death of the Participant occurs. Distributions under Section
8.01(b) shall commence, if the Beneficiary is not the Participant's spouse, not
later than the close of the calendar year immediately following the calendar
year in which the death of the Participant occurs. Distributions under Section
8.01(b) to a Beneficiary who is the Participant's surviving spouse shall
commence not later than the close of the calendar year in which the Participant
would have attained age 70 1/2 or, if later, the close of the calendar year
immediately following the calendar year in which the death of the Participant
occurs. In the event such spouse dies prior to the date distribution to him or
her commences, he or she will be treated for purposes of this subsection (other
than the preceding sentence) as if he or she were the Participant. If the
Participant has not designated a Beneficiary, or the Participant or Beneficiary
has not effectively selected a method of distribution, distribution of the
Participant's benefit shall be completed by the close of the calendar year in
which the fifth anniversary of the death of the Participant occurs.
Any amount paid to a child of the Participant will be
treated as if it had been paid to the surviving spouse if the amount becomes
payable to the surviving spouse when the child reaches the age of majority.
For purposes of this subsection (b)(1), the life
expectancy of a Beneficiary who is the Participant's surviving spouse shall be
recalculated annually unless the Participant's spouse irrevocably elects
otherwise prior to the time distributions are required to begin. Life expectancy
shall be computed in accordance with the provisions of subsection (a) above.
(2) Distribution beginning after Death. If the Participant
dies after distribution of his benefits has begun, distributions to the
Participant's Beneficiary will be made at least as rapidly as under the method
of distribution being used as of the date of the Participant's death.
For purposes of this Section 8.04(b), distribution of a
Participant's interest in his Account will be considered to begin as of the
Participant's required beginning date, as determined under Section 8.08(b). If
distribution in the form of an annuity irrevocably commences prior to such date,
distribution will be considered to begin as of the actual date distribution
commences.
(c) Life Expectancy. For purposes of this Section, life expectancy
shall be recalculated annually in the case of the Participant or a Beneficiary
who is the Participant's spouse unless the Participant or Beneficiary
irrevocably elects otherwise prior to the time distributions are required to
begin. If not recalculated in accordance with the foregoing, life expectancy
shall be calculated using the attained age of the Participant or Beneficiary,
whichever is applicable, as of such individual's birth date in the first year
for which a minimum distribution is required reduced by one for each elapsed
calendar year since the date life expectancy was first calculated. For purposes
of this
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Section, life expectancy and joint life and last survivor expectancy shall be
computed by use of the expected return multiples in Table V and VI of section
1.72-9 of the income tax Regulations.
A Participant's interest in his Account for purposes of this Section
8.04 shall be determined as of the last valuation date in the calendar year
immediately preceding the calendar year for which a minimum distribution is
required, increased by the amount of any contributions allocated to, and
decreased by any distributions from, such Account after the valuation date. Any
distribution for the first year for which a minimum distribution is required
made after the close of such year shall be treated as if made prior to the close
of such year.
8.05 Immediate Distributions. If the Account distributable to a
Participant exceeds, or at the time of any prior distribution exceeded, $3,500,
no distribution will be made to the Participant before he reaches his Normal
Retirement Age (or age 62, if later), unless the written consent of the
Participant has been obtained. Such consent shall be made in writing within the
90-day period ending on the Participant's Annuity Starting Date. Within the
period beginning 90 days before the Participant's Annuity Starting Date and
ending 30 days before such Date, the Administrator will provide such Participant
with written notice comparable to the notice described in Section 8.03(b)
containing a general description of the material features and an explanation of
the relative values of the optional forms of benefit available under the Plan
and informing the Participant of his right to defer receipt of the distribution
until his Normal Retirement Age (or age 62, if later).
The consent of the Participant's spouse must also be obtained if the
Participant is subject to the provisions of Section 8.03(a), unless the
distribution will be made in the form of the applicable retirement annuity
contract described in Section 8.03(b). A spouse's consent to early distribution,
if required, must satisfy the requirements of Section 8.03(d).
Neither the consent of the Participant nor the Participant's spouse
shall be required to the extent that a distribution is required to satisfy
Section 401 (a)(9) or Section 415 of the Code. In addition, upon termination of
the Plan if it does not offer an annuity option (purchased from a commercial
provider) and if the Employer or any Related Employer does not maintain another
defined contribution plan (other than an employee stock ownership plan as
defined in Code Section 4975(e)7) the Participant's Account will, without the
Participant's consent, be distributed to the Participant. However, if any
Related Employer maintains another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975 (e)(7) of the Code)
then the Participant's Account will be transferred, without the Participant's
consent, to the other plan if the Participant does not consent to an immediate
distribution.
8.06 Determination of Method of Distribution. The Participant will
determine the method of distribution of benefits to himself and may determine
the method of distribution to his Beneficiary. Such determination will be made
prior to the time benefits become payable under the Plan. If the Participant
does not determine the method of distribution to his Beneficiary or if the
Participant permits his Beneficiary to override his determination, the
Beneficiary, in the event of the Participant's death, will determine the method
of distribution of benefits to himself as if he were the Participant. A
determination by the Beneficiary must be made no later than the close of the
calendar year in which
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distribution would be required to begin under Section 8.04(b) or, if earlier,
the close of the calendar year in which the fifth anniversary of the death of
the Participant occurs.
8.07 Notice to Trustee. The Administrator will notify the Trustee in
writing whenever any Participant or Beneficiary is entitled to receive benefits
under the Plan. The Administrator's notice shall indicate the form of benefits
that such Participant or Beneficiary shall receive and (in the case of
distributions to a Participant) the name of any designated Beneficiary or
Beneficiaries.
8.08 Time of Distribution. In no event will distribution to a Participant
be made latest than the earlier of the dates described in (a) and (b) below:
(a) Absent the consent of the Participant (and his spouse, if
appropriate), the 60th day after the close of the Plan Year in which occurs the
later of the date on which the Participant attains age 65, the date on which the
Participant ceases to be employed by the Employer, or the l0th anniversary of
the year in which the Participant commenced participation in the Plan; and
(b) April 1 of the calendar year first following the calendar year
in which the Participant attains age 70 1/2 or, in the case of a Participant who
had attained age 70 1/2 before January 1, 1988, the required beginning date
determined in accordance with (1) or (2) below:
(1) The required beginning date of a Participant who is not
a 5-percent owner is the first day of April of the calendar year following the
calendar year in which the later of retirement or attainment of age 70 1/2
occurs.
(2) The required beginning date of a Participant who is a
5-percent owner during any year beginning after December 31, 1979, is the first
day of April following the later of
(A) the calendar year in which the Participant attains
age 70 1/2, or
(B) the earlier of the calendar year with or within
which ends the Plan Year in which the Participant becomes a 5-percent owner, or
the calendar year in which the Participant retires.
Notwithstanding the foregoing, in the-case of a Participant who
attained age 70 1/2 during 1988 and who had not retired prior to January 1,
1989, the required beginning date described in this paragraph shall be April 1,
1990.
Notwithstanding (a) above, the failure of a Participant (and spouse)
to consent to a distribution while a benefit is immediately distributable,
within the meaning of Section 8.05, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy (a) above.
Once distributions have begun to a 5-percent owner under (b) above,
they must continue to be distributed, even if the Participant ceases to be a
5-percent owner in a subsequent year.
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For purposes of (b) above, a Participant is treated as a 5-percent
owner if such Participant is a 5-percent owner as defined in Section 416(i) of
the Code (determined in accordance with Section 416 but without regard to
whether the Plan is top-heavy) at any time during the Plan Year ending with or
within the calendar year in which such owner attains age 66 1/2 or any
subsequent Plan Year.
The Administrator shall notify the Trustee in writing whenever a
distribution is necessary in order to comply with the minimum distribution rules
set forth in this Section.
8.09 Whereabouts of Participants and Beneficiaries. The Administrator
will at all times be responsible for determining the whereabouts of each
Participant or Beneficiary who may be entitled to benefits under the Plan and
will at all times be responsible for instructing the Trustee in writing as to
the current address of each such Participant, or Beneficiary. The Trustee will
be entitled to rely on the latest written statement received from the
Administrator as to such addresses. The Trustee will be under no duty to make
any distributions under the unless and until it has received written
instructions from the Administrator satisfactory to the Trustee containing the
name and address of the distributee, the time when the distribution is to occur,
and the form which the distribution will take. Notwithstanding the foregoing, if
the Trustee attempts to make a distribution in accordance with the
Administrator's instructions but is unable to make such distribution because the
whereabouts of the distributee is unknown, the Trustee will notify the
Administrator of such situation and thereafter the Trustee will be under no duty
to make any further distributions to such distributee until it receives further
written instructions from the Administrator. If a benefit is forfeited because
the Administrator determines that the Participant or Beneficiary cannot be
found, such benefit will be reinstated by the Sponsor if a claim is filed by the
Participant or Beneficiary with the Administrator and the Administrator confirms
the claim to the Sponsor.
ARTICLE 9
TOP-HEAVY PROVISIONS
9.01 Application. If the Plan is or becomes a Top-Heavy Plan in any Plan
Year or is automatically deemed to be Top-Heavy in accordance with the
Employer's election in Section 1.12(a) (1) of the Adoption Agreement, the
provisions of this Article 9 shall supersede any conflicting provision in the
Plan.
9.02 Definitions. For purposes of this Article 9, the following terms
have the meanings set forth below:
(a) Key Employee. Any Employee or forme r Employee (and the
Beneficiary of any such Employee) who at any time during the determination
period was (1) an officer of the Employer whose annual Compensation exceeds
50-percent of the dollar limitation under Section 415(b)(1)(A) of the Code, (2)
an owner (or considered an owner under Section 318 of the Code) of one of the
ten largest interests in the Employer if such individual's annual Compensation
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exceeds the dollar limitation under Section 415(c)(1)(A) of the Code, (3) a
5-percent owner of the Employer, or (4) a 1-percent owner of the Employer who
has annual Compensation of more than $150,000. For purposes of this paragraph,
the determination period is the Plan Year containing the Determination Date and
the four preceding Plan Years. The determination of who is a Key Employee shall
be made in accordance with Section 416(i)(1) of the Code and the regulations
thereunder. Annual Compensation means compensation as defined in Section
5.03(e)(2), but including amounts contributed by the Employer pursuant to a
salary reduction agreement which are excludable from the employee's gross income
under Section 125, Section 402(a)(8), and Section 403(b) of the Code.
(b) Top-Heavy Plan. The Plan is a Top-Heavy Plan if any of the
following conditions exists:
(1) the Top-Heavy Ratio for the Plan exceeds 60-percent and
the Plan is not part of any Required Aggregation Group or Permissive Aggregation
(2) the Plan is a part of a Required Aggregation Group but
not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the
Required Aggregation Group exceeds 60-percent, or
(3) the Plan is a part of a Required Aggregation Group and a
Permissive Aggregation Group and the Top-Heavy Ratio for both Groups exceeds
60-percent.
(c) Top-Heavy Ratio.
(1) With respect to this Plan, or with respect to any
Required Aggregation Group or Permissive Aggregation Group that consists solely
of defined contribution plans (including any simplified employee pension plans)
and the Employer has not maintained any defined benefit plan which during the
5-year period ending on the determination date(s) has or has had accrued
benefits, the Top-Heavy Ratio is a fraction, the numerator of which is the sum
of the account balances of all Key Employees under the plans as of the
Determination Date (including any part of any account balance distributed in the
5-year period ending on the Determination Date), and the denominator of which is
the sum of all account balances (including any part of any account balance
distributed in the 5-year period ending on the Determination Date) of all
participants under the plans as of the Determination Date. Both the numerator
and denominator of the Top-Heavy Ratio shall be increased, to the extent
required by Section 416 of the Code, to reflect any contribution which is due
but unpaid as of the Determination Date.
(2) With respect to any Required Aggregation Group or
Permissive Aggregation Group that includes one or more defined benefit plans
which, during the 5-year period ending on the Determination Date, has covered or
could cover a Participant in this Plan, the Top- Heavy Ratio is a fraction, the
numerator of which is the sum of the account balances under the defined
contribution plans for all Key Employees and the present value of accrued
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benefits under the defined benefit plans for all Key Employees, and the
denominator of which is the sum of the account balances under the defined
contribution plans for all participants and the present value of accrued
benefits under the defined benefit plans for all participants. Both the
numerator and denominator of the Top-Heavy Ratio shall be increased for any
distribution of an account balance or an accrued benefit made in the 5-year
period ending on the Determination Date and any contribution due but unpaid as
of the Determination Date.
(3) For purposes of (1) and (2) above, the value of Accounts
and the present value of accrued benefits will be determined as of the most
recent Valuation Date that falls within or ends with the 12-month period ending
on the Determination Date, except as provided in Section 416 of the Code and the
regulations thereunder for the first and second plan years of a defined benefit
plan. The Account and accrued benefits of a Participant (A) who is not a Key
Employee but who was a Key Employee in a prior year, or (B) who has not been
credited with at least one Hour of Service with the Employer at any time during
the 5-year period ending on the Determination Date, will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account, shall be made in accordance
with Section 416 of the Code and the regulations thereunder. Deductible employee
contributions shall not be taken into account for purposes of computing the Top
Heavy Ratio. When aggregating plans, the value of Accounts and accrued benefits
shall be calculated with reference to the Determination Dates that fall within
the same calendar year.
For purposes of determining if the Plan, or any other
plan included in a Required Aggregation Group of which this Plan is a part, is a
Top-Heavy Plan, the accrued benefit in a defined benefit plan of an Employee
other than a Key Employee shall be determined under (i) the method, if any, that
uniformly applies for accrual purposes under all plans maintained by the
Employer, or (ii) if there is no such method, as if such benefit accrued not
more rapidly than the slowest accrual rate permitted under the fractional
accrual rate of Section 411(b) (1) (C) of the Code.
(d) Permissive Aggregation Group. The Required Aggregation Group
plus any other qualified plans of the Employer or a Related Employer which, when
considered as a group with the Required Aggregation Group, would continue to
satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
(e) Required Aggregation Group.
(1) Each qualified plan of the Employer or Related Employer
in which at least one Key Employee participates, or has participated at any time
during the determination period (regardless of whether the plan has terminated),
and
(2) any other qualified plan of the Employer or Related
Employer which enables a plan described in (1) above to meet the requirements of
Sections 401(a) (4) or 410 of the Code.
(f) Determination Date. For any Plan Year of the Plan subsequent
to the first Plan Year, the last day of the preceding Plan Year. For the first
Plan Year of the Plan, the last day of that Plan Year.
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(g) Valuation Date. The Determination Date.
(h) Present Value. Present value shall be based only on the
interest rate and mortality table specified in the Adoption Agreement.
9.03 Minimum Contribution.
(a) Except as otherwise provided in (b) and (c) below, the
Fixed/Discretionary Contributions made on behalf of any Participant who is not a
Key Employee, shall not be less than the lesser of 3-percent (or such other
percent elected by the Employer in Section 1.12(c)) of such Participant's
Compensation or, in the case where the Employer has no defined benefit plan
which designates this Plan to satisfy Section 401 of the Code, the largest
percentage of Employer contributions, as a percentage of the first $200,000 of
the Key Employee's Compensation, made on behalf of any Key Employee for that
year. If the Employer selected the Integrated Formula in Section 1.05(a)(2), the
minimum contribution shall be determined under paragraph (e) of this Section
9.03. Further, the minimum contribution under this Section 9.03 shall be made
even though, under other Plan provisions, the Participant would not otherwise be
entitled to receive a contribution, or would have received a lesser contribution
for the year, because (1) the Participant failed to complete 1,000 Hours of
Service or any equivalent service requirement provided in the Adoption
Agreement; or (2) the Participant's Compensation was less than a stated amount.
(b) The provisions of (a) above shall not apply to any Participant
who was not employed by the Employer on the last day of the Plan Year.
(c) The Employer contributions for the Plan Year made on behalf of
each Participant who is not a Key Employee and who is a participant in a defined
benefit plan maintained by the Employer shall not be less than 5-percent of such
Participant's Compensation, unless the Employer has provided in Section 1.12(c)
that the minimum contribution requirement will be met in the other plan or plans
of the Employer.
(d) The minimum contribution required under (a) above (to the
extent required to be nonforfeitable under Section 416(b) of the Code) may not
be forfeited under Section 411(a) (3) (B) or 411(a)(3)(D) of the Code.
(e) If the Employer elected an Integrated-Formula in Section
1.05(a) (2), the allocation steps in Section 4.06(b)(2) shall be preceded by the
following steps:
(1) The Discretionary Employer Contributions will be
allocated to each eligible Participant (as determined under this Section 9.03)
in the ratio that the Participant's Compensation bears to all Participants'
Compensation, but not in excess of 3% (or such other percent elected by the
Employer in Section 1.12(c).
(2) Any Discretionary Employer Contributions remaining after
(e)(1) above will be allocated to each eligible Participant in the ratio that
the Participant's Excess Compensation for
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the Plan Year bears to the Excess Compensation of all eligible Participants, but
not in excess of 3%(or such other percent elected by the Employer in Section
1.12(c)).
9.04 Adjustment to the Limitation on Contributions And Benefits. If this
Plan is in Top- Heavy status, the number 100 shall be substituted for the number
125 in subsections (e)(3) and (e)(4) of Section 5.03. However, this substitution
shall not take effect with respect to this Plan in any Plan Year in which the
following requirements are satisfied:
(a) The Employer contributions for such Plan Year made on behalf
of each Participant who is not a Key Employee and who is a participant in a
defined benefit plan maintained by the Employer is not less than 7 1/2-percent
of such Participant's Compensation.
(b) The sum of the present value as of the Determination Date of
(1) the aggregate accounts of all Key Employees under all defined contribution
plans of the Employer and (2) the cumulative accrued benefits of all Key
Employees under all defined benefit plans of the Employer does not exceed
90-percent of the same amounts determined for all Participants under all plans
of the Employer that are Top-Heavy Plans, excluding Accounts and accrued
benefits for Employees who formerly were but are no longer Key Employees.
The substitutions of the number 100 for 125 shall not take effect in
any Limitation Year with respect to any Participant for whom no benefits are
accrued or contributions made for such Year.
9.05 Minimum Vesting. For any Plan Year in which the Plan is a Top Heavy
Plan and all Plan Years thereafter, the Top-Heavy vesting schedule elected in
Section 1.12(d) will automatically apply to the Plan. The Top-Heavy vesting
schedule applies to all benefits within the meaning of Section 411(a)(7) of the
Code except those attributable to Employee Contributions or those already
subject to a vesting schedule which vests at least as rapidly in all cases as
the schedule elected in Section 1.12(d), including benefits accrued before the
Plan becomes a Top-Heavy Plan. Further, no decrease in a Participant's
nonforfeitable percentage may occur in the event the Plan's status as a
Top-Heavy Plan changes for any Plan Year. However, this Section 9.05 does not
apply to the Account of any Employee who does not have an Hour of Service after
the Plan has initially become a Top-Heavy Plan and such Employee's Account
attributable to Employer Contributions will be determined without regard to this
Section 9.05.
ARTICLE 10
AMENDMENT AND TERMINATION
10.01 Amendment by Employer. The Employer reserves the authority, subject
to the provisions of Article 1 and Section 10.03, to amend the Plan:
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(a) Changes to Elections contained in the Adoption Agreement. By
filing with the Trustee an amended Adoption Agreement, executed by the Employer
only, on which said Employer has indicated a change or changes in provisions
previously elected by it. Such changes are to be effective on the effective date
of such amended Adoption Agreement except that retroactive changes to a previous
election or elections pursuant to the regulations issued under Section 401
(a)(4) of the Code shall be permitted. Any such change notwithstanding, no
Participant's Account shall be reduced by such change below the amount to which
the Participant would have been entitled if he had voluntarily left the employ
of the Employer immediately prior to the date of the change. The Employer may
from time to time make any amendment to the Plan that may be necessary to
satisfy Sections 415 or 416 of the Code because of the required aggregation of
multiple plans by completing overriding plan language in the Adoption Agreement.
The Employer may also add certain model amendments published by the Internal
Revenue Service which specifically provide that their adoption will not cause
the Plan to be treated as an individually designed plan; or
(b) Other Changes. By amending any provision of the Plan for any
reason other than those specified in (a) above. However, upon making such
amendment, including a waiver of the minimum funding requirement under Section
412(d) of the Code, the Employer may no longer participate in this prototype
plan arrangement and will be deemed to have an individually designed plan.
Following such amendment, the Trustee may transfer the assets of the Trust to
the trust forming part of such newly adopted plan upon receipt of sufficient
evidence (such as a determination letter or opinion letter from the Internal
Revenue Service or an opinion of counsel satisfactory to the Trustee) that such
trust will be a qualified trust under the Code.
10.02 Amendment by Prototype Sponsor. The Prototype Sponsor may in its
discretion amend the Plan or the Adoption Agreement at any time, subject to the
provisions of Article 1 and Section 10.03, and provided that the Prototype
Sponsor mails a copy of such amendment to the Employer at its last known address
as shown on the books of the Prototype Sponsor.
10.03 Amendments Affecting Vented and/or Accrued Benefits.
(a) Except as permitted by Section 10.04, no amendment to the Plan
shall be effective to the extent that it has the effect of decreasing a
Participant's Account or eliminating an optional form of benefit with respect to
benefits attributable to service before the amendment. Furthermore, if the
vesting schedule of the Plan is amended, the nonforfeitable interest of a
Participant in his Account, determined as of the later of the date the amendment
is adopted or the date it becomes effective, will not be less than the
Participant's nonforfeitable interest in his Account determined without regard
to such amendment.
(b) If the Plan's vesting schedule is amended, including any
amendment resulting from a change to or from Top-Heavy Plan status, or the Plan
is amended in any way that directly or indirectly affects the computation of a
Participant's nonforfeitable interest in his Account, each Participant with at
least three (3) Years of Service for Vesting with the Employer may elect, within
a reasonable period after the adoption of the amendment, to have the
nonforfeitable percentage of his Account computed under the Plan without regard
to such amendment. The Participant's election may
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be made within 60 days from the latest of (1) the date the amendment is adopted,
(2) the date the amendment becomes effective, or (3) the date the Participant is
issued written notice of the amendment by the Employer or the Administrator.
10.04 Retroactive Amendments. An amendment made by the Prototype Sponsor
in accordance with Section 10.02 may be made effective on a date prior to the
first day of the Plan Year in which it is adopted if such amendment is necessary
or appropriate to enable the Plan and Trust to satisfy the applicable
requirements of the Code or to conform the Plan to any change in federal law, or
to any regulations or ruling thereunder. Any retroactive amendment by the
Employer shall be subject to the provisions of Section 10.01.
10.05 Termination. The Employer has adopted the Plan with the intention
and expectation that contributions will be continued indefinitely. However, said
Employer has no obligation or liability whatsoever to maintain the Plan for any
length of time and may discontinue contributions under the Plan or terminate the
Plan at any time by written notice delivered to the Trustee without any
liability hereunder for any such discontinuance or termination.
10.06 Distribution upon Termination of the Plan. Upon termination or
partial termination of the Plan or complete discontinuance of contributions
thereunder, each Participant (including a terminated Participant with respect to
amounts not previously forfeited by him) who is affected by such termination or
partial termination or discontinuance will have a fully vested interest in his
Account, and, subject to Section 4.05 and Article 8, the Trustee will distribute
to each Participant or other person entitled to distribution the balance of the
Participant's Account in a single lump sum payment. In the absence of such
instructions, the Trustee will notify the Administrator of such situation and
the Trustee will be under no duty to make any distributions under the Plan until
it receives written instructions from the Administrator. Upon the completion of
such distributions, the Trust will terminate, the Trustee will be relieved from
all liability under the Trust, and no Participant or other person will have any
claims thereunder, except as required by applicable law.
10.07 Merger or Consolidation of Plans Transfer of Plan Assets. In case of
any merger or consolidation of the Plan with, or transfer of assets and
liabilities of the Plan to, any other plan, provision must be made so that each
Participant would, if the Plan then terminated, receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit he would have been entitled to receive immediately before the
merger, consolidation or transfer if the Plan had then terminated.
ARTICLE 11
AMENDMENT AND CONTINUATION OF PREDECESSOR PLANS TRANSFER OF
FUNDS TO OR FROM OTHER QUALIFIED PLANS
11.01 Amendment and Continuation of Predecessor Plan. In the event the
Employer has previously established a plan (the "predecessor plan") which is a
defined contribution plan under the Code and which on the date of adoption of
the Plan meets the applicable requirements of section
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401(a) of the Code, the Employer may, in accordance with the provisions of the
predecessor plan, amend and continue the predecessor plan in the form of the
Plan and become the Employer hereunder, subject to the following:
(a) Subject to the provisions of the Plan, each individual who was
a Participant or former Participant in the predecessor plan immediately prior to
the effective date of such amendment and continuation will become a Participant
or former Participant in the Plan;
(b) No election may be made under the vesting provisions of the
Adoption Agreement if such election would reduce the benefits of a Participant
under the Plan to less than the benefits to which he would have been entitled if
he voluntarily separated from the service of the Employer immediately prior to
such amendment and continuation;
(c) No amendment to the Plan shall decrease a Participant's
accrued benefit or eliminate an optional form of benefit and if the amendment of
the predecessor plan in the form of the Plan results in a change in the method
of crediting service for vesting purposes between the general method set forth
in Section 2530.200b-2 of the Department of Labor Regulations and the elapsed-
time method in Section 2.01(a)(33) of the Plan, each Participant with respect to
whom the method of crediting vesting service is changed shall be treated in the
manner set forth by the provisions of Section 1.410(a)-7(f)(1) of the Treasury
Regulations which are incorporated herein by reference;
(d) The amounts standing to the credit of a Participant's Account
immediately prior to such amendment and continuation which represent the amounts
properly attributable to (1) contributions by the Participant and (2)
contributions by the Employer and forfeitures will constitute the opening
balance of his Account or Accounts under the Plan;
(e) Amounts being paid to a former Participant or to a Beneficiary
in accordance with the provisions of the predecessor plan will continue to be
paid in accordance with such provisions;
(f) Any election and waiver of the qualified pre-retirement
annuity in effect after August 23, 1984, under the predecessor plan immediately
before such amendment and continuation will be deemed a valid election and
waiver of Beneficiary under Section 8.04 if such designation satisfies the
requirements of Section 8.04(d), unless and until the Participant revokes such
election and waiver under the Plan; and
(g) Unless the Employer and the Trustee agree otherwise, all
assets of the predecessor trust will be deemed to be assets of the Trust as of
the effective date of such amendment. Such assets will be invested by the
Trustee as soon as reasonably practicable pursuant to Article 6. The Employer
agrees to assist the Trustee in any way requested by the Trustee in order to
facilitate the transfer of assets from the predecessor trust to the Trust Fund.
11.02 Transfer of Funds from an Existing Plan. The Employer may from time
to time direct the Trustee, in accordance with such rules as the Trustee may
establish, to accept cash, allowable
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Fund Shares or participant loan promissory notes transferred for the benefit of
Participants from a trust forming part of another qualified plan under the Code,
provided such plan is a defined contribution plan. Such transferred assets will
become assets of the Trust as of the date they are received by the Trustee. Such
transferred assets will be credited to Participants' Accounts in accordance with
their respective interests immediately upon receipt by the Trustee. A
Participant's interest under the Plan in transferred assets which were fully
vested and nonforfeitable under the transferring plan will be fully vested and
nonforfeitable at all times. Such transferred assets will be invested by the
Trustee in accordance with the provisions of paragraph (g) of Section 11.01 as
if such assets were transferred from a predecessor plan. No transfer of assets
in accordance with this Section may cause a loss of an accrued or optional form
of benefit protected by section 411(d)(6) of the Code.
11.03 Acceptance of Assets by Trustee. The Trustee will not accept assets
which are not either in a medium proper for investment under the Plan, as set
forth in Section 1.14(b), or in cash. Such assets shall be accompanied by
written instructions showing separately the respective contributions by the
prior employer and by the Employee, and identifying the assets attributable to
such contributions. The Trustee shall establish such accounts as may be
necessary or appropriate to reflect such contributions under the Plan. The
Trustee shall hold such assets for investment in accordance with the provisions
of Article 6, and shall in accordance with the written instructions of the
Employer make appropriate credits to the Accounts of the Participants for whose
benefit assets have been transferred.
11.04 Transfer of Assets from Trust. The Employer may direct the Trustee
to transfer all or a specified portion of the Trust assets to any other plan or
plans maintained by the Employer or the employer or employers of a former
Participant or Participants, provided that the Trustee has received evidence
satisfactory to it that such other plan meets all applicable requirements of the
Code. The assets so transferred shall be accompanied by written instructions
from the Employer naming the persons for whose benefit such assets have been
transferred, showing separately the respective contributions by the Employer and
by each Participant, if any, and identifying the assets attributable to the
various contributions. The Trustee shall have no further liabilities with
respect to assets so transferred.
ARTICLE 12
MISCELLANEOUS
12.01 Communication to Participants. The Plan will be communicated to all
Participants by the Employer promptly after the Plan is adopted.
12.02 Limitation of Rights. Neither the establishment of the Plan and the
Trust, nor any amendment thereof, nor the creation of any fund or account, nor
the payment of any benefits, will be construed as giving to any Participant or
other person any legal or equitable right against the Employer, Administrator or
Trustee, except as provided herein; and in no event will the terms of
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employment or service of any Participant be modified or in any way affected
hereby. It is a condition of the Plan, and each Participant expressly agrees by
his participation herein, that each Participant will look solely to the assets
held in the Trust for the payment of any benefit to which he is entitled under
the Plan.
12.03 Nonalienability of Benefits and Qualified Domestic Relations Orders.
The benefits provided hereunder will not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind, either voluntarily or
involuntarily, and any attempt to cause such benefits to be so subjected will
not be recognized, except to such extent as may be required by law. The
preceding sentence shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined by the Plan
Administrator to be a qualified domestic relations order, as defined in Section
414(p) of the Code, or any domestic relations order entered before January 1,
1985. The Administrator must establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Administrator will promptly notify the Participant and any
alternate payee named in the order, in writing, of the receipt of the order and
the Plan's procedures for determining the qualified status of the order. Within
a reasonable period of time after receiving the domestic relations order, the
Administrator must determine the qualified status of the order and must notify
the Participant and each alternate payee, in writing, of its determination. The
Administrator must provide notice under this paragraph by mailing to the
individual's address specified in the domestic relations order, or in a manner
consistent with the Department of Labor regulations.
If any portion of the Participant's Account is payable during the
period the Administrator is making its determination of the qualified status of
the domestic relations order, the Administrator must make a separate accounting
of the amounts payable. If the Administrator determines the order is a qualified
domestic relations order within 18 months of the date amounts first are payable
following receipt of the order, the Administrator will direct the Trustee to
distribute the payable amounts in accordance with the order. If the
Administrator does not make his determination of the qualified status of the
order within the 18-month determination period, the Administrator will direct
the Trustee to distribute the payable amounts in the manner the Plan would
distribute if the order did not exist and will apply the prospectively if the
Administrator later determines the order is a qualified domestic relations
order.
A domestic relations order will not fail to be deemed a qualified
domestic relations order merely because it requires the distribution or
segregation of all or part of a Participant's Account with respect to an
alternate payee prior to the Participant's earliest retirement age (as defined
in Section 414(p) of the Code) under the Plan. A distribution to an alternate
payee prior to the Participant's attainment of the earliest retirement age is
available only if (a) the order specifies distribution at that time and (b) if
the present value of the alternate payee's benefits under the Plan exceeds
$3,500, and the order requires, and the alternate payee consents to, a
distribution occurring prior to the Participant's attainment of earliest
retirement age.
12.04 Facility of Payment. In the event the Administrator determines, on
the basis of medical reports or other evidence satisfactory to the
Administrator, that the recipient of any benefit
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payments under the Plan is incapable of handling his affairs by reason of
minority, illness, infirmity or other incapacity, the Administrator may direct
the Trustee to disburse such payments to a person or institution designated by a
court which has jurisdiction over such recipient or a person or institution
otherwise having the legal authority under state law for the care and control of
such recipient. The receipt by such person or institution of any such payments
shall be complete acquittance therefore, and any such payment to the extent
thereof, shall discharge the liability of the Trust for the payment of benefits
hereunder to such recipient.
12.05 Information between Employer and Trustee. The Employer agrees to
furnish the Trustee, and the Trustee agrees to furnish the Employer, with such
information relating to the Plan and Trust as may be required by the other in
order to carry out their respective duties hereunder, including without
limitation information required under the Code and any regulations issued or
forms adopted by the Treasury Department thereunder or under the provisions of
ERISA and any regulations issued or forms adopted by the Labor Department
thereunder.
12.06 Effect of Failure to Qualify Under Code. Notwithstanding any other
provision contained herein, if the Employer fails to obtain or retain approval
of the Plan by the Internal Revenue Service as a qualified Plan under the Code,
the Employer may no longer participate in this prototype Plan arrangement and
will be deemed to have an individually designed plan.
12.07 Notices. Any notice or other communication in connection with this
Plan shall be deemed delivered in writing if addressed as provided below and if
either actually delivered at said address or, in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in the
United States mails, first-class postage prepaid and registered or certified:
(a) If to the Employer or Administrator, to it at the address set
forth in the Adoption Agreement, to the attention of the person specified to
receive notice in the Adoption Agreement;
(b) If to the Trustee, to it at the address set forth in the
Adoption Agreement;
or, in each case at such other address as the addressee shall have specified by
written notice delivered in accordance with the foregoing to the addressor's
then effective notice address.
12.08 Governing Law. The Plan and the accompanying Adoption Agreement will
be construed, administered and enforced according to ERISA, and to the extent
not preempted thereby, the laws of the Commonwealth of Massachusetts.
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ARTICLE 13
PLAN ADMINISTRATION
13.01 Powers and Responsibilities of the Administrator. The Administrator
has the full power and the full responsibility to administer the Plan in all of
its details, subject, however, to the requirements of ERISA. The Administrator's
powers and responsibilities include, but are not limited to, the following:
(a) To make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the Plan;
(b) To interpret the Plan, its interpretation thereof in good
faith to be final and conclusive on all persons claiming benefits under the
Plan;
(c) To decide all questions concerning the Plan and the
eligibility of any person to participate in the Plan;
(d) To administer the claims and review procedures specified in
Section 13.03;
(e) To compute the amount of benefits which will be payable to any
Participant, former Participant or Beneficiary in accordance with the provisions
of the Plan;
(f) To determine the person or persons to whom such benefits will
be paid;
(g) To authorize the payment of benefits and provide for the
distribution of Code Section 402(f) notices;
(h) To comply with the reporting and disclosure requirements of
Part I of Subtitle B of Title I of ERISA;
(i) To appoint such agents, counsel, accountants, and consultants
as may be required to assist in administering the Plan;
(j) By written instrument, to allocate and delegate its fiduciary
responsibilities in accordance with Section 405 of ERISA including the formation
of an Administrative Committee to administer the Plan;
(k) To provide bonding coverage as required under Section 412 of
ERISA.
13.02 Nondiscriminatory Exercise of Authority. Whenever, in the
administration of the Plan, any discretionary action by the Administrator is
required, the Administrator shall exercise its authority in a nondiscriminatory
manner so that all persons similarly situated will receive substantially the
same treatment.
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13.03 Claims and Review, Procedural.
(a) Claims Procedure. If any person believes he is being denied
any rights or benefits under the Plan, such person may file a claim in writing
with the Administrator. If any such claim is wholly or partially denied, the
Administrator will notify such person of its decision in writing. Such
notification will contain (1) specific reasons for the denial, (2) specific
reference to pertinent Plan provisions, (3) a description of any additional
material or information necessary for such person to perfect such claim and an
explanation of why such material or information is necessary, and (4)
information as to the steps to be taken if the person wishes to submit a request
for review. Such notification will be given within 90 days after the claim is
received by the Administrator (or within 180 days, if special circumstances
require an extension of time for processing the claim, and if written notice of
such extension and circumstances is given to such person within the initial
90-day period). If such notification is not given within such period, the claim
will be considered denied as of the last day of such period and such person may
request a review of his claim.
(b) Review Procedure. Within 60 days after the date on which a
person receives a written notice of a denied claim (or, if applicable, within 60
days after the date on which such denial is considered to have occurred), such
person (or his duly authorized representative) may (1) file a written request
with the Administrator for a review of his denied claim and of pertinent
documents and (2) submit written issues and comments to the Administrator. The
Administrator will notify such person of its decision in writing. Such
notification will be written in a manner calculated to be understood by such
person and will contain specific reasons for the decision as well as specific
references to pertinent Plan provisions. The decision on review will be made
within 60 days after the request for review is received by the Administrator (or
within 120 days, if special circumstances require an extension of time for
processing the request, such as an election by the Administrator to hold a
hearing, and if written notice of such extension and circumstances is given to
such person within the initial 60-day period). If the decision on review is not
made within such period, the claim will be considered denied.
13.04 Named Fiduciary. The Administrator is a "named fiduciary" for
purposes of Section 402(a)(1) of ERISA and has the powers and responsibilities
with respect to the management and operation of the Plan described herein.
13.05 Costs of Administration. Unless some or all are paid by the
Employer, all reasonable costs and expenses (including legal, accounting, and
employee communication fees) incurred by the Administrator and the Trustee in
administering the Plan and Trust will be paid first from the forfeitures (if
any) resulting under Section 7.07, then from the remaining Trust Fund. All such
costs and expenses paid from the Trust Fund will, unless allocable to the
Accounts of particular Participants, be charged against the Accounts of all
Participants on a prorata basis or in such other reasonable manner as may be
directed by the Employer.
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ARTICLE 14
TRUST AGREEMENT
14.01 Acceptance of Trust Responsibilities. By executing the Adoption
Agreement, the Employer establishes a trust to hold the assets of the Plan. By
executing the Adoption Agreement, the Trustee agrees to accept the rights,
duties and responsibilities set forth in this Article 14.
14.02 Establishment of Trust Fund. A trust is hereby established under the
Plan and the Trustee will open and maintain a trust account for the Plan and, as
part thereof, Participants' Accounts for such individuals as the Employer shall
from time to time give written notice to the Trustee are Participants in the
Plan. The Trustee will accept and hold in the Trust Fund such contributions on
behalf of Participants as it may receive from time to time from the Employer.
The Trust Fund shall be fully invested and reinvested in accordance with the
applicable provisions of the Plan in Fund Shares or as otherwise provided in
Section 14.10.
14.03 Exclusive Benefit. The Trustee shall hold the assets of the Trust
Fund for the exclusive purpose of providing benefits to Participants and
Beneficiaries and defraying the reasonable expenses of administering the Plan.
No assets of the Plan shall revert to the Employer except as specifically
permitted by the terms of the Plan.
14.04 Powers of Trustee. The Trustee shall have no discretion or authority
with respect to the investment of the Trust Fund but shall act solely as a
directed trustee of the funds contributed to it. In addition to and not in
limitation of such powers as the Trustee has by law or under any other
provisions of the Plan, the Trustee will have the following powers, each of
which the Trustee exercises solely as directed Trustee in accordance with the
written direction of the Employer except to the extent a Plan asset is subject
to Participant direction of investment and provided that no such power shall be
exercised in any manner inconsistent with the provisions of ERlSA:
(a) to deal with all or any part of the Trust Fund and to invest
all or a part of the Trust Fund in investments available under the Plan, without
regard to the law of any state regarding proper investment;
(b) to retain uninvested such cash as it may deem necessary or
advisable, without liability for interest thereon, for the administration of the
Trust;
(c) to sell, convert, redeem, exchange, or otherwise dispose of
all or any part of the assets constituting the Trust Fund;
(d) to enforce by suit or otherwise, or to waive, its rights on
behalf of the Trust, and to defend claims asserted against it or the Trust,
provided that the Trustee is indemnified to its satisfaction against liability
and expenses;
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(e) to employ such agents and counsel as may be reasonably
necessary in collecting, managing, administering, investing, distributing and
protecting the Trust Fund or the assets thereof and to pay them reasonable
compensation;
(f) to compromise, adjust and settle any and all claims against or
in favor of it or the Trust;
(g) to oppose, or participate in and consent to the
reorganization, merger, consolidation, or readjustment of the finances of any
enterprise, to pay assessments and expenses in connection therewith, and to
deposit securities under deposit agreements;
(h) to apply for or purchase annuity contracts in accordance with
Section 8.02;
(i) to hold securities unregistered, or to register them in its
own name or in the name of nominees;
(j) to appoint custodians to hold investments within the
jurisdiction of the district courts of the United States and to deposit
securities with stock clearing corporations or depositories or similar
organizations;
(k) to make, execute, acknowledge and deliver any and all
instruments that it deems necessary or appropriate to carry out the powers
herein granted; and
(l) generally to exercise any of the powers of an owner with
respect to all or any part of the Trust Fund.
The Employer specifically acknowledges and authorizes that
affiliates of the Trustee may act as its agent in the performance of
ministerial, nonfiduciary duties under the Trust. The expenses and compensation
of such agent shall be paid by the Trustee.
The Trustee shall provide the Employer with reasonable notice of any
claim filed against the Plan or Trust or with regard to any related matter, or
of any claim filed by the Trustee on behalf of the Plan or Trust or with regard
to any related matter.
14.05 Accounts. The Trustee will keep full accounts of all receipts and
disbursements and other transactions hereunder. Within 60 days after the close
of each Plan Year, within 60 days after termination of the Trust, and at such
other times as may be appropriate, the Trustee will determine the then net fair
market value of the Trust Fund as of the close of the Plan Year, as of the
termination of the Trust, or as of such other time', whichever is applicable,
and will render to the Employer and Administrator an account of its
administration of the Trust during the period since the last such accounting,
including all allocations made by it during such period.
14.06 Approving of Accounts. To the extent permitted by law, the written
approval of any account by the Employer or Administrator will be final and
binding, as to all matters and transactions
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<PAGE> 106
stated or shown therein, upon the Employer, Administrator, Participants and all
persons who then are or thereafter become interested in the Trust. The failure
of the Employer or Administrator to notify the Trustee within six (6) months
after the receipt of any account of its objection to the account will, to the
extent permitted by law, be the equivalent of written approval. If the Employer
or Administrator files any objections within such six (6) month period with
respect to any matters or transactions stated or shown in the account, and the
Employer or Administrator and the Trustee cannot amicably settle the question
raised by such objections, the Trustee will have the right to have such
questions settled by judicial proceedings. Nothing herein contained will be
construed so as to deprive the Trustee of the right to have judicial settlement
of its accounts. In any proceeding for a judicial settlement of any account or
for instructions, the only necessary parties will be the Trustee, the Employer
and the Administrator.
14.07 Distribution from Trust Fund. The Trustee shall make such
distribution from the Trust Fund as the Employer or Administrator may in writing
direct, as provided by the terms of the Plan, upon certification by the Employer
or Administrator that the same is for the exclusive benefit of Participants or
their Beneficiaries, or for the payment of expenses of administering the Plan.
14.08 Transfer of Amounts from Qualified Plan. If the Plan provides that
amounts may be transferred to the Plan from another qualified plan or trust
under Section 401(a) of the Code, such transfer shall be made in accordance with
the provisions of the Plan and with such rules as may be established by the
Trustee. The Trustee will only accept assets which are in a medium proper for
investment under this agreement or in cash. Such amounts shall be accompanied by
written instructions showing separately the respective contributions by the
prior employer and the transferring Employee, and identifying the assets
attributable to such contributions. The Trustee shall hold such assets for
investment in accordance with the provisions of this agreement.
14.09 Transfer of Assets from Trust. Subject to the provisions of the
Plan, the Employer may direct the Trustee to transfer all or a specified portion
of the Trust assets to any other plan or plans maintained by the Employer or the
employer or employers of a former Participant or Participants, provided that the
Trustee has received evidence satisfactory to it that such other plan meets all
applicable requirements of the Code. The assets so transferred shall be
accompanied by written instructions from the Employer naming the persons for
whose benefit such assets have been transferred, showing separately the
respective contributions by the Employer and by each Participant, if any, and
identifying the assets attributable to the various contributions. The Trustee
shall have no further liabilities with respect to assets so transferred.
14.10 Separate Trust or Fund for Existing Plan Assets. With the consent of
the Trustee, the Employer may maintain a trust or fund (including a group
annuity contract) under this prototype plan document separate from the Trust
Fund for Plan assets purchased prior to the adoption of this prototype plan
document which are not Fidelity Funds listed in Section 1.14(b). The Trustee
shall have no authority and no responsibility for the Plan assets held in such
separate trust or fund. The duties and responsibilities of the trustee of a
separate trust shall be provided by a separate trust agreement, between the
Employer and the trustee.
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<PAGE> 107
Notwithstanding the preceding paragraph, the Trustee or an affiliate
of the Trustee may agree in writing to provide ministerial recordkeeping
services for guaranteed investment contracts held in the separate trust or fund.
The guaranteed investment contract(s) shall be valued as directed by the
Employer or the Trustee of the separate trust.
The trustee of the separate trust.(hereafter referred to as
"trustee") will be the owner of any insurance contract purchased prior to the
adoption of this prototype plan document. The insurance contract(s) must provide
that proceeds will be payable to the trustee; however the trustee shall be
required to pay over all, proceeds of the contract(s) to the Participant's
designated Beneficiary in accordance with the distribution provisions of this
plan. A Participant's spouse will be the designated Beneficiary of the proceeds
in all circumstances unless a qualified election has been made in accordance
with Article 8. Under no circumstances shall the trust retain any part of the
proceeds. In the event of any Conflict between the terms of this plan and the
terms of any insurance contract purchased hereunder, the plan provisions shall
control.
Any life insurance contracts held in the Trust Fund or in the
separate trust are subject to the following limits:
(a) Ordinary life - For purposes of these incidental insurance
provisions, ordinary life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums. If such contracts are
held, less than 1/2 of the aggregate employer contributions allocated to any
Participant will be used to pay the premiums attributable to them.
(b) Term and universal life - No more than 1/4 of the aggregate
employer contributions allocated to any participant will be used to pay the
premiums on term life insurance contracts, universal life insurance contracts,
and all other life insurance contracts which are not ordinary life.
(c) Combination - The sum of 1/2 of the ordinary life insurance
premiums and all other life insurance premiums will not exceed 1/4 of the
aggregate employer contributions allocated to any Participant.
14.11 Votings; Delivery of Information. The Trustee shall deliver, or
cause to be executed and delivered, to the Employer or Plan Administrator all
notices, prospectuses, financial statements, proxies and proxy soliciting
materials received by the Trustee relating to securities held by the Trust or,
if applicable, deliver these materials to the appropriate Participant or the
Beneficiary of a deceased Participant. The Trustee shall not vote any securities
held by the Trust except in accordance with the written instructions of the
Employer, Participant or the Beneficiary of the Participant, if the Participant
is deceased; however, the Trustee may, in the absence of instructions, vote
"present" for the sole purpose of allowing such shares to be counted for
establishment of a quorum at a shareholders, meeting. The Trustee shall have no
duty to solicit instructions from Participants, Beneficiaries, or the Employer.
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<PAGE> 108
14.12 Compensation and Expenses of Trustee. The Trustee's fee for
performing its duties hereunder will be such reasonable amounts as the Trustee
may from time to time specify by written agreement with the Employer. Such fee,
any taxes of any kind which may be levied or assessed upon or with respect to
the Trust Fund and any and all expenses, including without limitation legal fees
and expenses of administrative and judicial proceedings, reasonably incurred by
the Trustee in connection with its duties and responsibilities hereunder will,
unless some or all have been paid by said Employer, be paid first from
forfeitures resulting under Section 7.07, then from the remaining Trust Fund and
will, unless allocable to the Accounts of particular Participants, be charged
against the respective Accounts of all Participants, in such reasonable manner
as the Trustee may determine.
14.13 Reliance by Trustee on Other Persons. The Trustee may rely upon and
act upon any writing from any person authorized by the Employer or Administrator
to give instructions concerning the Plan and may conclusively rely upon and be
protected in acting upon any written order from the Employer or Administrator or
upon any other notice, request, consent, certificate, or other instructions or
paper reasonably believed by it to have been executed by a duly authorized
person, so long as it acts in good faith in taking or omitting to take any such
action. The Trustee need not inquire as to the basis in fact of any statement in
writing received from the Employer or Administrator.
The Trustee will be entitled to rely on the latest certificate it
has received from the Employer or Administrator as to any person or persons
authorized to act for the Employer or Administrator hereunder and to sign on
behalf of the Employer or Administrator any directions or instructions, until it
receives from the Employer or Administrator written notice that such authority
has been revoked.
Notwithstanding any provision contained herein, the Trustee will be
under no duty to take any action with respect to any Participant's Account
(other than as specified herein) unless and until the Employer or Administrator
furnishes the Trustee with written instructions on a form acceptable to the
Trustee, and the Trustee agrees thereto in writing. The Trustee will not be
liable for any action taken pursuant to the Employer's or Administrator's
written instructions (nor for the collection of contributions under the Plan,
nor the purpose or propriety of any distribution made thereunder).
14.14 Indemnification by Employer. The Employer shall indemnify and save
harmless the Trustee from and against any and all liability to which the Trustee
may be subjected by reason of any act or conduct (except willful misconduct or
negligence) in its capacity as Trustee, including all expenses reasonably
incurred in its defense.
14.15 Consultant on by Trustee with Counsel. The Trustee may consult with
legal counsel (who may be but need not be counsel for the Employer or the
Administrator) concerning any question which may arise with respect to its
rights and duties under the Plan and Trust, and the opinion of such counsel
will, to the extent permitted by law, be full and complete protection in respect
of any action taken or omitted by the Trustee hereunder in good faith and in
accordance with the opinion of such counsel.
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<PAGE> 109
14.16 Persons Dealing with the Trustee. No person dealing with the Trustee
will be bound to see to the application of any money or property paid or
delivered to the Trustee or to inquire into the validity or propriety of any
transactions.
14.17 Resignation or Removal of Trustee. The Trustee may resign at any
time by written notice to the Employer, which resignation shall be effective 60
days after delivery to the Employer. The Trustee may be removed by the Employer
by written notice to the Trustee, which removal shall be effective 60 days after
delivery to the Trustee.
Upon resignation or removal of the Trustee, the Employer may appoint
a successor trustee. Any such successor trustee will, upon written acceptance of
his appointment, become vested with the estate, rights, powers, discretion,
duties and obligations of the Trustee hereunder as if he had been originally
named as Trustee in this Agreement.
Upon resignation or removal of the Trustee, the Employer will no
longer participate in this prototype plan and will be deemed to have adopted an
individually designed plan. In such event, the Employer shall appoint a
successor trustee within said 60-day period and the Trustee will transfer the
assets of the Trust to the successor trustee upon receipt of sufficient evidence
(such as a determination letter or opinion letter from the Internal Revenue
Service or an opinion of counsel satisfactory to the Trustee) that such trust
will be a qualified trust under the Code.
The appointment of a successor trustee shall be accomplished by
delivery to the Trustee of written notice that the Employer has appointed such
successor trustee, and written acceptance of such appointment by the successor
trustee. The Trustee may, upon transfer and delivery of the Trust Fund to a
successor trustee, reserve such reasonable amount as it shall deem necessary to
provide for its fees, compensation, costs and expenses, or for the payment of
any other liabilities chargeable against the Trust Fund for which it may be
liable. The Trustee shall not be liable for the acts or omissions of any
successor trustee.
14.18 Fiscal Year of the Trust. The fiscal year of the Trust will coincide
with the Plan Year.
14.19 Discharge of Duties by Fiduciaries. The Trustee and the Employer and
any other fiduciary shall discharge their duties under the Plan and this Trust
Agreement solely in the interests of Participants and their Beneficiaries in
accordance with the requirements of ERISA.
14.20 Amendment. In accordance with provisions of the Plan, and subject to
the limitations set forth therein, this Trust Agreement may be amended by an
instrument in writing signed by the Employer and the Trustee. No amendment to
this Trust Agreement shall divert any part of the Trust Fund to any purpose
other than as provided in Section 2 hereof.
14.21 Plan Termination. Upon termination or partial termination of the
Plan or complete discontinuance of contributions thereunder, the Trustee will
make distributions to the Participants or other persons entitled to
distributions as the Employer or Administrator directs in accordance with the
provisions of the Plan. In the absence of such instructions and unless the Plan
otherwise provides, the
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<PAGE> 110
Trustee will notify the Employer or Administrator of such situation and the
Trustee will be under no duty to make any distributions under the Plan until it
receives written instructions from the Employer or Administrator. Upon the
completion of such distributions, the Trust will terminate, the Trustee will be
relieved from all liability under the Trust, and no Participant or other person
will have any claims thereunder, except as required by applicable law.
14.22 Permitted Reversion of Funds to Employer. If it is determined by the
Internal Revenue Service that the Plan does not initially qualify under Section
401 of the Code, all assets then held under the Plan will be returned by the
Trustee, as directed by the Administrator, to the Employer, but only if the
application for determination is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan was adopted or such
later date as may be prescribed by regulations. Such distribution will be made
within one year after the date the initial qualification is denied. Upon such
distribution the Plan will be considered to be rescinded and to be of no force
or effect.
Contributions under the Plan are conditioned upon their
deductibility under Section 404 of the Code. In the event the deduction of a
contribution made by the Employer is disallowed under Section 404 of the Code,
such contribution (to the extent disallowed) must be returned to the Employer
within one year of the disallowance of the deduction.
Any contribution made by the Employer because of a mistake of fact
must be returned to the Employer within one year of the contribution.
14.23 Governing Law. This Trust Agreement will be construed, administered
and enforced according to ERISA and, to the extent not preempted thereby, the
laws of the Commonwealth of Massachusetts.
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<PAGE> 111
CORPORATEPLAN FOR RETIREMENT(SM)
PROFIT SHARING/401(K) PLAN
FIDELITY BASIC PLAN DOCUMENT NO. 07
AMENDMENT ONE
Section 2.01(a)(7) "Compensation" is amended to include:
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each Employee
taken into account under the plan shall not exceed the OBRA 193 annual
compensation limit. The OBRA 193 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a) (17) (B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA 193 annual compensation will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this plan to the limitation under section 401(a)(17) of the Code shall mean the
OBRA 193 annual compensation limit set forth in this provision. Notwithstanding
2.01(a)(7)(A), for purpose of Section 4.02 (Additional Limit on Deferral
Contributions) and Section 4.04 (Limit on Matching Contributions), the Employer
may use Compensation as defined in Section 5.03(e)(2) excluding reimbursements
or other expense allowances, fringe benefits (cash and noncash), moving
expenses, deferred compensation and welfare benefits, but including amounts that
are not includable in the gross income of the Participant under a salary
reduction agreement by reason of the application of Section 125, 402(a)(8),
402(h) or 403(b) of the Code.
If compensation for any prior determination period is taken into account
in determining an Employee's benefits accruing in the current plan year, the
compensation for that prior determination period is subject to the OBRA 193
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first plan year beginning on or after January 1, 1994, the OBRA 193 annual
compensation limit is $150,000.
Section 8,01(d) "Distribution of Benefits to Participants and Beneficiaries" is
amended to include:
(5) If a distribution is one to which sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, such distribution may commence less than 30
days after the notice required under section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(1) the administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
<PAGE> 112
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
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<PAGE> 113
ADDENDUM
TO
CORPORATEPLAN FOR RETIREMENT
THE PROFIT SHARING/401(K) PLAN
FIDELITY BASIC PLAN DOCUMENT NO. 07
RE: RETROACTIVE EFFECTIVE DATES
This Addendum is intended to clarify and set forth the effective dates of
certain provisions of the Plan with respect to the adopting Employer. This
Addendum applies only to the extent that the Employer has not amended the Plan
with respect to the applicable provisions of the Tax Reform Act of 1986 ("TRA
'86"). Unless otherwise specifically provided by the terms of the Plan, this
amendment and restatement is effective with respect to each change made to
satisfy the provisions of (i) TRA '86, (ii) any other change in the Code or
ERISA, or (iii) regulations, rulings, or other published guidance issued under
the Code, ERISA, or TRA '86, the first day of the first period (which may or may
not be the first day of a Plan year) with respect to which such change became
required because of such provision (including any day that became such as a
result of an election or waiver by an Employer or a waiver or exemption issued
under the Code, ERISA, or TRA '86), including, but not limited to, the
following:
(a) The following changes as required by TRA '86 are effective for Plan
Years beginning after December 31, 1986, unless a delayed effective date applies
because the Plan is collectively- bargained or because of an applicable
exemption or waiver:
(1) Changes in the definition of Employee in Section 2.01(a)(10)
to reflect changes in the safe harbor exclusion for Leased Employees;
(2) Changes in the definition of Highly Compensated Employee in
Section 2.01(a)(16)
(3) Addition of the aggregate deferral limit under Section 402(g)
of the Code in Section 4.01(c);
(4) Changes to the Code Section 401(k) discrimination test in
Section 4.02;
(5) Addition of the Code Section 401(m) discrimination test and
application of the Aggregate Limit in Section 4.04;
(6) Compliance with the Code Section 414(s) compensation
definition requirements in Sections 5.03 and 9.03;
(7) Changes in the Participant Loan provisions in Section 7.09; if
applicable, to reflect new dollar limitations, repayment requirements, and
restrictions applicable to Highly Compensated Employees under Section 72(p) of
the Code;
<PAGE> 114
(8) Changes in the definition of Key Employee in Section 9.02(a);
and
(9) Changes in the definition of Top-Heavy Ratio in Section
9.02(c)(3) to provide for ratable accrual.
(b) Changes in the 415 limitations in Section 5.03 as required by TRA
'86 are effective for limitation years beginning after December 31, 1986, unless
a delayed effective date applies because the Plan is collectively-bargained or
because of an applicable waiver or exemption; provided, however, that Annual
Additions shall not be recalculated to take into account all Employee
contributions for limitation years beginning before the effective date.
(c) The following changes as required by TRA'86 are effective for Plan
years beginning After December 31, 1987, unless a delayed effective date applies
because the Plan is collectively- bargained or because of an applicable waiver
or exemption:
(1) Changes required to provide that allocations shall not be
decreased or discontinued because of attainment of any age, if any; and
(2) Changes in the definition of Normal Retirement Age in Section
1.06(a), if any, to reflect the five years of participation rule.
(d) The following changes as required by TRA'86 are effective for Plan
Years beginning after December 31, 1988, unless a delayed effective date applies
because the Plan is collectively- bargained or because of an applicable waiver
or exemption:
(1) Changes in the vesting schedule specified in Section 1.07, if
applicable;
(2) Changes in the permitted disparity rules in Section
4.06(b)(2), if applicable; and
(3) Changes in the requirements for electing a former vesting
schedule in Section 10.03, if applicable.
Notwithstanding the foregoing and subject to applicable law, with respect to
Plan years beginning after December 31, 1986, and before the date of this
restatement of the Plan, the Employer may elect to operate the Plan in
accordance with any transitional rule published by the Internal Revenue Service
or a reasonable, good faith interpretation of TRA'86 and related applicable law,
in which event such transitional rule or good faith interpretation shall prevail
over the provisions in this restatement of the Plan with respect to such Plan
Year.
Each other change made under the Plan is effective as of the date specified in
Section 1.01 (g) of the Adoption Agreement, 'unless otherwise specifically
provided by the terms of the Plan.
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<PAGE> 1
EXHIBIT 10.10
CONVERTIBLE SUBORDINATED PROMISSORY NOTES
AND WARRANT PURCHASE AGREEMENT
THIS CONVERTIBLE SUBORDINATED PROMISSORY NOTES AND WARRANT PURCHASE
AGREEMENT (the "Agreement") is made and entered into as of September 30, 1992,
by and among EXTENDED SYSTEMS, INC., a Delaware corporation (the "Company"), and
the persons listed on Exhibit 1.01A hereto (the "Purchasers").
1. PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
1.01 The Zero Promissory Notes. The Company has authorized the
issuance and sale of the Company's $7,625,000 Maturity Value of Zero Coupon
Convertible Subordinated Promissory Notes (the "Zero Coupon Notes") with the
Maturity Value payable on September 29, 1999, to the Purchasers for the Issue
Price and in the respective Maturity Values set forth in Exhibit 1.01A hereto.
The Zero Coupon Notes shall be substantially in the form set forth in Exhibit
1.01B hereto.
1.02 The 10% Promissory Notes. The Company has authorized the
issuance and sale of the Company's $500,000 principal amount 10% Convertible
Subordinated Promissory Notes (the "10% Notes") with interest payable annually
in arrears until the principal is paid in full and principal is payable on
September 29, 1999, to the Purchasers, in the respective amounts set forth in
Exhibit 1.01A hereto. The 10% Notes shall be substantially in the form set forth
in Exhibit 1.02 hereto. (Collectively the Zero Coupon Notes and 10% Notes are
herein referred to individually as a "Note" and collectively as the "Notes").
Any shares of Common Stock issuable upon conversion of the Notes, and such
shares when issued, are herein referred to as the "Conversion Shares."
1.03 The Warrants. The Company has authorized the issuance and
sale of three-year warrants to purchase 76,062 shares of the Company's Common
Stock, $.10 par value, at a price of $32.868 per share to the Purchasers, in the
respective amounts and for the price set forth in Exhibit 1.01A hereto. The
Warrants (the "Warrants") shall be delivered pursuant to Warrant Certificates
substantially in the form set forth in Exhibit 103 hereto. Any shares of Common
Stock issuable upon exercise of the Warrants and such shares when issued are
herein referred to as the "Warrant Shares."
1.04 The Securities. The Zero Coupon Notes, 10% Notes and
Warrants are sometimes referred to herein collectively as the "Securities."
1.05 Reservation of Shares. The Company shall authorize and
reserve, and covenants to continue to reserve, free of preemptive rights and
other preferential rights, a sufficient number of its previously authorized but
unissued shares of Common Stock to satisfy the rights of conversion of the
holders of the Notes and Warrants.
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<PAGE> 2
1.06 The Closing of Purchase and Sale of Notes and Warrants. The
Company hereby issues and sells to the Purchasers, and the Purchasers, severally
but not jointly, hereby purchase, the Securities for the purchase price and in
the amounts set forth opposite their respective names in Exhibit 1.01A hereto.
Such purchase and sale shall take place at a closing (the "Closing") to be held
at the office of Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive,
Suite 1600, Newport Beach, California 92660, on September 30, 1992 at 10:00
A.M., or on such other date and at such time as may be mutually agreed upon. The
Company hereby issues and delivers the Notes payable to the order of Purchasers
and Warrant Certificates representing the Warrants all in the amounts set forth
opposite their respective names in Exhibit 1.01A hereto. Purchasers hereby pay
the purchase price by wire transfers to the account of the Company or by
delivery of checks payable to the order of the Company.
1.07 Payments and Endorsements. Payment of principal and accrued
Original Issue Discount on the Zero Coupon Notes and payments of principal and
interest, on the 10% Notes, shall be made directly by check duly mailed or
delivered to each Purchaser at its address referred to in Exhibit 1.01A hereto,
without any presentment or notation of payment, except that prior to transfer of
any 10% Note, the holder of record shall endorse on such 10% Note a record of
the date to which interest has been paid and on all Notes a record of the date
all payments made on account of principal of such Note.
1.08 Redemption of Notes.
(a) Required Redemptions. Upon the earlier to occur of a
merger or other change of control described in Section 4.02(a) or on the 29th
day of September 1999, the Company shall pay, without premium, the Issue Price
plus the accrued Original Issue Discount of the Zero Coupon Notes then
outstanding and the full principal amount of and interest due on the 10% Notes,
or such lesser amount as may be then outstanding.
(b) Optional Redemption. In addition to the redemption of
Notes required under subsection 1.08(a), in the event the Company closes a
Qualified Public Offering the Company may, without premium, subject to the
notice requirement of subsection 1.08(c), redeem the outstanding Notes, in whole
but not in part, in an amount equal to the Issue Price of, and all accrued
Original Issue Discount on, the Zero Coupon Notes, to the extent such Notes
remain outstanding and together with all accrued and unpaid interest due on the
amount then remaining outstanding on the 10% Notes.
(c) Notice of Redemptions. Notice of optional redemptions
pursuant to subsection 1.08(b) shall be given to all registered holders of the
Notes at least thirty (30) days prior to the date of such redemption. The
Company shall give all registered holders of the Notes at least ten (10) days
prior written notice of the Company's intention to file a Registration Statement
with the Securities and Exchange Commission for Any Public Offering.
1.09 Registration, etc. The Company shall maintain at its
principal office a register of the Notes and shall record the names and
addresses of the holders of the Notes, which includes the address to which
notices are to be sent and payments are to be made, and the particulars of all
transfers, exchanges and replacements of Notes.
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<PAGE> 3
1.10 Transfer and Exchange of Notes. The holder of any Note may
surrender such Note at the principal office of the Company for transfer or
exchange. The Company shall promptly make such exchange or transfer without
expense to the holder (other than transfer taxes, if any) and shall issue in
exchange therefor another Note for the same aggregate principal amount as the
unpaid principal amount of the Note so surrendered.
1.11 Replacement of Notes. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of any Note and, if
requested in the case of any such loss, theft or destruction, the Company will
issue a new Note, of like tenor and amount and dated the date to which interest
has been paid, in lieu of such lost, stolen, destroyed or mutilated Note.
1.12 Subordination. The payment of the principal of, and with
respect to the 10% Notes, interest on, each and all of the Notes shall be
subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full of all Senior Debt (as hereinafter
defined) at any time outstanding.
(a) No Payment on Notes Under Certain Conditions. In the
event that:
(i) any default occurs in the payment of the
principal of or interest on any Senior Debt and during the continuance of such
default until such payment has been made or such default has been cured or
waived in writing by such holder of Senior Debt; or
(ii) the maturity of any Senior Debt is accelerated
by any holder thereof because of a default with respect thereto and until such
acceleration has been rescinded or said Senior Debt has been paid;
then and during the continuance of any of such events no payment of principal or
interest on the Notes shall be made nor shall any property or assets be applied
to the purchase or redemption of the Notes, whether voluntary or involuntary, by
the Company or demanded or accepted by any holder of the Notes who has received
notice from the Company or from a holder of Senior Debt of either of such
events.
(b) Scope of Section. The provisions of this Section 1.12
are intended solely for the purpose of defining the relative rights of the
holders of the Notes, on the one hand, and the holders of Senior Debt, on the
other hand. Nothing contained in this Section 1.12 or elsewhere in this
Agreement or the Notes is intended to or shall impair, as between the Company,
its creditors, other than the holders of Senior Debt, and the holders of the
Notes, the obligation of the Company, which is unconditional and absolute, to
pay to the holders of the Notes the principal of the Notes, Original Issue
Discount on the Zero Coupon Notes, and interest on the 10% Notes as and when the
same shall become due and payable in accordance with the terms thereof.
(c) Senior Debt Defined. The term "Senior Debt" shall mean
(i) all Indebtedness of the Company (which is not convertible into equity
securities of the Company and is not issued in conjunction with equity
securities of the Company or options or warrants to purchase equity securities
of the Company) for money borrowed from banks or other institutional lenders,
including any
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<PAGE> 4
extension or renewals thereof, whether outstanding on the date hereof or
thereafter created or incurred, which is not by its terms subordinate and junior
to or on a parity with the Notes.
1.13 Representations by the Purchasers.
(a) Investment. Each Purchaser severally, and not jointly,
represents that:
(i) Such Purchaser has been advised that the
Securities have not been registered under the Securities Act nor qualified under
any state securities laws on the ground, among others, that no distribution or
public offering of the Securities, the Conversion Shares or the Warrant Shares,
is to be effected. It is Purchaser's intention to acquire the Securities for its
own account for the purpose of investment and not with a view to distribution or
resale thereof.
(ii) The Purchaser acknowledges that the Notes and
the certificates representing the Conversion Shares and the Warrant Shares, when
issued, shall contain the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY
HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY
NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER
THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER;
THIS STOCK IS RESTRICTED STOCK AND MAY NOT BE SOLD WITHOUT
FIRST OFFERING IT TO THE CORPORATION, WHICH SHALL HAVE THE
RIGHT TO PURCHASE IT WITHIN THIRTY (30) DAYS AT THE LATEST
APPRAISAL PRICE DETERMINED BY AN INDEPENDENT OUTSIDE
APPRAISER WITHIN ONE HUNDRED TWENTY (120) DAYS PRIOR TO
THE DATE OF SALE PURSUANT TO ARTICLE 4B OF THE AMENDED
ARTICLES OF INCORPORATION.
THIS RESTRICTION SHALL REMAIN IN EFFECT AT ALL TIMES AND
SHALL APPLY TO ANY FUTURE OWNER OR TRANSFEREE OF THIS
STOCK.
The legend arising from the Company's Certificate of Incorporation, shall expire
upon the closing of Any Public Offering.
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<PAGE> 5
(b) Authorization. Each Purchaser, severally, but not
jointly, further represents that:
(i) It has duly authorized, executed and delivered
this Agreement and any other agreements and instruments executed in connection
herewith.
(ii) This Agreement and such other agreements and
instruments constitute the valid and binding obligations of such Purchaser,
enforceable against it in accordance with their respective terms.
1.14 Use of Proceeds. The Company shall use the proceeds from the
offer and sale of the Notes and the Warrants for the purpose of repurchasing
shares of the outstanding Common Stock of the Company from the Selling
Shareholders at a price per share not to exceed the most recently appraised
purchase price which is $29.88, and to the extent it is not used for the
repurchase of shares of the Common Stock the remainder shall be used for working
capital purposes.
2. CONDITIONS TO PURCHASERS' OBLIGATIONS
The obligation of each Purchaser to purchase and pay for the
Securities at the Closing is subject to the following conditions:
2.01 Documentation at Closing. The Purchasers shall have received
prior to or at the Closing all of the following:
(a) A favorable opinion of Hamlin & Sasser, counsel for
the Company, as to matters set forth in Exhibit 2.01A and as to such other
matters as the Purchasers, or their special counsel, may reasonably request.
(b) A Stockholders' Agreement, in the form set forth in
Exhibit 2.01B, shall have been executed by the parties named therein.
2.02 Consents, Waivers, etc. Prior to the Closing, the Company
shall have obtained all consents or waivers, if any, necessary to execute and
deliver this Agreement, issue the Securities and to carry out the transactions
contemplated hereby and thereby, and all such consents and waivers shall be in
full force and effect.
3. REPRESENTATIONS AND WARRANTIES
The Company, which in every event shall include all Subsidiaries,
represents and warrants, that except as set forth in the Disclosure Schedule
attached hereto as Exhibit 3.00:
3.01 Organization, Standing of and Corporate Action by the
Company. The Company is a duly organized and validly existing corporation duly
licensed or qualified and in good standing as a foreign corporation authorized
to do business in all jurisdictions in which the failure to be so qualified
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<PAGE> 6
would have a material adverse effect upon the business as now conducted. The
Company has taken all corporate action required to make all the provisions of
this Agreement, the Securities and any other agreements and instruments executed
in connection herewith and therewith, the valid and enforceable obligations of
the Company. The Company has complied with all applicable federal or state
securities laws in connection with the issuance and sale of the Securities.
3.02 Capitalization. The Company has a total authorized
capitalization consisting of 10,000,000 shares of Class A Common Stock, $.10 par
value, and 10,000,000 shares of Class B Preferred Stock, $.10 par value. A
complete list of the shares of Class A Common Stock and Class B Preferred Stock
currently issued and outstanding and the names in which such shares are
registered is set forth in Exhibit 3.02 hereto. All of the outstanding shares of
capital stock of the Company have been duly authorized, are validly issued and
are fully paid and nonassessable and all shares issuable upon exercise of
outstanding options and warrants have been duly authorized and, when issued in
accordance with the terms of such options and warrants, will be validly issued,
fully paid and nonassessable. The Conversion Shares, when issued and delivered
upon conversion of the Notes, and the Warrant Shares when issued and delivered
upon exercise of the Warrants, will be duly authorized, validly issued and fully
paid and nonassessable free and clear of all liens and encumbrances created by
the Company.
3.03 Financial Statements. The Financial Statements of the
Company for the years ended June 30, 1990, 1991 and 1992, as certified by
Coopers & Lybrand, and of the Company for the two months ended August 31, 1992,
certified by the principal financial officer of the Company (collectively, the
"Financial Statements") copies of which Financial Statements, along with any
officers reports, have heretofore been delivered to Purchasers or their special
counsel, were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved subject to
year-end adjustments which would not be materially adverse, and fairly present
the financial position and results of operations of the Company and Subsidiaries
for the periods covered. Since June 30, 1992 no event has occurred or failed to
occur that would be required to be disclosed in the footnotes of the Financial
Statements for such statements to be prepared in accordance with generally
accepted accounting principles, and to the best knowledge of the Company, there
has been no other event or condition of any character specifically relating to
the Company which specifically pertains to and materially adversely affects its
business, properties or condition, financial or otherwise.
3.04 Intellectual Property. To the best knowledge of the Company,
except as otherwise expressly disclosed to Purchasers, the Company has title to
and ownership of all necessary patents, licenses, trademarks, service marks,
tradenames, copyrights, trade secrets, inventions, franchises, computer software
and other proprietary rights ("intellectual property") necessary for its
business as now conducted, or proposed to be conducted, without any conflict
with or infringement of the rights of others. The Company has no reason to
believe that it has violated, or violates, any of the intellectual property
rights of any other person or entity.
3.05 Disclosure. To the best knowledge of the Company, all
responses to Purchasers and its counsel to all written and oral requests for
information have been true and accurate in every material respect and no
representation, warranty or statement by the Company in this Agreement or in any
written statement furnished to the Purchasers or their counsel pursuant to this
Agreement contains
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<PAGE> 7
or will contain any untrue statement of material fact or omits to state a
material fact necessary to make such statements, in light of the circumstances
under which they were made, not misleading. To the best knowledge of the
Company, there is no material information regarding the Company that the Company
has failed to disclose that is likely to have a material adverse effect upon the
Company.
4. COVENANTS OF THE COMPANY AND PURCHASERS
4.01 Affirmative Covenants of the Company Other Than Reporting
Requirements. The Company covenants and agrees that, so long as any of the Notes
are outstanding or, until the closing of a Qualified Public Offering it will
perform and observe the following covenants and provisions and will cause each
Subsidiary to perform and observe such of the following covenants and
provisions:
(a) Punctual Payment. Redeem the Notes at the times and
place and in the manner provided in the terms of the Notes, respectively; and
pay the principal of, premium, if any, and interest on each of the Notes at the
times and place and in the manner provided in the Notes and herein.
(b) Compensation. The Compensation Committee of the Board
of Directors (which shall consist of not more than three members of the Board of
Directors and of which the director designated by the Purchasers pursuant to the
Stockholders' Agreement will be a member and a director who is not employed by
the Company nor affiliated with an employee is a member) shall annually prepare
and submit recommended compensation for the Company's officers to the Board of
Directors.
(c) Employment Agreements. The Company has caused all
officers and employees to enter an Employment Agreement and a Confidentiality
Agreement with the Company, and will continue to cause its new employees to
enter such agreements with the Company.
(d) Budgets and Board Approval. No later than the
fifteenth day following the commencement of each fiscal year, prepare and submit
to, and not more than forty-five (45) days into the current fiscal year obtain
the approval of a majority of, the Board of Directors a budget for the upcoming
fiscal year, including projections or forecasts of capital and operating
expenses, cash flow, and profits and losses, all itemized in reasonable detail.
(e) Board of Directors; Indemnification. The Board of
Directors shall not consist of more than seven (7) directors, and shall consist
of one member designated by the Purchasers pursuant to the Stockholders'
Agreement attached hereto as Exhibit 2.01B. The certificate of incorporation or
bylaws of the Company shall at all times provide for the indemnification of the
Board of Directors to the full extent provided by the law of the jurisdiction in
which the Company is organized. The Company shall pay for reasonable travel and
living expenses of the members of the Board of Directors designated by the
Purchasers in attending meetings of the Board of Directors and committees
thereof and in conducting other business on behalf of the Company in accordance
with the Company's customary travel policy.
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<PAGE> 8
4.02 Negative Covenants of the Company. The Company covenants and
agrees that, until the earlier to occur of (i) all of the Notes have been paid
in full or converted and, (ii) until the closing of a Qualified Public Offering,
it will not take the actions contained in the following covenants and
provisions, and will not permit any Subsidiary to take the actions contained in
the following covenants and provisions:
(a) Mergers, Sale of Assets. Merge or consolidate with, or
sell, assign, lease or otherwise dispose of or voluntarily part with the control
of (whether in one transaction or in a series of transactions), all or
substantially all of its property and assets to any Person, except for sales or
other dispositions of assets in the ordinary course of business and except that
the Company may merge any Person into it or otherwise acquire such Person so
long as the holders of voting stock of the Company immediately prior to such
merger are the holders of more than 50% of the voting stock of the resulting
company immediately following such merger, such merger or acquisition does not
result in the violation of any of the provisions of this Agreement, no such
violation exists at the time of such merger or acquisition and the corporate
structure does not change in a manner to substantially change the rights of
Purchasers. If the Company elects to enter a transaction otherwise prohibited by
this Section 4.02(a) it shall first give Purchasers thirty days prior written
notice. In the event of a breach of the provisions of this subsection 4.02(a),
Purchasers may resort to the remedies provided in Article 7 of this Agreement.
(b) Dealings with Affiliates and Others. Other than stock
transactions, enter into any transaction with any officer, director or
stockholder of the Company, or any member of their respective immediate
families, or any corporation or other entity directly or indirectly controlled
by one or more of such Persons, except in amounts less than $60,000 in any year
in a single transaction or a series of similar transactions, unless such
transaction is approved in advance by a majority of disinterested members of the
Board of Directors.
(c) Dividends. (i) Purchase any class of the Company's or
any Subsidiary's capital stock above the appraised fair market value per share
of such stock, (ii) purchase any such stock in violation of any existing
shareholders or stockholders agreement, if applicable, (iii) pay any dividends
on any capital stock if there is a default on the payment of the principal or
interest on the Notes, or (iv) if the payment of the dividends or purchase of
such stock would impair the capital of the Company. Purchasers acknowledge that
the Company has a current policy to pay dividend annually in an amount equal to
ten percent of the Company's net income for the year most recently ended.
(d) Agreements with Employees for the Purchase of
Securities. The Company shall not issue securities to employees, officers,
directors or other parties at a price less than the fair market value of such
securities, nor shall it grant options to purchase its securities at a price
less than the then fair market value.
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<PAGE> 9
4.03 Reporting Requirements. The Company will furnish the
following to each holder who owns of record or beneficially or has the right to
acquire from the Company any Conversion Shares or Warrant Shares, and to each
holder of the Notes:
(a) within five (5) days after the occurrence of each
Event of Default or each event that, with the giving of notice or lapse of time
or both, would or could reasonably constitute an Event of Default, the statement
of the chief executive officer of the Company setting forth details of such
Event of Default or event and the action the Company proposes to take with
respect thereto;
(b) as soon as available, and in any event within thirty
(30) days after the end of each fiscal month of the Company, Consolidated
balance sheets of the Company and its Subsidiaries as of the end of such month
and Consolidated statements of income and retained earnings for the period
ending with such month and within thirty (30) days after the end of each fiscal
quarter of the Company statements of cash flow of the Company for the period
ending with such fiscal quarter, setting forth in each case in comparative form
the corresponding figures for the corresponding period of the prior fiscal year,
all in reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief executive officer or chief financial officer of the
Company as having been prepared consistent with the annual statements of the
Company except for year end adjustments;
(c) as soon as available, and in any event within ninety
(90) days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company, including therein Consolidated,
balance sheets of the Company as of the end of such fiscal year and Consolidated
statements of income and retained earnings and of statements of cash flow of the
Company, all duly certified by a nationally recognized independent public
accounting firm chosen by the Board of Directors;
(d) no later than thirty (30) days after the commencement
of each fiscal year of the Company, a copy of the initial operating plan and
budget provided for in Section 4.01(d).
4.04 Confidentiality. Any confidential information obtained by
any holder of the Securities, Conversion or Warrant Shares pursuant to this
Agreement shall be treated as confidential and shall not be disclosed to a third
party without the consent of the Board of Directors, except that such
information shall not be deemed confidential for the purpose of enforcement of
this Agreement, provided, however Purchasers may disclose to the limited
partners of Purchasers the type and nature of financial information regarding
the Company as is set out in Exhibit 4.04 hereto.
5. REGISTRATION RIGHTS
5.01 "Piggy Back" Registration.
(a) If at any time the Company shall determine to register
under the Securities Act (including pursuant to a demand of any shareholder of
the Company exercising registration rights) any of its Common Stock, other than
a registration relating solely to employee stock option or purchase plans, or a
registration statement on Form S-4 (or any similar form promulgated by the
Securities and
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Exchange Commission) relating solely to a Securities and Exchange Commission
Rule 145 transaction, the Company shall send to each holder of Registrable
Shares written notice of such determination and, if within ten (10) days after
receipt of such notice, such holder shall so request in writing, the Company
shall use its best efforts to include in such registration statement all or any
part of the Registrable Shares that such holder requests to be registered.
(b) If the registration of which the Company gives notice
involves an underwriting, all holders proposing to have registered their
Registrable Shares, shall enter into an underwriting agreement in customary form
with the underwriter selected for such underwriting. If the underwriter
determines that marketing factors require a limitation of the number of
securities to be underwritten, the underwriter may limit the number of
Registrable Shares to be included in the registration and underwriting pro rata.
5.02 Registration on Form S-3. In addition to the rights provided
the holders of Registrable Shares in Section 5.01 above, if the registration of
Registrable Shares under the Securities Act can be effected on Form S-3 (or any
similar form promulgated by the Securities and Exchange Commission), the Company
will promptly so notify each holder of Registrable Shares, including each holder
who has a right to acquire Registrable Shares, and then will at any time, and
from time to time, thereafter, as expeditiously as possible, use its best
efforts to effect qualification and registration under the Securities Act on
said Form S-3 of all or such portion of the Registrable Shares as the holder
shall specify.
5.03 Effectiveness. The Company will use its best efforts to
maintain the effectiveness for up to nine (9) months of any registration
statement pursuant to which any of the Registrable Shares are being offered.
5.04 Indemnification. In the event that the Company registers any
of the Registrable Shares under the Securities Act, the Company will indemnify
and hold harmless each holder and each underwriter of the Registrable Shares so
registered and each person, if any, who controls such holder or any such
underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them become subject under the Securities Act or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse each such holder, each such underwriter and
each such controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement, in any preliminary or amended preliminary prospectus
or in the prospectus, as amended, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein not misleading or
any violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with such registration; provided, however,
that the Company will not be liable in any such case to the extent that any such
claim, loss, damage or liability arises out of or is based on an untrue
statement or omission with respect to information furnished to the
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Company by or regarding such holder, underwriter or controlling person in
connection with such registration.
5.05 Exchange Act Registration. The Company will use its best
efforts to file on a timely basis with the Securities and Exchange Commission
all information that the Commission may require under either of Section 13 or
Section 15(d) of the Exchange Act and, so long as it is required to file such
information, shall use its best efforts to take all action that may be required
as a condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereinafter in effect) with respect to the Company's
Common Stock.
5.06 Further Obligations of the Company. Whenever under the
preceding Sections of this Article V the Company is required hereunder to
register Registrable Shares, it agrees that it shall also do the following:
(a) Furnish to each selling holder such copies of each
preliminary and final prospectus and any other documents that such holder may
reasonably request to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the
Registrable Shares to be registered pursuant to this Article V under the
applicable securities or "blue sky" laws of such jurisdictions as any selling
holder may reasonably request; provided, however, that the Company shall not be
obligated to qualify to do business in any jurisdiction where it is not then so
qualified or to take any action that would subject it to the service of process
in suits other than those arising out of the offer or sale of the securities
covered by the registration statement in any jurisdiction where it is not then
so subject;
(c) Furnish to each selling holder a signed counterpart
of:
(i) an opinion of counsel for the Company, dated
the effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement;
(d) Permit each selling holder or his counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them; and
(e) Furnish to each selling holder, upon request a copy of
all documents filed and all correspondence from or to the Securities and
Exchange Commission in connection with any such offering unless confidential
treatment of such information has been requested of the Securities and Exchange
Commission.
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5.07 Expenses. In the case of a registration under Sections 5.01
or 5.02, the Company shall bear all costs and expenses of each such
registration, including, but not limited to, printing, legal and accounting
expenses, Securities and Exchange Commission filing fees and "blue sky" fees and
expenses. In each such case, the selling holders shall bear, on a pro rata
basis, (i) all underwriting discounts, selling commissions and all applicable
stock transfer taxes, and (ii) all fees and disbursements of counsel for such
holders.
5.08 Transfer of Registration Rights. The registration rights of
the holders of Registrable Shares under this Article V may be transferred to any
transferee of Registrable Shares.
5.09 No Superior Rights. The Company will not grant registration
rights to any Person that are superior to the rights granted hereunder.
6. RIGHT TO PARTICIPATE IN FINANCINGS
6.01 Right of Participation. Prior to Any Public Offering, in the
event the Company chooses to issue, sell or exchange, agree to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange, for cash or
cash equivalents (i) any shares of Common Stock, (ii) any other equity security
of the Company, including, without limitation, shares of preferred stock, (iii)
any option, warrant or other right to subscribe for, purchase or otherwise
acquire any equity security of the Company, or (iv) any Debt Securities (the
"Offered Securities"), the Company shall offer to sell to the Purchasers, as a
group, that number of the Offered Securities so that the Purchasers shall retain
their then existing equity percentage of the Company on a fully diluted basis.
For purposes of making this calculation, Conversion Shares and Warrant Shares
shall be deemed to be issued and outstanding shares of Common Stock of the
Company.
The Company shall offer to sell to each Purchaser (a) that
portion of the Offered Securities as the aggregate number of Conversion Shares
and Warrant Shares then held by or issuable to such Purchaser bears to the total
number of outstanding shares of Common Stock of the Company (the "Basic
Amount"), at a price and on the other terms specified by the Company in writing
delivered to such Purchaser (the "Offer"), and the Offer by its terms shall
remain open and irrevocable for a period of thirty (30) days.
6.02 Notice of Acceptance. Notice of each Purchaser's intention
to accept, in whole or in part, an Offer made pursuant to Section 6.01 shall be
evidenced by a writing signed by such Purchaser and delivered to the Company
prior to the end of the thirty (30) day period of the Offer, setting forth the
portion of the Purchaser's Basic Amount that such Purchaser elects to purchase
(the 'Notice of Acceptance"). If the Basic Amounts subscribed for by all
Purchasers are less than the total Offered Securities, then any Purchaser shall
be entitled to purchase, in addition to the Basic Amount subscribed for, the
remaining-aggregate Basic Amount not subscribed for by the other Purchaser,
subject to rounding by the Board of Directors to the extent it reasonably deems
necessary.
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6.03 Conditions to Acceptance by Purchaser.
(a) Permitted Sales of Refused Securities. The Company
shall have sixty (60) days from the expiration of the period set forth in
Section 6.01 to sell all or any part of the Offered Securities as to which a
Notice of Acceptance has not been given by the Purchasers (the 'Refused
Securities") to the Person or Persons specified in the Offer, but only upon
terms and conditions, including, without limitation, unit price and interest
rates, which are not more favorable, in unit price and interest rates, in the
aggregate, to such other Person or Persons or less favorable to the Company than
those set forth in the Offer.
(b) Reduction in Amount of Offered Securities. In the
event the Company shall propose to sell less than all the Offered Securities
(any such sale to be in the manner and on the terms specified in Section 6.03(a)
above), then each Purchaser may maintain its then existing equity percentage of
the Company. In the event that any Purchaser so elects to reduce the number or
amount of Offered Securities specified in its respective Notice of Acceptance,
the Company may not sell or otherwise dispose of more than the reduced amount of
the Offered Securities until such securities have again been offered to the
Purchasers in accordance with Section 6.01.
(c) Closing. Upon the closing, which shall include full
payment to the Company, of the sale to such other Persons of Offered Securities,
the Purchasers shall purchase from the Company, and the Company shall sell to
the Purchasers, the number of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 6.03(b), upon the terms and
conditions specified in the Offer. The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Purchasers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Purchasers and
their respective counsel.
6.04 Further Sale. In each case, any Offered Securities not
purchased by the Purchasers or other Persons in accordance with Section 6.03
such Offered Securities may not be sold or otherwise disposed of until they are
again offered to the Purchasers under the procedures specified in Section 6.01,
6.02 and 6.03.
6.05 Exceptions. The rights of the Purchasers under this Article
VI shall not apply to: (a) Common Stock issued as a stock dividend to holders of
Common Stock or upon any subdivision or combination of shares of Common Stock;
(b) the issuance of any shares of Common Stock upon conversion of the Notes or
exercise of the Warrants; or (c) issuance of shares of Common Stock, or options
exercisable therefor, issuable to officers, employees or consultants of the
Company and any Subsidiary pursuant to any stock option agreement or plan or
stock purchase agreement or plan approved by a vote of not less than a majority
of the disinterested members of the Board of Directors of the Company.
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6.06 Assignment of Rights. A Purchaser may assign its rights
hereunder in connection with any transfer of the Conversion Shares, Warrants,
Warrant Shares and Notes; provided, however, Purchasers shall not transfer the
Securities to any competitor of the Company without prior approval of the Board
of Directors.
7. EVENTS OF DEFAULT
Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal of
any of the Notes when due; or
(b) The Company shall fail to pay any installment of interest on
any of the 10% Notes when due or default in the performance of any covenant
contained in Section 4.02 and such default shall continue for seven (7) days; or
(c) Any representation or warranty made by the Company or any
Subsidiary in this Agreement or by the Company or any Subsidiary (or any
officers of the Company or any Subsidiary) in any certificate, instrument or
written statement contemplated by or made or delivered pursuant to or in
connection with this Agreement, shall prove to have been materially incorrect;
or
(d) The Company shall fail to perform or observe any material
term, covenant or agreement, other than as set out in (b) above, contained in
this Agreement or the Securities on its part to be performed or observed, and
any such failure remains unremedied for thirty (30) days after written notice
thereof has been given to the Company by any holder of the Notes, Conversion
Shares, Warrants, or Warrant Shares; or
(e) The Company shall fail to pay any Indebtedness for borrowed
money (other than as evidenced by the Notes) owing by the Company aggregating
$100,000 or more, or any interest or premium thereon, when due (or, if permitted
by the terms of the relevant document, within any applicable grace period); or
(f) The Company shall be involved in financial difficulties as
evidenced (i) by its admitting in writing its inability to pay its debts
generally as they become due; (ii) by its commencement of a voluntary or
involuntary case being filed against it under Title 11 of the United States Code
as from time to time in effect, or under any applicable insolvency laws, or by
its authorizing, by appropriate proceedings of its Board of Directors or other
governing body, the commencement of such a voluntary case; or (iii) by its
making an assignment for the benefit of its creditors, or appointing or
consenting to the appointment of a receiver; or
(g) Any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against the property of the Company
and such judgment, writ, or similar process shall not be released, vacated or
fully bonded within sixty (60) days after its issue or levy; or
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<PAGE> 15
(h) The Company shall merge or consolidate with, or sell,
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions), all or
substantially all of its property and assets (whether now owned or hereinafter
acquired) to any Person, or permit any Subsidiary to do any of the foregoing;
then, and in any such event, the Purchasers may, by notice to the Company,
declare the entire unpaid Issue Price, plus all accrued Original Issue Discount,
all unpaid principal and accrued and unpaid interest on the 10% Notes, and all
other amounts payable under this Agreement, to be forthwith due and payable,
whereupon the Notes, all such accrued Original Issue Discount and interest and
all such amounts shall become and be forthwith due and payable and if such event
occurs prior to September 30, 1995, the original purchase price of the Warrants
shall also be due and payable in full to Purchasers (unless there shall have
occurred an Event of Default under subsection (f), in which case all such
amounts shall automatically become due and payable), without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Company.
8. DEFINITIONS AND ACCOUNTING TERMS
8.01 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Any Public Offering" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Common Stock for the
account of the Company.
"Board of Directors" shall mean the then present members
of the Board of Directors of the Company.
"Common Stock" includes (a) the Company's Class A Common
Stock, $.10 par value, and the Company's Class B Preferred Stock, $.10 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of directors of the Company, and (c) any other securities into which or
for which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
"Consolidated" when used with reference to any term
defined herein shall mean that term as applied to the accounts of the Company
and its Subsidiaries consolidated in accordance with generally accepted
accounting principles after eliminating intercompany items and minority
interests.
-15-
<PAGE> 16
"Debt Securities" means and includes (i) any debt security
of the Company that by its terms is convertible into or exchangeable for any
equity security of the Company that is a combination of debt and equity, or (ii)
any option, warrant or other right to subscribe for, purchase or otherwise
acquire any such debt security of the Company.
"Exchange Act" means the Securities Exchange Act of 1934,
or any similar federal statute, and the rules and regulations of the Securities
and Exchange Commission (or of any other Federal Agency then administering the
Exchange Act) thereunder, all as the same shall be in effect at the time.
"Indebtedness" means all obligations, contingent and
otherwise, which should, in accordance with generally accepted accounting
principles consistently applied, be classified upon the obligor's balance sheet
as liabilities, excluding any liabilities in respect of deferred federal or
state income taxes.
"Issue Price" means the original purchase price of the
Zero Coupon Notes as set forth on Exhibit 1.01A hereto.
"Maturity Value" means the amount payable on the Zero
Coupon Notes on the stated date due, as set forth on Exhibit 1.01A hereto.
"Original Issue Discount" shall mean herein and for
federal income tax purposes the difference between the Issue Price and the
Maturity Value.
"Person" means an individual, corporation, partnership,
joint venture, trust, or unincorporated organization, or. a government or any
agency or political subdivision thereof.
"Qualified Public Offering" means and includes the closing
of an underwritten public offering pursuant to an effective registration
statement under the Securities Act, covering the offer and sale of Common Stock
for the account of the Company from which the aggregate net proceeds to the
Company exceed $10,000,000 and in which the price per share is at least $59.76
per share (such amount to be equitably adjusted whenever there shall occur a
stock split, combination, reclassification or other similar event affecting the
Common Stock).
"Registrable Shares" means and includes (i) the Conversion
and Warrant Shares; (ii) any other shares of Common Stock held by the
Purchasers; and (iii) any shares of Common Stock issued or issuable upon
conversion of other securities of the Company held by the Purchasers.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations of the
Securities and Exchange Commission (or of any other Federal agency then
administering The Securities Act) thereunder, all as the same shall be in effect
at the time.
"Selling Shareholders" means those stockholders of the
Company whose shares of Common Stock are being repurchased by the Company as a
use of the proceeds under this transaction
-16-
<PAGE> 17
which specifically includes the following individuals: Gary D. Atkins, Charles
M. Jopson, Ted L. Wimer, Douglas B. Winterrowd and Steven Bolen.
"Subsidiary" or "Subsidiaries" any corporation, 50% or
more of the outstanding voting stock of which shall at the time be owned by the
Company or by one or more Subsidiaries, or any other entity or enterprise, 50%
or more of the equity of which shall at the time be owned by the Company or by
one or more Subsidiaries.
"Wholly-Owned Subsidiary" or "Wholly-Owned Subsidiaries"
means any corporation, 100% of the outstanding voting stock of which shall at
the time be owned by the Company or by one or more Wholly-Owned Subsidiaries, or
any other entity or enterprise, 100% of the equity of which shall at the time be
owned by the Company or by one or more Wholly-Owned Subsidiaries.
"Zero Coupon Notes" shall have the meaning assigned to
that term in Section 1.01.
"10% Notes" shall have the meaning assigned to that term
in Section 1.02.
8.02 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles, and all other financial data submitted pursuant to this
Agreement shall be prepared and calculated in accordance with such principles.
9. MISCELLANEOUS
9.01 No Waiver; Cumulative Remedies. No failure or delay on the
part of any Purchaser, or any other holder of the Notes, in exercising any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The remedies herein provided are cumulative.
9.02 Amendments, Waivers and Consents. Except as expressly
provided herein, no changes in or additions to this Agreement or the Securities
may be made, nor compliance with any covenant or provision herein or therein set
forth may be omitted or waived, unless the Company shall obtain consent thereto
in writing from the party against whom enforcement of any such amendment, waiver
or discharge is sought. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
9.03 Addresses for Notices, etc. All notices, requests, demands
and other communications provided for hereunder shall be in writing (including
telegraphic or facsimile communication) and mailed, by certified or registered
mail, or telegraphed, sent by facsimile or delivered to the Company at the
addresses indicated on the signature page hereto.
If to the Purchaser: at the address or facsimile number set forth
under their respective names on Exhibit 1.01A hereto, with a copy to Stradling,
Yocca, Carlson & Rauth, 660 Newport Center
-17-
<PAGE> 18
Drive, Suite 1600, Newport Beach, California 92660, Attention: Bruce Feuchter,
Facsimile: (714) 725-4100.
If to any other holder of the Securities: at such holder's
address for notice as set forth in the register maintained by the Company, or,
as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall, when mailed or telegraphed, respectively, be effective
when deposited in the mails or delivered to the telegraph company, respectively,
addressed as aforesaid.
9.04 Costs, Expenses and Taxes. The parties shall pay their own
expenses, fees and costs incurred in connection with the investigation,
preparation, execution and delivery of this Agreement, the Securities and the
transactions contemplated hereby. In the event of any controversy, claim or
dispute among the parties hereto arising out of or relating to this Agreement,
or breach hereof, the prevailing party shall be entitled to recover from the
losing party reasonable attorneys' fees, expenses and costs.
9.05 Binding Effect: Assignment. This Agreement shall be binding
upon and inure to the benefit of the Company and the Purchasers and their
respective successors and assigns.
9.06 Survival of Representations and Warranties. All
representations and warranties made herein shall survive the execution and
delivery hereof.
9.07 Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
9.08 Severability. The invalidity or unenforceability of any
provision hereto shall in no way affect the validity or enforceability of any
other provision.
9.09 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Idaho.
9.10 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument.
9.11 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers, the Company and each Subsidiary
shall execute and deliver such instruments, documents and other writings as may
be necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement and the Securities.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
Extended Systems, Inc. EXTENDED SYSTEMS, INC.
5777 North Meeker Avenue
-18-
<PAGE> 19
Boise, Idaho 83704
Facsimile: (208) 377-1906 By: /s/ Gary Atkins
-------------------------------
Gary Atkins, President
with a copy to:
Robert Hamlin By: /s/ Doug Winterrowd
Hamlin & Sasser -------------------------------
802 West Bannock, Suite 601 Doug Winterrowd, Secretary
Boise, Idaho 83701
SUMMIT VENTURES II, L.P.,
General Partner
By: Stamps, Woodsum & Co. II,
General Partner
By: /s/ Gregory M. Avis
-------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Gregory M. Avis
-------------------------------
General Partner
-19-
<PAGE> 1
EXHIBIT 10.11
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY
HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE
AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER.
EXTENDED SYSTEMS, INC.
Zero Coupon Convertible Subordinated
Promissory Note Due 1999
Issue Price: $3,941,840 Issue Date: September 30, 1992
Maturity Value: $7,514,133 Maturity Date: September 29, 1999
Compounded Per Annum Yield: 9.65%
For value received, EXTENDED SYSTEMS, INC., a Delaware
corporation (the "Company"), hereby promises to pay to SUMMIT VENTURES
II, L.P., (hereinafter referred to as the "Payee"), or registered
assigns, on the Maturity Date the Maturity Value, subject to any right
of redemption, as provided in the Agreement (as defined below), in
lawful money of the United States of America, in immediately available
funds, at the principal office of the Payee or at such other place as
the legal holder may designate from time to time in writing to the
Company, or upon earlier redemption of this Note in accordance with the
Agreement, at the Issue Price plus the Compounded Per Annum Yield from
the Issue Date.
This Promissory Note is issued pursuant to and is entitled to the
benefits of a certain Convertible Subordinated Promissory Notes and
Warrant Purchase Agreement, dated as of September 30, 1992, among the
Company and certain Purchasers identified therein, as the same may be
amended from time to time (the "Agreement"), and each holder of this
Promissory Note, by its acceptance hereof, agrees to be bound by the
provisions of the Agreement, a copy of which may be inspected by the
legal holder hereof at the principal office of the Company. As provided
in the Agreement, (i) this Promissory Note is subject to prepayment in
Section 1.08 of said Agreement, (ii) the payment of this Promissory Note
is subordinated to Senior Debt, as defined in the Agreement, and (iii)
in case of an Event of Default as defined in the Agreement, this
Promissory Note may become or may be declared due and payable in the
manner and with the effect provided in the Agreement. Except as
expressly provided in Section 1.08 of the Agreement, the Company has no
right or power to prepay this Promissory Note.
As further provided in the Agreement, upon surrender of this Promissory
Note for transfer or exchange, a new Promissory Note or new Promissory
Notes of the same tenor, dated the original date of the Promissory Note
and in an aggregate Issue Price equal to the unpaid Issue Price, and in
an aggregate Maturity Value equal to the Maturity Value less the portion
so paid, of the Promissory Note so surrendered, will be issued to and
registered in the name of the transferee or
<PAGE> 2
trans The Company may treat the person in whose name this Promissory
Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes. Provided, however, that the transfer
of this Note shall only be permitted in compliance with the terms of the
Agreement and the Stockholders' Agreement defined therein.
1. Conversion of Stated Principal Amount. This Promissory Note is
convertible into shares of the Common Stock of the Company at the Applicable
Conversion Value, as determined in Paragraph 2.2 herein per share.
2. Adjustments.
2.1 Adjustments for Stock Splits, Consolidations, etc. The
number and class of shares into which this Promissory Note is convertible shall
at all times be equal to the number of shares that the Holder would have held if
the Holder had received the Conversion Shares at the Issue Date and had
continuously held those shares to the date of conversion.
2.2 Adjustments for Dilutive Issues.
(a) Applicable Conversion Rate. The number of
shares of Common Stock issuable upon conversion of this Promissory Note shall be
the quotient obtained by dividing the portion of the Issue Price of this Note
that is being converted by the Applicable Conversion Value, calculated as
provided in Paragraph 2.2(b) below.
(b) Applicable Conversion Value. The Applicable
Conversion Value in effect from time to time, except as adjusted in accordance
with Paragraph 2.2(c) hereof, shall be $26.892022.
(c) Upon Sale of Common Stock. If the Company
issues shares of its Common Stock for no consideration or at a price per share
less than the then existing Applicable Conversion Value then a new Applicable
Conversion Value shall be calculated by multiplying the then existing Applicable
Conversion Value by the following fraction:
A+ (C/Vp)
---------
A + N
A = the number of shares outstanding immediately prior to the issuance if all
convertible securities, warrants, options and rights were converted or
exercised.
C = consideration
Vp = previous or then existing applicable conversion value
N = number of shares of common stock issued; or in the event of a convertible
security, the number of shares that security is convertible into.
-2-
<PAGE> 3
Consideration means consideration received for issuance plus minimum
consideration receivable upon exercise. If a portion of the consideration is
other than cash, its value shall be fair market value as determined in good
faith by the Board of Directors.
The Company's issuance of shares of Common Stock or options to purchase
Common Stock pursuant to any stock purchase, stock option, or incentive program
approved by the Board of Directors, to the company's employees, directors, or
officers, shall not result in any change to the Applicable Conversion Value.
3. Registration Rights. The Holder of this Promissory Note is entitled
to certain rights regarding registration under the Securities Act of 1933, as
amended, of the shares of Common Stock issuable upon conversion hereof pursuant
to the Agreement.
4. Method of Converting Promissory Notes. Subject to the terms and
conditions of this Promissory Note, the Promissory Note may be converted by
written notice to the Company, at its principal office in the State of Idaho,
which presently is located at 5777 North Meeker Avenue, Boise, Idaho 83704. Such
notice shall state the election to convert the Promissory Note and the amount
and the number of shares in respect of which it is being converted, and shall be
signed by the person or persons so converting the Promissory Note. Such notice
shall be accompanied by confirmation of cancellation of all or a portion of the
Promissory Note. The Company shall deliver a certificate or certificates
representing the shares subject to such conversion as soon as practicable after
the notice shall be received. The certificate or certificates for the shares as
to which the Promissory Note shall have been so converted shall be registered in
the name of the person or persons so converting the Promissory Note, and shall
be delivered, as provided above, to or upon the written order of the person or
persons converting the Promissory Note. In the event the Promissory Note shall
be exercised by any person or persons other than the Holder in accordance with
the terms hereof, such notice shall be accompanied by appropriate proof of the
right of such person or persons to convert the Promissory Note. All shares that
shall be purchased upon the conversion of the Promissory Note as provided herein
shall be fully paid and nonassessable. The holder of this Promissory Note shall
not be entitled to the privileges of share ownership as to any shares of Common
Stock not actually issued and delivered to it. The Holder hereby certifies that
all shares of Common Stock in the Company purchased or to be purchased by it
pursuant to the exercise of this Promissory Note are being, or are to be,
acquired by it for investment, and not with a view to the distribution thereof.
In addition, the person converting the Promissory Note shall execute and deliver
to the Company, with the notice provided for above, a certificate substantially
in the form attached hereto as Exhibit A.
5. General. The Company shall at all times during the period this
Promissory Note is outstanding reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Promissory Note, shall pay all original issue and transfer taxes with respect to
the issue and transfer of shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations, which, in
the opinion of counsel for the Company, shall be applicable thereto.
-3-
<PAGE> 4
6. Legends. It is understood that the certificates evidencing the Common
Stock purchased upon conversion of this Promissory Note may bear the following
legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER
FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE
SECURITIES ACT' OF 1933 AND TEE RULES AND REGULATIONS PROMULGATED
THEREUNDER."
THIS STOCK IS RESTRICTED STOCK AND MAY NOT BE SOLD WITHOUT FIRST
OFFERING IT TO THE CORPORATION, WHICH SHALL HAVE THE RIGHT TO PURCHASE
IT WITHIN THIRTY (30) DAYS AT THE LATEST APPRAISAL PRICE DETERMINED BY
AN INDEPENDENT OUTSIDE APPRAISER WITHIN ONE HUNDRED TWENTY (120) DAYS
PRIOR TO THE DATE OF SALE PURSUANT TO ARTICLE 4B OF THE AMENDED ARTICLES
OF INCORPORATION.
THIS RESTRICTION SHALL REMAIN IN EFFECT AT ALL TIMES AND SHALL APPLY TO
ANY FUTURE OWNER OR TRANSFEREE OF THIS STOCK.
In case any payment herein provided for shall not be paid when due, the
Company further promises to pay all costs of collection, including all
reasonable attorney's fees.
This Promissory Note shall be governed by and constructed in accordance
with, the laws of the State of Idaho.
The Company and all endorsers and guarantors of this Promissory Note
hereby waive presentment, demand, notice of nonpayment, protest and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Promissory Note.
EXTENDED SYSTEMS, INC.
By: /s/ Gary Atkins
-------------------------------
Gary Atkins, President
By: /s/ Doug Winterrowd
-------------------------------
Doug Winterrowd, Secretary
[Corporate Seal]
-4-
<PAGE> 5
EXHIBIT A
TO PROMISSORY NOTE
CERTIFICATE
_______________, 19__
I hereby certify that all of the shares of Common Stock, $.10 par value,
of EXTENDED SYSTEMS, INC., purchased by the undersigned pursuant to the
conversion on this date of the Zero Coupon Convertible Subordinated Promissory
Note payable by EXTENDED SYSTEMS, INC., dated the 30th day of September, 1992,
are being acquired by the undersigned for investment and not with a view to the
distribution thereof.
By:____________________________
-5-
<PAGE> 1
EXHIBIT 10.12
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY
HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE
AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER.
EXTENDED SYSTEMS, INC.
Zero Coupon Convertible Subordinated
Promissory Note Due 1999
Issue Price: $58,160 Issue Date: September 30, 1992
Maturity Value: $110,867 Maturity Date: September 29, 1999
Compounded Per Annum. Yield: 9.65%
For value received, EXTENDED SYSTEMS, INC., a Delaware corporation (the
"Company"), hereby promises to pay to SUMMIT INVESTORS II, L.P., (hereinafter
referred to as the 'Payee"), or registered assigns, on the Maturity Date the
Maturity Value, subject to any right of redemption, as provided in the Agreement
(as defined below), in lawful money of the United States of America, in
immediately available funds, at the principal office of the Payee or at such
other place as the legal holder may designate from time to time in writing to
the Company, or upon earlier redemption of this Note in accordance with the
Agreement, at the Issue Price plus the Compounded Per Annum Yield from the Issue
Date.
This Promissory Note is issued pursuant to and is entitled to the
benefits of a certain Convertible Subordinated Promissory Notes and Warrant
Purchase Agreement, dated as of September 30, 1992, among the Company and
certain Purchasers identified therein, as the same may be amended from time to
time (the "Agreement"), and each holder of this Promissory Note, by its
acceptance hereof, agrees to be bound by the provisions of the Agreement, a copy
of which may be inspected by the legal holder hereof at the principal office of
the Company. As provided in the Agreement, (i) this Promissory Note is subject
to prepayment in Section 1.08 of said Agreement, (ii) the payment of this
Promissory Note is subordinated to Senior Debt, as defined in the Agreement, and
(iii) in case of an Event of Default as defined in the Agreement, this
Promissory Note may become or may be declared due and payable in the manner and
with the effect provided in the Agreement. Except as expressly provided in
Section 1.08 of the Agreement, the Company has no right or power to prepay this
Promissory Note.
As further provided in the Agreement, upon surrender of this Promissory
Note for transfer or exchange, a new Promissory Note or new Promissory Notes of
the same tenor, dated the original date of the Promissory Note and in an
aggregate Issue Price equal to the unpaid Issue Price, and in an aggregate
Maturity Value equal to the Maturity Value less the portion so paid, of the
Promissory Note
<PAGE> 2
so surrendered, will be issued to and registered in the name of the transferee
or transferees. The Company may treat the person in whose name this Promissory
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes. Provided, however, that the transfer of this Note shall
only be permitted in compliance with the terms of the Agreement and the
Stockholders' Agreement defined therein.
1. Conversion of Stated Principal Amount. This Promissory Note is
convertible into shares of the Common Stock of the Company at the Applicable
Conversion Value, as determined in Paragraph 2.2 herein per share.
2. Adjustments.
2.01 Adjustments for Stock Splits, Consolidations, etc. The
number and class of shares into which this Promissory Note is convertible shall
at all times be equal to the number of shares that the Holder would have held if
the Holder had received the Conversion Shares at the Issue Date and had
continuously held those shares to the date of conversion.
2.02 Adjustments for Dilutive Issues.
(a) Applicable Conversion Rate. The number of shares of
Common Stock issuable upon conversion of this Promissory Note shall be the
quotient obtained by dividing the portion of the Issue Price of this Note that
is being converted by the Applicable Conversion Value, calculated as provided in
Paragraph 2.2(b) below.
(b) Applicable Conversion Value. The Applicable Conversion
Value in effect from time to time, except as adjusted in accordance with
Paragraph 2.2(c) hereof, shall be $26.892022.
(c) Upon Sale of Common Stock. If the Company issues
shares of its Common Stock for no consideration or at a price per share less
than the then existing Applicable, Conversion Value then a new Applicable
Conversion Value shall be calculated by multiplying the then existing Applicable
Conversion Value by the following fraction:
A + (C/Vp)
----------
A + N
A = the number of shares outstanding immediately prior to the issuance if all
convertible securities, warrants, options and rights were converted or
exercised.
C = consideration
Vp = previous or then existing applicable conversion value
N = number of shares of common stock issued; or in the event of a convertible
security, the number of shares that security is convertible into.
-2-
<PAGE> 3
Consideration means consideration received for issuance plus minimum
consideration receivable upon exercise. If a portion of the consideration is
other than cash, its value shall be fair market value as determined in good
faith by the Board of Directors.
The Company's issuance of shares of Common Stock or options to purchase
Common Stock pursuant to any stock purchase, stock option, or incentive program
approved by the Board of Directors, to the company's employees, directors, or
officers, shall not result in any change to the Applicable Conversion Value.
3.. Registration Rights . The Holder of this Promissory Note is entitled
to certain rights regarding registration under the Securities Act of 1933, as
amended, of the shares of Common Stock issuable upon conversion hereof pursuant
to the Agreement.
4. Method of Converting Promissory Notes. Subject to the terms and
conditions of this Promissory Note, the Promissory Note may be converted by
written notice to the Company, at its principal office in the State of Idaho,
which presently is located at 5777 North Meeker Avenue, Boise, Idaho 83704. Such
notice shall state the election to convert the Promissory Note and the amount
and the number of shares in respect of which it is being converted, and shall be
signed by the person or persons so converting the Promissory Note. Such notice
shall be accompanied by confirmation of cancellation of all or a portion of the
Promissory Note. The Company shall deliver a certificate or certificates
representing the shares subject to such conversion as soon as practicable after
the notice shall be received. The certificate or certificates for the shares as
to which the Promissory Note shall have been so converted shall be registered in
the name of the person or persons so converting the Promissory Note, and shall
be delivered, as provided above, to or upon the written order of the person or
persons converting the Promissory Note. In the event the Promissory Note shall
be exercised by any person or persons other than the Holder in accordance with
the terms hereof, such notice shall be accompanied by appropriate proof of the
right of such person or persons to convert the Promissory Note. All shares that
shall be purchased upon the conversion of the Promissory Note as provided herein
shall be fully paid and nonassessable. The holder of this Promissory Note shall
not be entitled to the privileges of share ownership as to any shares of Common
Stock not actually issued and delivered to it. The Holder hereby certifies that
all shares of Common Stock in the Company purchased or to be purchased by it
pursuant to the exercise of this Promissory Note are being, or are to be,
acquired by it for investment, and not with a view to the distribution thereof
In addition, the person converting the Promissory Note shall execute and deliver
to the Company, with the notice provided for above, a certificate substantially
in the form attached hereto as Exhibit A.
5. General. The Company shall at all times during the period this
Promissory Note is outstanding reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Promissory Note, shall pay all original issue and transfer taxes with respect to
the issue and transfer of shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations, which, in
the opinion of counsel for the Company, shall be applicable thereto.
-3-
<PAGE> 4
6. Legends. It is understood that the certificates evidencing the Common
Stock purchased upon conversion of this Promissory Note may bear the following
legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER
FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE
SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER."
THIS STOCK IS RESTRICTED STOCK AND MAY NOT BE SOLD WITHOUT FIRST
OFFERING IT TO THE CORPORATION, WHICH SHALL HAVE THE RIGHT TO PURCHASE
IT WITHIN THIRTY (30) DAYS AT THE LATEST APPRAISAL PRICE DETERMINED BY
AN INDEPENDENT OUTSIDE APPRAISER WITHIN ONE HUNDRED TWENTY (120) DAYS
PRIOR TO THE DATE OF SALE PURSUANT TO ARTICLE 4B OF THE AMENDED ARTICLES
OF INCORPORATION.
THIS RESTRICTION SHALL REMAIN IN EFFECT AT ALL TIMES AND SHALL APPLY TO
ANY FUTURE OWNER OR TRANSFEREE OF THIS STOCK.
In case any payment herein provided for shall not be paid when due, the
Company further promises to pay all costs of collection, including all
reasonable attorney's fees.
This Promissory Note shall be governed by and constructed in accordance
with, the laws of the State of Idaho.
The Company and all endorsers and guarantors of this Promissory Note
hereby waive presentment, demand, notice of nonpayment, protest and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Promissory Note.
EXTENDED SYSTEMS, INC.
By: /s/ Gary Atkins
-------------------------------
Gary Atkins, President
By: /s/ Doug Winterrowd
-------------------------------
Doug Winterrowd, Secretary
[Corporate Seal]
-4-
<PAGE> 5
EXHIBIT A
TO PROMISSORY NOTE
CERTIFICATE
____________________, 19__
I hereby certify that all of the shares of Common Stock, $.10 par value,
of EXTENDED SYSTEMS, INC., purchased by the undersigned pursuant to the
conversion on this date of the Zero Coupon Convertible Subordinated Promissory
Note payable by EXTENDED SYSTEMS, INC., dated the 30th day of September, 1992,
are being acquired by the undersigned for investment and not with a view to the
distribution thereof.
By:_____________________________
-5-
<PAGE> 1
EXHIBIT 10.13
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY
HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE
AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER.
EXTENDED SYSTEMS, INC.
10% Convertible Subordinated Promissory Note Due 1999
No. 1
$492,730 September 30, 1992
For value received, EXTENDED SYSTEMS, INC., a Delaware corporation (the
"Company"), hereby promises to pay to SUMMIT VENTURES II, L.P. (hereinafter
referred to as the 'Payee"), or registered assigns, on or before September 29,
1999, as described below, the principal sum of FOUR HUNDRED NINETY-TWO THOUSAND
SEVEN HUNDRED THIRTY DOLLARS ($492,730), or such part thereof as then remains
unpaid, to pay interest from the date hereof on the whole amount of said
principal sum remaining from time to time unpaid at the rate of ten percent
(10%) per annum, or, to the extent that such interest rate is not legally
enforceable, at the maximum per annum. rate of interest then payable under
applicable law, such interest to be payable annually on the first day of October
in each year, the first such payment to be due and payable on October 1, 1993,
until the whole amount of the principal hereof remaining unpaid shall become due
and payable. Principal shall be repaid on the 29th day of September, 1999.
Principal and interest shall be payable in lawful money of the United States of
America, in immediately available funds, at the principal office of the Payee,
or at such other place as the legal holder may designate from time to time in
writing to the Company. Interest shall be computed on the basis of a 360-day
year and a 30-day month.
This Promissory Note is issued pursuant to and is entitled to the
benefits of a certain Convertible Subordinated Promissory Notes and Warrant
Purchase Agreement, dated as of September 30, 1992, among the Company and
certain Purchasers identified therein, as the same may be amended from time to
time (the "Agreement"), and each holder of this Promissory Note, by its
acceptance hereof, agrees to be bound by the provisions of the Agreement, a copy
of which may be inspected by the legal holder hereof at the principal office of
the Company. As provided in the Agreement, (i) this Promissory Note is subject
to prepayment under certain conditions as specified in Section 1.08 of said
Agreement, (ii) the principal of and interest on this Promissory Note is
subordinated to Senior Debt, as defined in the Agreement, and (iii) in case of
an Event of Default as defined in the Agreement, the principal of, and any
accrued interest on, this Promissory Note may become or may be declared due and
payable in the manner
<PAGE> 2
and with the effect provided in the Agreement, except as expressly provided in
Section 1.08 of the Agreement, the Company has no right or power to prepay this
Promissory Note.
As further provided in the Agreement, upon surrender of this Promissory
Note for transfer or exchange, a new Promissory Note or new Promissory Notes of
the same tenor, dated the date to which interest has been paid on the
surrendered Promissory Note and in an aggregate principal amount equal to the
unpaid principal amount of the Promissory Note so surrendered, will be issued to
and registered in the name of the transferee or transferees. The Company may
treat the person in whose name this Promissory Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes.
Provided, however, that the transfer of this Note shall only be permitted in
compliance with the terms of the Agreement and the Stockholders' Agreement
defined therein.
1. Conversion of Principal Amount. The principal amount then outstanding
on this Promissory Note is convertible into shares of the Common Stock of the
Company at the Applicable Conversion Value as determined by Paragraph 2.2
herein. Upon payment of the principal of the Promissory Note hereon, the right
to convert the outstanding principal shall expire.
2. Adjustments.
2.01 Adjustments for Stock Splits, Consolidations, etc. The
number and class of shares into which this Promissory Note is convertible shall
at all times be equal to the number of shares that the Holder would have held if
the Holder had received the Conversion Shares at the Issue Date and had
continuously held those shares to the date of conversion.
2.02 Adjustments for Dilutive Issues.
(a) Applicable Conversion Rate. The number of shares of
Common Stock issuable upon conversion of this Promissory Note shall be the
quotient obtained by dividing the. principal amount being converted by the
Applicable Conversion Value, calculated as provided in Paragraph 2.2(b)
(b) Applicable ConversionValue. The Applicable Conversion
Value in effect from time to time, except as adjusted in accordance with
Paragraph 2.2(c) hereof, shall be $26.891841.
-2-
<PAGE> 3
(c) Upon Sale of Common Stock. If the Company issues
shares of its Common Stock for no consideration or at a price per share less
than the then existing Applicable Conversion Value then a new Applicable
Conversion Value shall be calculated by multiplying the then existing Applicable
Conversion Value by the following fraction:
A + (C/Vp)
----------
A + N
A = the number of shares outstanding immediately prior to the issuance if all
convertible securities, warrants, options and rights were converted or
exercised.
C = consideration
VP = previous or then existing applicable conversion value
N = number of shares of common stock issued; or in the event of a convertible
security, the number of shares that security is convertible into.
Consideration means consideration received for issuance plus minimum
consideration receivable upon exercise. If a portion of the consideration is
other than cash, its value shall be fair market value as determined in good
faith by the Board of Directors.
The Company's issuance of shares of Common Stock or options to purchase
Common Stock pursuant to any stock purchase, stock option, or incentive program
approved by the Board of Directors, to the company's employees, directors, or
officers, shall not result in any change to the Applicable Conversion Value.
3. Registration Rights. The Holder of this Promissory Note is entitled
to certain rights regarding registration under the Securities Act of 1933, as
amended, of the shares of Common Stock issuable upon conversion hereof pursuant
to the Agreement.
4. Method of Converting Note. Subject to the terms and conditions of
this Promissory Note, the Promissory Note may be converted by written notice to
the Company, at its principal office in the State of Idaho, which presently is
located at 5777 North Meeker Avenue, Boise, Idaho 83704. Such notice shall state
the election to convert the Promissory Note and the principal amount and the
number of shares in respect of which it is being converted, and shall be signed
by the person or persons so converting the Promissory Note. Such notice shall be
accompanied by confirmation of cancellation of all or a portion of the
Promissory Note. The Company shall deliver a certificate or certificates
representing the shares subject to such conversion as soon as practicable after
the notice shall be received. The certificate or certificates for the shares as
to which the Promissory Note shall have been so converted shall be registered in
the name of the person or persons so converting the Promissory Note, and shall
be delivered, as provided above, to or upon the written order of the person or
persons converting the Promissory Note. The interest on the portion of the
Promissory Note so converted shall be paid by the Company at the time of
delivery of the certificate or certificates provided above. In the event the
-3-
<PAGE> 4
Promissory Note shall be exercised by any person or persons other than the
Holder in accordance with the terms hereof, such notice shall be accompanied by
appropriate proof of the right of such person or persons to convert the
Promissory Note. All shares that shall be purchased upon the conversion of the
Promissory Note as provided herein shall be fully paid and nonassessable. The
holder of this Promissory Note shall not be entitled to the privileges of share
ownership as to any shares of Common Stock not actually issued and delivered to
it. The Holder hereby certifies that all shares of Common Stock in the Company
purchased or to be purchased by it pursuant to the exercise of this Promissory
Note are being, or are to be, acquired by it for investment, and not with a view
to the distribution thereof. In addition, the person converting the Promissory
Note shall execute and deliver to the Company, with the notice provided for
above, a certificate substantially in the form attached hereto as Exhibit A.
5. General. The Company shall at all times during the period this
Promissory Note is outstanding reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Promissory Note, shall pay all original issue and transfer taxes with respect to
the issue and transfer of shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations, which, in
the opinion of counsel for the Company, shall be applicable thereto.
6. Legends. It is understood that the certificate evidencing the Common
Stock purchased upon conversion of this Promissory Note may bear the following
legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER
FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE
SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER."
THIS STOCK IS RESTRICTED STOCK AND MAY NOT BE SOLD WITHOUT FIRST
OFFERING IT TO THE CORPORATION, WHICH SHALL HAVE THE RIGHT TO PURCHASE
IT WITHIN THIRTY (30) DAYS AT THE LATEST APPRAISAL PRICE DETERMINED BY
AN INDEPENDENT OUTSIDE APPRAISER WITHIN ONE HUNDRED TWENTY (120) DAYS
PRIOR TO THE DATE OF SALE PURSUANT TO ARTICLE 4B OF THE AMENDED ARTICLES
OF INCORPORATION.
THIS RESTRICTION SHALL REMAIN IN EFFECT AT ALL TIMES AND SHALL APPLY TO
ANY FUTURE OWNER OR TRANSFEREE OF THIS STOCK.
As further provided in the Agreement, upon surrender of this Promissory
Note for transfer or exchange, a new Promissory Note or new Promissory Notes of
the same tenor, dated the date to which interest has been paid on the
surrendered Promissory Note and in an aggregate principal amount equal to the
unpaid principal amount of the Promissory Note so surrendered, will be issued to
and registered in the name of the transferee or transferees. This Company may
treat the person in whose name this
-4-
<PAGE> 5
Promissory Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes.
In case any payment herein provided for shall not be paid when due, the
Company further promises to pay all cost of collection, including all reasonable
attorney's fees.
This Promissory Note shall be governed by and construed in accordance
with, the laws of the State of Idaho.
The Company and all endorsers and guarantors of this Promissory Note
hereby waive presentment, demand, notice of nonpayment, protect and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Promissory Note.
EXTENDED SYSTEMS, INC.
By: /s/ Gary Atkins By: /s/ Doug Winterrowd
------------------------------- -------------------------------
Gary Atkins, President Doug Winterrowd, Secretary
[Corporate Seal]
-5-
<PAGE> 6
EXHIBIT A
TO PROMISSORY NOTE
CERTIFICATE
______________, 19__
I hereby certify that all of the shares of Common Stock, $.10 value, of
EXTENDED SYSTEMS, INC., purchased by the undersigned pursuant to the conversion
on this date of the Promissory Note payable by EXTENDED SYSTEMS, INC., dated the
30th day of September, 1992, are being acquired by the undersigned for
investment and not with a view to the distribution thereof.
-------------------------------
-6-
<PAGE> 1
EXHIBIT 10.14
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY
HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE
AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER.
EXTENDED SYSTEMS, INC.
10% Convertible Subordinated Promissory Note Due 1999
No. 2
$7,270 September 30, 1992
For value received, EXTENDED SYSTEMS, INC., a Delaware corporation (the
"Company"), hereby promises to pay to SUMMIT INVESTORS II, L.P. (hereinafter
referred to as the "Payee"), or registered assigns, on or before September 29,
1999, as described below, the principal sum of SEVEN THOUSAND TWO HUNDRED
SEVENTY DOLLARS ($7,270), or such part thereof as then remains unpaid, to pay
interest from the date hereof on the whole amount of said principal sum
remaining from time to time unpaid at the rate of ten percent (10%) per annum,
or, to the extent that such interest rate is not legally enforceable, at the
maximum per annum rate of hum then payable under applicable law, such interest
to be payable annually on the first day of October in each year, the first such
payment to be due and payable on October 1, 1993, until the whole amount of the
principal hereof remaining unpaid shall become due and payable. Principal shall
be repaid on the 29th day of September, 1999. Principal and interest shall be
payable in lawful money of the United States of America, in immediately
available funds, at the principal office of the Payee, or at such other place as
the legal holder may designate from time to time in writing to the Company.
Interest shall be computed on the basis of a 360-day year and a 30-day month.
This Promissory Note is issued pursuant to and is entitled to the
benefits of a certain Convertible Subordinated Promissory Notes and Warrant
Purchase Agreement, dated as of September 30, 1992, among the Company and
certain Purchasers identified therein, as the same may be amended from time to
time (the "Agreement"), and each holder of this Promissory Note, by its
acceptance hereof, agrees to be bound by the provisions of the Agreement, a copy
of which may be inspected by the legal holder hereof at the principal office of
the Company. As provided in the Agreement, (i) this Promissory Note is subject
to prepayment under certain conditions as specified in Section 1.08 of said
Agreement, (ii) the principal of and interest on this Promissory Note is
subordinated to Senior Debt, as defined in the Agreement, and (iii) in case of
an Event of Default as defined in the Agreement, the principal of, and any
accrued interest on, this Promissory Note may become or may be declared due and
payable in the manner
<PAGE> 2
and with the effect provided in the Agreement, except as expressly provided in
Section 1.08 of the Agreement, the Company has no right or power to prepay this
Promissory Note.
As further provided in the Agreement, upon surrender of this Promissory
Note for transfer or exchange, a new Promissory Note or new Promissory Notes of
the same tenor, dated the date to which interest has been paid on the
surrendered Promissory Note and in an aggregate principal amount equal to the
unpaid principal amount of the Promissory Note so surrendered, will be issued to
and registered in the name of the transferee or transferees. The Company may
treat the person in whose name this Promissory Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes.
Provided, however, that the transfer of this Note shall only be permitted in
compliance with the terms of the Agreement and the Stockholders' Agreement
defined therein.
1. Conversion of Principal Amount. The principal amount then outstanding
on this Promissory Note is convertible into shares of the Common Stock of the
Company at the Applicable Conversion Value as determined by Paragraph 2.2
herein. Upon payment of the principal of the Promissory Note hereon, the right
to convert the outstanding principal shall expire.
2. Adjustments.
2.01 Adjustments for Stock Splits, Consolidations, etc. The
number and class of shares into which this Promissory Note is convertible shall
at all times be equal to the number of shares that the Holder would have held if
the Holder had received the Conversion Shares at the issue Date and had
continuously held those shares to the date of conversion.
2.02 Adjustments for Dilutive Issues.
(a) Applicable Conversion Rate. The number of shares of
Common Stock issuable upon conversion of this Promissory Note shall be the
quotient obtained by dividing the principal amount being converted by the
Applicable Conversion Value, calculated as provided in Paragraph 2.2(b).
(b) Applicable Conversion Rate. The Applicable Conversion
Value in effect from time to time, except as adjusted in accordance with
Paragraph 2.2(c) hereof, shall be $26.891841.
-2-
<PAGE> 3
(c) Upon Sale of Common Stock. If the Company issues
shares of its Common Stock for no consideration or at a price per share less
than the then existing Applicable Conversion Value then a new Applicable
Conversion Value shall be calculated by multiplying the then existing Applicable
Conversion Value by the following fraction:
A + (C/Vp)
----------
A + N
A = the number of shares outstanding immediately prior to the issuance if all
convertible securities, warrants, options and rights were converted or
exercised.
C = consideration
Vp = previous or then existing applicable conversion value
N = number of shares of common stock issued; or in the event of a convertible
security, the number of shares that security is convertible into.
Consideration means consideration received for issuance plus minimum
consideration receivable upon exercise. If a portion of the consideration is
other than cash, its value shall be fair market value as determined in good
faith by the Board of Directors.
The Company's issuance of shares of Common Stock or options to purchase
Common Stock pursuant to any stock purchase, stock option, or incentive program
approved by the Board of Directors, to the company's employees, directors, or
officers, shall not result in any change to the Applicable Conversion Value.
3. Registration Right. The Holder of this Promissory Note is entitled to
certain rights regarding registration under the Securities Act of 1933, as
amended, of the shares of Common Stock issuable upon conversion hereof pursuant
to the Agreement.
4. Method of Converting Note. Subject to the terms and conditions of
this Promissory Note, the Promissory Note may be converted by written notice to
the Company, at its principal office in the State of Idaho, which presently is
located at 5777 North Meeker Avenue, Boise, Idaho 93704. Such notice shall state
the election to convert the Promissory Note and the principal amount and the
number of shares in respect of which it is being converted, and shall be signed
by the person or persons so converting the Promissory Note. Such notice shall be
accompanied by confirmation of cancellation of all or a portion of the
Promissory Note. The Company shall deliver a certificate or certificates
representing the shares subject to such conversion as soon as practicable after
die notice shall be received. The certificate or certificates for the shares as
to which the Promissory Note shall have been so converted shall be registered in
the name of the person or persons so converting the Promissory Note, and shall
be delivered, as provided above, to or upon the written order of the person or
persons converting the Promissory Note. The interest on the portion of the
Promissory Note so converted shall be paid by the Company at the time of
delivery of the certificate or certificates provided above. In the event the
-3-
<PAGE> 4
Promissory Note shall be exercised by any person or persons other than the
Holder in accordance with the terms hereof, such notice shall be accompanied by
appropriate proof of the right of such person or persons to convert the
Promissory Note. All shares that shall be purchased upon the conversion of the
Promissory Note as provided herein shall be fully paid and nonassessable. The
holder of this Promissory Note shall not be entitled to the privileges of share
ownership as to any shares of Common Stock not actually issued and delivered to
it. The Holder hereby certifies that all shares of Common Stock in the Company
purchased or to be purchased by it pursuant to the exercise of this Promissory
Note are being, or are to be, acquired by it for investment, and not with a view
to the distribution thereof. In addition, the person converting the Promissory
Note shall execute and deliver to the Company, with the notice provided for
above, a certificate substantially in the form attached hereto as Exhibit A.
5. General. The Company shall at all times during the period this
Promissory Note is outstanding reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Promissory Note, shall pay all original issue and transfer taxes with respect to
the issue and transfer of shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations, which, in
the opinion of counsel for the Company, shall be applicable thereto.
6. Legends. It is understood that the certificates evidencing the Common
Stock purchased upon conversion of this Promissory Note may bear the following
legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER
FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE
SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER."
THIS STOCK IS RESTRICTED STOCK AND MAY NOT BE SOLD WITHOUT FIRST
OFFERING IT TO THE CORPORATION, WHICH SHALL HAVE THE RIGHT TO PURCHASE
IT WITHIN THIRTY (30) DAYS AT THE LATEST APPRAISAL PRICE DETERMINED BY
AN INDEPENDENT OUTSIDE APPRAISER WITHIN ONE HUNDRED TWENTY (120) DAYS
PRIOR TO THE DATE OF SALE PURSUANT TO ARTICLE 4B OF THE AMENDED ARTICLES
OF INCORPORATION.
THIS RESTRICTION SHALL REMAIN IN EFFECT AT ALL TIMES AND SHALL APPLY TO
ANY FUTURE OWNER OR TRANSFEREE OF THIS STOCK.
As further provided in the Agreement, upon surrender of this Promissory
Note for transfer or exchange, a new Promissory Note or new Promissory Notes of
the same tenor, dated the date to which interest has been paid on the
surrendered Promissory Note and in an aggregate principal amount equal to the
unpaid principal amount of the Promissory Note so surrendered, will be issued to
and registered in the name of the transferee or transferees. This Company may
treat the person in whose name this
-4-
<PAGE> 5
Promissory Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes.
In case any payment herein provided for shall not be paid when due, the
Company further promises to pay all cost of collection, including all reasonable
attorney's fees.
This Promissory Note shall be governed by and construed in accordance
with, the laws of the State of Idaho.
The Company and all endorsers and guarantors of this Promissory Note
hereby waive presentment, demand, notice of nonpayment, protect and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Promissory Note.
EXTENDED SYSTEMS, INC.
By: /s/ Gary Atkins By: /s/ Doug Winterrowd
------------------------------- -------------------------------
Gary Atkins, President Doug Winterrowd, Secretary
[Corporate Seal]
-5-
<PAGE> 6
EXHIBIT A
TO PROMISSORY NOTE
CERTIFICATE
_________________, 19__
I hereby certify that all of the shares of Common Stock, $.10 value, of
EXTENDED SYSTEMS, INC., purchased by the undersigned pursuant to the conversion
on this date of the Promissory Note payable by EXTENDED SYSTEMS, INC., dated the
30th day of September, 1992, are being acquired by the undersigned for
investment and not with a view to the distribution thereof.
-------------------------------
<PAGE> 1
EXHIBIT 10.15
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is made as of this 30th
day of September, 1992, by and among EXTENDED SYSTEMS, INC., a Delaware
corporation (the "Company"), the persons named as Stockholders in Exhibit A
hereto (the "Stockholders"), and the persons named as Investors in Exhibit B
hereto (the "Investors").
The Stockholders are holders of shares of the issued and outstanding
Common Stock, of the Company (the "Common Stock"). The Stockholders have entered
into that Fourth Amended ES1 Shareholder Agreement (the "Shareholder Agreement")
that provides for the purchase of certain shares of the Stockholders' Company
stock under certain circumstances.
The Investors are, on the date hereof, acquiring an aggregate of
$7,625,000 Maturity Value of the Company's Convertible Subordinated Zero Coupon
Promissory Notes (the "Zero Coupon Notes") and $500,000 principal amount of the
Company's 10% Convertible Subordinated Promissory Notes (the "10% Notes," the
10% Notes and the Zero Coupon Notes are, collectively, the "Notes") and
three-year Warrants to purchase 76,062 shares of the Company's Common Stock (the
"Warrants") pursuant to the terms of a Convertible Subordinated Promissory Notes
and Warrant Purchase Agreement, dated the date hereof, among the Company and the
Investors (the "Purchase Agreement"). The Notes and Warrants are referred to,
collectively, in this Agreement as the "Securities," and the Common Stock
acquired or available to be acquired thereunder are referred to as the
"Conversion Shares" and "Warrant Shares", respectively, and shall have the
meanings assigned to them in the Purchase Agreement. Common Stock otherwise
acquired by the Investors for the purpose of this Agreement shall be included in
the term "Conversion Shares".
It is a condition to the obligations of the Investors under the Purchase
Agreement that this Agreement be executed by the parties hereto, and the parties
are willing to execute this Agreement and to be bound by the provisions hereof
In consideration of the foregoing and the agreements set forth below,
the parties agree with each
1. Designated Representative of the Investors. The Investors will
designate, in writing, a representative who shall be authorized to act on their
behalf with respect to all matters related to this Agreement. The Designated
Representative will nominate the Investors' selection of a nominee for election
to the Board of Directors.
2. Board of Directors. The Stockholders and the Company agree that the
Company's Board of Directors will be comprised of not more than seven (7)
members. Prior to October 31, 1992, and thereafter during the term of this
Agreement, the Stockholders shall vote all shares of the
<PAGE> 2
Company's Stock held by them to elect one member who has been designated by the
Investors to the Board of Directors and to elect a replacement member whenever
designated.
3. Restrictions on Transfer of Shares.
3.01 Rights of Investors.
(a) Any Stockholder who proposes to sell or otherwise
transfer stock shall do so in accordance with the provisions of the Certificate
of Incorporation and the Shareholder Agreement. Any stock not purchased by the
Company or the Stockholders shall then be offered to the Investors upon the same
terms and conditions of the proposed sale. The Investors shall have forty-five
(45) days from the time they receive notice of a proposed sale, but in no event
less than fifteen (15) days from the date they are notified that the Company and
the other Stockholders have elected not to purchase the stock, within which to
purchase the stock. The Investors' rights under this paragraph shall terminate
if not exercised within the later of the forty-five (45) day and fifteen (15)
day periods above.
(b) In the event the consideration (other than cash or
cash equivalents), terms or conditions offered by the buyer are such that the
Investors may not reasonably be required to furnish the same consideration,
terms or conditions, then the Investors, may purchase the stock for a cash
amount determined by the Company's Board of Directors to be reasonably
equivalent in value to the consideration offered by the buyer based on the
proposed terms and conditions.
(c) Subject to Section 3.2, if an offer to the Investors
is not accepted as provided in Section 3. 1 (a) as to all or part of the stock
or paid for as provided therein, the Stockholder so selling may thereafter sell
such stock so offered pursuant to the terms contained in the Company's
Certificate of Incorporation and the Shareholder Agreement.
(d) The failure of any Investor to exercise any option
pursuant to this Section 3.1 shall not constitute a waiver of any of the
provisions of this Agreement with respect to any proposed subsequent transfer of
Common Stock.
3.02 Tag-Along Rights. Each Investor will have the right to sell,
on the terms and to the buyer described in a Stockholder's notice (i) if the
Stockholder is Gary Atkins, then a number of shares equal to the number of
shares to be sold multiplied by a fraction, the numerator of which will be the
number of Conversion and Warrant Shares owned by such Investor, and the
denominator of which will be the sum of the number of Conversion Shares and
Warrant Shares owned by the Investors plus the number of shares of Common Stock
owned by Gary Atkins and (ii) if the Stockholder selling is any Stockholder
other than Gary Atkins, then a number of shares as determined above however the
denominator shall be the number of all shares of stock restricted by the
Shareholder Agreement. Provided, however, so long as the Company purchases stock
from the Stockholders at sixty-five percent of the current independent appraisal
as that term is used in the Shareholder Agreement, Investors have no right to
sell to the Company under this Section 3.2. The Company covenants that it will
not exercise its right to purchase shares of its capital stock contained in its
Certificate of Incorporation with respect to a sale by the Investors under this
Section 3.2.
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<PAGE> 3
3.03 Permitted Transfers. Notwithstanding any other provision of
this Section 3, a Stockholder may transfer shares of Common Stock pursuant to
the terms of the Shareholder Agreement as it is written as of the date hereof.
3.04 Invalid Transfers. Any sale, assignment or other transfer of
Common Stock by a Stockholder contrary to the provisions of this Section 3 shall
be null and void, and the transferee shall not be recognized by the Company as
the holder or owner of the shares of Common Stock sold, assigned or transferred
for any purposes (including, without limitation, voting or dividend rights),
unless and until the Stockholder so selling has satisfied the requirements of
this Section 3 with respect to such sale, assignment or other transfer.
3.05 Termination of Agreement. This Agreement shall terminate on
the earlier of the day immediately prior to the closing of a Qualified Public
Offering or the seventh anniversary hereof.
4. Company's Right of first Purchase
(a) Any Investor who proposes to sell, assign or otherwise
transfer to a third party any or all of the Securities held by it shall give the
Company and the Stockholders written notice of its intent to sell, the dollar
amount of the Notes, the number of the Warrants and the number of shares of
stock involved in such sale, assignment or transfer.
(b) The Company and the Stockholders shall have thirty
(30) days after receipt of such notice in which to accept, in writing, the offer
set forth therein to purchase the Securities to be sold. The Company's and
Stockholder's notice of their acceptance or rejection of such offer shall be
delivered to the Investor. If the offer is accepted then the Company and
Stockholders shall pay for the Securities within thirty (30) days of the notice
by the Investor. Failure to deliver a notice within the time provided herein
shall be deemed a rejection of the right to purchase as provided herein.
Following rejection the Investor shall have six months to sell the Securities or
it must again comply with this Section 4.
(c) The Company and the Stockholders shall pay the
Investor an amount equal to the greater of (i) the Issue Price and accrued
Original Issue Discount for the Zero Coupon Notes being offered for sale, the
principal amount and the accrued interest on the 10% Notes and the original
purchase price of the Warrants through the date of their expiration and (ii) the
appraised value per share as is determined quarterly of the Conversion Shares
and Warrant Shares then offered by the Investors or for the number of shares
subject to acquisition under the Notes and Warrants being offered for sale.
5. Miscellaneous.
5.01 Legend. Each certificate representing Shares of Common Stock
owned by the Stockholders shall contain in addition to all other restrictive
legends described in the Purchase Agreement or the Securities, the following
legend:
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<PAGE> 4
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A STOCKHOLDERS' AGREEMENT DATED SEPTEMBER 30, 1992, BY AND
AMONG THE COMPANY AND THE STOCKHOLDERS AND INVESTORS NAMED THEREIN, A
COPY OF WHICH WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
5.02 Notices. All notices or other communications required or permitted
to be delivered hereunder shall be in writing signed by the party giving the
notice to the Company at 5777 North Meeker Avenue, Boise, Idaho 83704,
Attention: President, and to the other parties hereto at their respective
addresses set forth in Exhibits A and B to this Agreement. The Company, a
Stockholder, or Investor may at any time change the address to which notice to
him shall be mailed by giving notice of such change to the Company and to the
other parties, and such notice shall be deemed given when received by the other
parties hereto.
5.03 Entire Agreement and Amendments. This Agreement constitutes the
entire agreement of the parties with respect to the matters contemplated herein.
This Agreement supersedes any and all prior understandings as to the subject
matter of this Agreement. Amendments, waivers and consents with respect to this
Agreement must be signed by all the parties hereto.
5.04 Binding Effect: Assignment. This Agreement shall be binding upon
and inure to the benefit of the personal representatives and successors of the
respective parties hereto, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without obtaining the prior
written consent of the Investors, and the rights and interests of the Investors
shall be assignable to transferees of the Securities, Conversion Shares and
Warrant Shares.
5.05 Governing Laws. This Agreement shall be governed by and construed
under the laws of the State of Idaho.
5.06 Severability. If any provision of this Agreement shall be found by
any court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
5.07 Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute one and the same instrument.
5.08 Attorneys' Fees. In the event of any controversy, claim or dispute
among the parties hereto arising out of or relaxing to this Agreement, or breach
hereof, the prevailing party shall be entitled to recover from the losing party
reasonable attorneys' fees, expenses and Costs.
5.09 Covenant. The Company covenants that it shall not exercise its
right to purchase shares of its capital stock from Investors pursuant to any
sale by Investors in connection with any merger
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<PAGE> 5
or exchange described in Section 4.02(a) of the Purchase Agreement or at any
time from and after the effective date of Any Public Offering as that term is
defined in the Purchase Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
EXTENDED SYSTEMS, INC.
By: /s/ Gary Atkins
-------------------------------
Gary Atkins, President
STOCKHOLDERS
/s/ Gary Atkins
-------------------------------
Gary Atkins
/s/ Charles M. Jopson
-------------------------------
Charles M. Jopson
/s/ Douglas B. Winterrowd
-------------------------------
Douglas B. Winterrowd
/s/ Ted L. Wimer
-------------------------------
Ted L. Wimer
/s/ Steven Bolen
-------------------------------
Steven Bolen
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<PAGE> 6
INVESTORS
SUMMIT VENTURES II, L.P.
By: Summit Partners II, L.P.
General Partner
By: Stamps, Woodsum & Co. II
General Partner
By: /s/ Gregory M. Avis
-------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Gregory M. Avis
-------------------------------
General Partner
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<PAGE> 7
EXHIBIT A
LIST OF STOCKHOLDERS
Gary Atkins
5777 North Meeker Avenue
Boise, Idaho 83704
Charles M. Jopson
5777 North Meeker Avenue
Boise, Idaho 83704
Douglas B. Winterrowd
5777 North Meeker Avenue
Boise, Idaho 83704
Ted L. Wimer
5777 North Meeker Avenue
Boise, Idaho 83704
Steven Bolen
5777 North Meeker Avenue
Boise, Idaho 83704
<PAGE> 8
EXHIBIT B
LIST OF INVESTORS
Summit Ventures II, L.P.
4675 MacArthur Court, Suite 710
Newport Beach, California 92660
Summit Investors II, L.P.
4675 MacArthur Court, Suite 710
Newport Beach, California 92660
<PAGE> 1
EXHIBIT 10.16
SALES, LICENSE AND NONCOMPETITION AGREEMENT
SALES, LICENSE AND NONCOMPETITION AGREEMENT, made and entered into as of
June 14, 1996, by and between Electronic Accessory Specialists International,
L.L.C., a Delaware limited liability company ("EASi"), and Extended Systems
Incorporated, a Delaware corporation ("Extended"). EASi and Extended are each
sometimes referred to herein as a "Party" and collectively as the "Parties".
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. SALES OF PRODUCTS
1.1 Joint Development of Products.
(a) The Parties hereby agree to jointly develop the Products
as set forth on Exhibit A attached hereto, and any other products agreed to by
the Parties (which products shall be added to Exhibit A as an amendment to this
Agreement (collectively the "Joint Products"). The specific duties of each Party
with respect to the development of the Joint Products are as set forth on
Exhibit B attached hereto, and such other duties as agreed to by the Parties.
The Products, and all technology, patents, patent applications, intellectual
property and know-how utilized in developing the Joint Products or relating to
or resulting from the development of the Joint Products (the "Product
Technology") shall be considered the joint property of the Parties, except for
any Product Technology which was previously owned or developed by a Party, which
Product Technology shall be considered the property of such Party.
(b) The preliminary timetable for the development of the
Joint Products is as set forth on Exhibit C attached hereto. The Parties shall
develop additional mutually agreeable cost, schedule and performance criteria,
and each Party agrees to use its best efforts to meet or exceed such criteria.
In addition, each Party intends to contribute substantially equivalent time and
effort to the development of the Joint Products.
(c) Each Party shall have the right to manufacture, market
and sell the Joint Products and any other derivative product utilizing the
platform developed with respect to the Joint Products (the "Other Products"), or
upon the mutual agreement of both Parties, to jointly manufacture, market and/or
sell any Joint Product or Other Products.
(d) For each Joint Product or Other Product sold by any
Party or any of its affiliates in any calendar quarter, such selling Party (on
its own behalf and on behalf of its affiliate) shall pay to the other Party,
within [*] days after the end of such calendar [*], a royalty equal to [*]
percent ([*]%) of the sale price actually received by the Party (net of returns
and allowances) of such sold Joint Product, which royalties shall be payable at
such times as Earned Royalties are payable pursuant to Section 2.10 below.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 2
(e) Each Party agrees to keep all proper records and books
of account and all proper entries therein relating to the manufacture and sale
of Joint Products by such Party. Each Party may, at such Party's expense, cause
an audit to be made of the applicable records in order to verify statements
rendered hereunder. Any such audit shall be conducted only by a certified public
accountant (other than on a contingency-fee basis) and shall be conducted during
regular business hours at the other Party's offices and in such a manner as not
to interfere with the other Party's normal business activities. Prompt payment
of any amount found due and owing such Party under subsection (d) above shall be
made by the other Party upon demand by such Party. Each Party hereby agrees to
make available to the other Party, upon reasonable request, and at a reasonable
place and time, its records and reports pertaining to the audit and any such
records and reports prepared for the other Party by third parties, but only in
the event that such Party makes any claim with respect to such audit. The other
Party may, prior to making any additional payments as provided above, review
such records and reports and challenge the audit, in which event such additional
payments shall not be made until the audit issues are resolved.
(f) In the event that EASi manufactures any of the Joint
Products, then Extended shall purchase such Joint Products [*] from EASi,
subject to reasonable quality standards. EASi shall sell such Joint Products to
Extended at the JP Incremental Cost (as hereinafter defined), if applicable,
multiplied by [*]%. "JP Incremental Cost" shall mean the costs of [*]% of
manufacturing the Joint Products. [*] by EASi to Extended with respect to sales
of Joint Products by EASi to Extended.
1.2 Purchase of EASi Products. During the Term (as hereinafter
defined), EASi will make available for sale by Extended in its distribution
channels all EASi Products (as hereinafter defined); provided, however, that
Extended shall not be able to sell any EASi Products to customers or groups of
customers identified on Exhibit D attached hereto. The terms of any such sales
will be governed by purchase orders consistent with the terms and conditions
offered by EASi to other similar customers; provided, however, that in all
cases, EASi shall sell to Extended EASi Products [*], including, without
limitation, [*], excluding the Licensed Technology (as hereinafter defined),
plus the Incremental Cost (as hereinafter defined), if applicable, multiplied by
[*]%. "EASi Products" shall mean mechanical docking products (including, without
limitation, port replicator products) which allow the user of portable computers
to physically connect such user's portable computer to various equipment and
mechanical docking station products which incorporate the Licensed Technology
thereby permitting either a physical or infra-red connection (see Exhibit E for
an example thereof). "Incremental Cost" shall mean the costs of [*] of adding
the Licensed Technology to any EASi Product.
1.3 Purchase of Extended Products. During the Term, Extended will
make available for sale by EASi all Extended Products (as hereinafter defined);
provided, however, that EASi shall not be able to sell any Extended Products to
customers or groups of customers identified on Exhibit F attached hereto. The
terms of any such sales will be governed by purchase orders consistent with the
terms and conditions offered by Extended to other similar customers; provided,
however, that in all cases, Extended shall sell to EASi Extended Products [*],
including, without limitation, [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
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<PAGE> 3
"Extended Products" shall mean infra-red products which allow the user of
portable computers to connect such user's portable computer to various equipment
utilizing an infra-red link instead of a physical connection.
2. LICENSE
2.1 Definitions. The following terms as used herein shall have the
following meaning:
(a) IR Products. The "EASi IR Product(s)" shall be the EASi
developed, licensed or otherwise acquired equipment and products which
incorporate the Licensed Technology and are marketed and distributed by EASi
through any of its distribution channels.
(b) Licensed Technology. The "Licensed Technology" consists
of the infra-red technology developed by Extended and described in the
specifications in Exhibit G attached hereto and any and all Extended-developed
additions, improvements, innovations, enhancements, modifications, variations,
changes or the like of or related in any way to the technology described in
Exhibit G (now or in the future).
2.2 License Grants. Extended hereby grants to EASi a royalty
bearing, non-exclusive, limited transferable (i.e., transfer shall be limited to
entities controlled by, controlling or under the control of EASi), [*], to use,
[*] and incorporate the Licensed Technology into EASi IR Products, and to
manufacture, distribute and sell products which incorporate the Licensed
Technology during the Term.
2.3 Ownership of the Licensed Technology. By operation of and
performance under this Agreement, EASi acquires only the right to the Licensed
Technology as specified herein and does not acquire any right of ownership.
Except for the license granted hereunder, all rights, title and interest in the
Licensed Technology, the specifications (Exhibit G) , and updates, developments,
enhancements or modifications thereto made by Extended shall at all times remain
with Extended. All rights, title and interest in any updates, developments,
enhancements or modifications or the like made or related to the Licensed
Technology which may be developed by EASi or its affiliates shall at all times
remain with EASi or such affiliates (as the case may be).
2.4 Product Marketing.
(a) EASi shall at all times have the sole discretion to set
and determine all terms and conditions of sale of all EASi IR Products
incorporating the Licensed Technology. EASi shall at all times have the sole
discretion to develop and approve all such EASi IR Products' marketing materials
and activities.
(b) Extended has adopted and owns certain trademarks and
service marks used in identifying and marketing Extended technology, products
and services ("Trademarks"). Extended hereby grants to EASi the non-exclusive
right to use the Trademarks in the marketing of EASi IR Products. EASi
recognizes and consents for all purposes that all Trademarks, logos, trade names
and
[*] CONFIDENTIAL TREATMENT REQUESTED
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<PAGE> 4
related acronyms and the like of Extended relating to the Licensed Technology,
whether or not registered, constitute the exclusive property of Extended and
cannot be used by EASi pursuant to this license, except as specified in this
Agreement, nor shall EASi use any confusingly similar mark, logo, trade name or
the like. EASi will, however, be required to identify the Licensed Technology
with the Extended tradename "Jet Eye," although EASi may package the EASi IR
Products in any manner it chooses. Except as provided above, nothing contained
in this Agreement shall be construed as conferring any right upon EASi to use in
advertising, publicity or other promotional activities any Trademark, trade name
or other designation, unless the prior written permission of Extended has been
obtained, which consent will not be unreasonably withheld. EASi shall use the
Trademarks with such words qualifying or identifying the relationship of
Extended and EASi as Extended from time to time reasonably prescribes. Extended
will have the sole right, but not the obligation, to register and enforce its
Trademarks and other marks that it adopts, acquires or uses in the United States
and countries outside the United States.
2.5 Representations and Warranties of Extended. Extended hereby
represents and warrants to EASi as follows:
(a) That it has the full and exclusive right and power to
enter into and perform according to the terms of this Agreement, and that it has
the exclusive right to grant to EASi each of the rights herein granted to EASi.
(b) That no other person or organization or entity has or
will have any right, title or interest in or to all or any portion of the
Licensed Technology which would in any way curtail or impair any of the rights
granted to EASi herein, and that it has not heretofore done or permitted to be
done and will not hereafter do or authorize or permit to be done any act or
thing which is or may be in any way inconsistent with or which may in any way
curtail or impair any right herein granted to EASi.
(c) That it now owns or controls and will, at all times
hereafter own or control all right, title and interest in and to the Licensed
Technology free from any encumbrances which would in any way curtail or impair
any of the rights granted to EASi herein.
2.6 Representations and Warranties of EASi. EASi hereby represents
and warrants to Extended as follows:
(a) That any publication of the Licensed Technology by EASi
shall contain proper patent, copyright and other restricted rights notices in
the name of Extended as requested by Extended.
(b) That EASi shall not use, [*], sell or otherwise
distribute the Licensed Technology except pursuant to the terms of this
Agreement; provided, however, that nothing contained herein shall be construed
or intended to prevent or limit EASi from disclosing the Licensed Technology to,
and allowing the use thereof by, third party subcontractors involved in the
manufacture of EASi IR Products on behalf of EASi, provided that EASi first
obtains from any such subcontractor an agreement to keep confidential the
Licensed Technology and not use the Licensed Technology except for such purpose.
[*] CONFIDENTIAL TREATMENT REQUESTED
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<PAGE> 5
(c) That it has the full and exclusive right and power to
enter into and perform according to the terms of this Agreement.
2.7 Mutual Indemnity.
(a) Extended hereby agrees to indemnify EASi from those
damages finally awarded to EASi against Extended or to a third person against
EASi, or settlement payments made to a third person by EASi with the consent of
Extended (which consent shall not be unreasonably withheld), and save, and hold
EASi harmless from any and all claims or losses (including attorneys' and expert
witnesses' fees) (collectively, the "EASi Damages") arising out of or in
connection with or by reason of or resulting from a breach of any of the
warranties, representations or agreements made by Extended in this Section 2. In
the event Extended rejects a settlement offer in a third person action, Extended
must thereafter assume the defense of such action and promptly reimburse EASi
for the EASi Damages. Prompt notice shall be given to Extended of any third
person action to which the indemnity relates and Extended shall have the right,
at its own expense, to control the defense or settlement thereof with counsel of
its choice, at Extended's expense. EASi shall provide Extended with reasonable
information, authority and assistance necessary to perform under this indemnity.
Reasonable out-of-pocket expenses incurred by EASi for such assistance
(including attorneys' fees) will be promptly reimbursed by Extended.
(b) EASi hereby agrees to indemnify Extended from those
damages finally awarded to Extended against EASi or to a third person against
Extended, or settlement payments made to a third person by Extended with the
consent of EASi (which consent shall not be unreasonably withheld), and save,
and hold Extended harmless from any and all claims or losses (including
attorneys' and expert witnesses' fees) (collectively, the "Extended Damages")
arising out of or in connection with or by reason of or resulting from a breach
of any of the warranties representations, or agreements made by EASi in this
Section 2. In the event EASi rejects a settlement offer in a third person
action, EASi must thereafter assume the defense of such action and promptly
reimburse Extended for the Extended Damages. Prompt notice shall be given to
EASi of any third person action to which the indemnity relates and EASi shall
have the right, at is own expense, to control the defense or settlement thereof
with counsel of its choice, at EASi's expense. Extended shall provide EASi with
reasonable information, authority, and assistance necessary to perform under
this indemnity. Reasonable out-of-pocket expenses incurred by Extended for such
assistance (including attorneys' fees) will be reimbursed by EASi.
2.8 Legal Action to Protect the Licensed Technology. Extended
will, upon the written request of EASi, bring infringement actions or take any
other legal action EASi reasonably deems appropriate to enforce the Licensed
Technology; provided, however, that no such action shall be required to the
extent that it would be commercially unreasonable to take such action.
2.9 Indemnification for Infringement. Notwithstanding anything
herein to the contrary, Extended will defend EASi against a claim that the
Licensed Technology furnished and used within the scope of this Agreement
infringes a patent which is held by someone other than Extended (a "Claim"), and
Extended will indemnify EASi from, and hold EASi harmless against, any damages
finally awarded or final settlement amount based upon a Claim, provided that:
(i) EASi notifies Extended in writing within thirty (30) days after written
notification of a Claim is received by EASi; and (ii) Extended shall have the
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<PAGE> 6
right, in its sole discretion, to assume the defense and all related settlement
negotiations; provided, however, that no settlement may be made which could
infringe upon or impair the rights of EASi to use the Licensed Technology or
otherwise without the prior written consent of EASi.
In the event the Licensed Technology is held or reasonably believed by
Extended to infringe, Extended shall have the option, at its expense, to replace
or modify the Licensed Technology with a version that is non-infringing, or, at
the option of EASi, either: (i) procure for EASi the right to continue the use,
sale and marketing of such Licensed Technology; or (ii) immediately refund all
amounts previously paid by EASi to Extended pursuant to Section 2.10 below.
2.10 Royalties.
(a) In consideration of the license grants made to EASi hereunder,
EASi agrees to pay to Extended royalty payments on EASi IR Products as follows:
Aggregate Number of Royalty
Units of EASi IR Products Sold per Unit
- ------------------------------ --------
[*] $[*]
[*] $[*]
[*] $[*]
[*] $[*]
[*] $[*]
subject to the remainder of this Section 2.10 (the "Earned Royalties"). No
Earned Royalties shall be due or payable by EASi to Extended with respect to
sales of EASi IR Products by EASi to Extended. Notwithstanding the above, in the
event Extended licenses any or all of the Licensed Technology for a fee or
royalties which are less than the royalties payable hereunder, then the royalty
rate payable hereunder shall thereafter be reduced to such lower fee or rate.
(b) Within [*] ([*]) days after the end of each calendar [*]
with respect to which EASi owes Extended any Earned Royalties, EASi shall
furnish Extended with a statement, together with payment for any amount shown
thereby to be due to Extended. The royalty statement shall be based upon unit
sales of the EASi IR Products during the calendar quarter then ended, and shall
contain information sufficient to discern how the royalty payment, if any, was
computed.
(c) EASi agrees to keep all proper records and books of
account and all proper entries therein relating to the manufacture and sale of
EASi IR Products and the sublicensing of the Licensed Technology. Extended may,
at Extended's expense, cause an audit to be made of the applicable records in
order to verify statements rendered hereunder. Any such audit shall be conducted
only by a certified public accountant (other than on a contingency-fee bass) and
shall be conducted during regular
[*] CONFIDENTIAL TREATMENT REQUESTED
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<PAGE> 7
business hours at EASi's offices and in such a manner as not to interfere with
EASi's normal business activities. Prompt payment of any amount found due and
owing Extended under this Section shall be made by EASi upon demand by Extended.
Extended hereby agrees to make available to EASi, upon reasonable request, and
at a reasonable place and time, its records and reports pertaining to the audit
and any such records and reports prepared for Extended by third parties, but
only in the event that Extended makes any claim with respect to such audit. EASi
may, prior to making any additional payments as provided above, review such
records and reports and challenge the audit, in which event such additional
payments shall not be made until the audit issues are resolved.
2.11 Rights and Obligations Under Expiration or Termination of this
Agreement. The provisions of this Section 2 and of Sections 1.1(d), 1.1(e) and 5
below shall survive the expiration or termination of the Term.
3. TERM. Except as provided in Section 2. 11 above, the term of this
Agreement shall commence on the date hereof and shall continue for [*] ([*])
years thereafter (the "Initial Term") and, subject to the remainder of Section
4, shall continue on a year-to-year basis thereafter (the "Renewal Term"). This
Agreement shall not include the Renewal Term if either Party terminates this
Agreement by written notice of termination to the other Party at least ninety
(90) days prior to the expiration of the Initial Term. The Renewal Term may be
terminated by either Party upon written notice to the other Party at least
ninety (90) days prior to the expiration of such Renewal Term. The Initial Term
and Renewal Term, if any, are sometimes collectively referred to as the "Term."
4. COVENANTS NOT-TO-COMPLETE.
(a) EASi agrees that during the Term, neither EASi nor any
of its affiliates shall, directly or indirectly, for itself or on behalf of any
other corporation, person, firm, partnership, association, or any other entity
(whether as an individual, agent, servant, employee, employer, officer,
director, shareholder, manager, member, investor, principal, consultant or in
any other capacity): (i) [*]; or (ii) finance any person or entity in any manner
or in any way inconsistent with the intents and purposes of (i) above.
(b) Extended agrees that during the Term, neither Extended
nor any of its affiliates shall, directly or indirectly, for itself or on behalf
of any other corporation, person, firm, partnership, association, or any other
entity (whether as an individual, agent, servant, employee, employer, officer,
director, shareholder, manager, member, investor, principal, consultant or in
any other capacity): (i) [*]; or (ii) finance any person or entity in any manner
or in any way inconsistent with the intents and purposes of (i) above.
[*] CONFIDENTIAL TREATMENT REQUESTED
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<PAGE> 8
(c) In the event of any Party's breach, or threatened
breach, of any term or provision contained in this Section 4, the breaching
Party agrees that the non-breaching Party and/or its affiliates shall be
entitled to the right of specific performance and/or both temporary and
permanent injunctive relief.
(d) It is the intent of each of the Parties that the
covenants not-to-compete contained in this Section 4 be enforced to the fullest
extent permitted by applicable law. Accordingly, should a court of competent
jurisdiction determine that the scope of any covenant is too broad to be
enforced as written, it is the intent of each of the Parties that the court
should reform such covenant to such narrower scope as it may determine is
necessary to make such covenant enforceable.
(e) Each of the Parties hereto recognizes and agrees that
this Section 4 is necessary and essential to the protection of the business
conducted and to be conducted in the future by the Parties and/or their
respective affiliates, and to enable the Parties to realize and derive all of
the benefits, rights and expectations of this Agreement; that the area and
duration of the covenants herein are in all aspects, under the circumstances of
this Agreement, reasonable; and that good and valuable consideration exists for
such Party agreeing to be bound by such covenants.
5. MISCELLANEOUS PROVISIONS
5.1 Notices. All notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be considered as properly given if personally delivered or if mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
or if sent by facsimile transmission, prepaid telegram or telex or by Federal
Express or similar overnight courier, addressed to the Party at the address
designated herein. A Party may change its address for notices by giving notice
in like manner. Any notice or other communication shall be deemed to have been
given to, or received by, the appropriate party as of the date on which it is
personally delivered or delivered by facsimile transmission or, if mailed, on
the third business day after the date on which it is deposited in the United
States mail, or if telegraphed or telexed or sent by Federal Express or similar
overnight courier, on the business day after it is transmitted.
5.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
5.3 Successors and Assigns. This Agreement and all the terms and
provisions hereof shall be binding upon and shall inure to the benefit of the
Parties and their respective legal representatives, heirs, successors and
permitted assigns. This Agreement may not be assigned by any Party without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld.
5.4 Modification to Be in Writing. This Agreement, together with
the Exhibits attached hereto, constitute the entire understanding of the Parties
with respect to the subject matter hereof and supersedes any and all prior
negotiations, understandings and agreements in regard thereto (including,
without limitation, that certain Confidentiality Agreement, dated as of February
15, 1996, by
-8-
<PAGE> 9
and between the Parties). No amendment, modification or alteration of the terms
hereof shall be binding unless the same is signed by all the Parties.
5.5 No Waiver. Failure or delay of either Party in exercising any
right or remedy under this Agreement will not operate as a waiver hereof. The
express waiver by any Party of a breach of any provision of this Agreement by
the other Party shall not operate or be construed as a waiver of any subsequent
breach by said Party. No waiver will be effective unless and until it is in
written form and signed by the waiving Party.
5.6 No Third Party Rights. This Agreement and the covenants and
agreements contained herein are solely for the benefit of the Parties. No other
person shall be entitled to enforce or make any claims, or have any rights
pursuant to the provisions of this Agreement.
5.7 Heading The captions in this Agreement are inserted for
convenience of reference only and shall not affect the construction of this
Agreement. References in this Agreement to any Article, Section, paragraph,
Subparagraph or Exhibit are to the same contained in or attached to this
Agreement.
5.8 Valid and Severability. If any provision of this Agreement
contravenes any laws and such contravention would thereby invalidate this
Agreement, then such provision is declared to be invalid and subject to
severance from the remaining portions of this Agreement and this Agreement shall
be read and construed as though it did not contain such provision in a manner to
give effect to the intention of the Parties to the fullest extent possible.
5.9 Arbitration. Any dispute or claim arising under or with
respect to this Agreement shall be settled by arbitration in Denver, Colorado.
The Party requesting arbitration shall serve upon the other Party notice
demanding arbitration with the name and address of the arbitrator appointed by
it and describing the issue or issues to be arbitrated; the other Party shall
within 20 days after receipt of that notice, appoint an arbitrator and notify
the first Party of the arbitrator's name and address and of any other issue or
issues to be arbitrated. The two arbitrators so named shall appoint a third
arbitrator within a period of 30 days after which the first Party receives
notice of appointment of the second arbitrator. If the Party upon which demand
for arbitration is served fails to appoint an arbitrator within 20 days, or if
the two arbitrators so named fail to appoint a third arbitrator within 30 days,
then the Party demanding the arbitration in the first case and either Party in
the second case, may apply to an appropriate court to appoint an arbitrator; and
in the case of a Party failing to appoint an arbitrator, the Party demanding
arbitration may at the same time also request the court to appoint its
arbitrator. The decision or award of the three arbitrators will be final and
binding upon the Parties. Any decision or award rendered by the arbitrators may
be entered as a judgment or order in any court having jurisdiction.
5.10 Affiliate. As used herein, an "affiliate" of any Party means
any person, corporation, partnership or other entity controlling, controlled by
or under common control with such Party.
5.11 Cooperation and Assistance. Each Party agrees to use all
commercially reasonable efforts to support the other Party in its efforts under
this Agreement and to agree upon mutually acceptable development
responsibilities with respect to the Joint Products. In addition, if any
provision
-9-
<PAGE> 10
of this Agreement inhibits either Party from remaining competitive in the
marketplace, the Parties agree to negotiate in good faith an amendment to this
Agreement to minimize or eliminate such hindrance to the extent reasonably
acceptable to the Parties.
5.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and all
of which when taken together shall constitute a single instrument.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the date first set forth above.
ELECTRONICS ACCESSORY
By: /s/ Charles R. Mollo
-------------------------------------------
Its: Chief Executive Officer
------------------------------------------
Address:
7855 East Evans Road, Suite A
Scottsdale, Arizona 85260
Attn: President
EXTENDED SYSTEMS INCORPORATED
By: /s/ Holmes Lundt
-------------------------------------------
Its: Vice President, Business Development
------------------------------------------
Address:
5777 Meeker Avenue
-----------------------------------------------
Boise, Idaho 83713
-----------------------------------------------
Attn: Contracts Administrator
-----------------------------------------
-11-
<PAGE> 12
EXHIBIT A
JOINT PRODUCTS
Product 1
[*]
Product 2
[*]
The definition of Product 2 will be mutually agreed to by the Parties,
based on market, cost and technical factors.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 13
EXHIBIT B
1) Extended will generally be responsible for firmware and software
development of the Joint Products.
2) EASi will generally be responsible for industrial and mechanical design of
the Joint Products and hardware integration and manufacturability of the
Joint Products.
3) Extended and EASi will jointly manage the development of the Joint
Products.
4) The Parties will share on a [*] basis the [*] related to the Joint
Products. Each Party shall bear its own cost for other contributions to
the develop effort. The Parties may elect to offset certain costs, upon
mutual agreement, for contributions outside their general areas of
responsibility.
5) Extended shall have the right to purchase from EASi mutually-developed
plastics at cost plus [*]% of the tooling amortization, for use with its
JetEye products and future derivatives.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 14
EXHIBIT C
DEVELOPMENT SCHEDULE
The Parties will use all commercially reasonable efforts to prepare a
mutually acceptable development schedule as soon as practicable after the date
hereof.
<PAGE> 15
EXHIBIT D
Extended shall not sell any EASi Products to the following:
1. [*]; or
2. [*].
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 16
EXHIBIT E
EXAMPLE OF EASI IR PRODUCT SALE
PRICE TO EXTENDED SYSTEMS, INC.
[*] $[*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 17
EXHIBIT F
NORTH AMERICA ONLY
EASi shall not sell any Extended or Joint Products to any of the
following:
[*]
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 18
EXHIBIT G
LICENSED TECHNOLOGY
Extended, through this agreement, grants to EASi a royalty-bearing,
non-exclusive, limited transferable right to use Licensed Technology for the
purposes described in Section 2.2.
The Licensed Technology includes the following elements:
- [*]
- [*]
- [*]
- [*]
- [*]
- [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 19
FIRST AMENDMENT
TO
SALES, LICENSE AND NONCOMPETITION AGREEMENT
THIS FIRST AMENDMENT TO SALES, LICENSE AND NONCOMPETITION AGREEMENT (the
"Amendment"), dated as of December 24, 1996, is entered into by and between
Electronics Accessory Specialists International, Inc., a Delaware corporation
("EASi"), and Extended Systems Incorporated, a Delaware corporation
("Extended"). Capitalized terms used herein but not defined herein shall have
the respective meanings ascribed to them in the Agreement (as defined below).
WITNESSETH:
WHEREAS, Extended and Electronics Accessory Specialists International,
L.L.C., a Delaware limited liability company, which has been merged with and
into EASi, are parties to that such Sales, License and Noncompetition Agreement,
dated as of June 14, 1996 (the "Agreement");
WHEREAS, the parties hereto desire to amend the Agreement to the extent
provided herein; and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
A. Amendment to Regulations. The Agreement is hereby amended as
follows:
(1) Section 1.2 shall apply to EASi Networking Products to the
same extent as it applies to other EASi Products, except that for EASi
Networking Products the multiplier shall be [*]%, instead of [*]%.
(2) Subsection (a) of Section 2.1 of the Agreement is hereby
amended to read in its entirety as follows:
"(a) IR Products. The "EASi IR Products" shall be the EASi
developed, licensed or otherwise acquired equipment and products
which incorporate the Licensed Technology pertaining or related to
the technology described in Exhibit G attached hereto and are
marketed and distributed by EASi through any of its distribution
channels."
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 20
(3) Subsection (b) of Section 2.1 of the Agreement is hereby
amended to read in its entirety as follows:
"(b) Licensed Technology. The "Licensed Technology" consists
of the infrared and networking technologies developed by Extended
and described in the specifications attached hereto as Exhibits G
and H, respectively, and any and all Extended-developed additions,
improvements, innovations, enhancements, modifications, variations,
changes or the like of or related in any way to the technologies
described in Exhibits G and H (now or in the future)."
(4) A new subsection (c) is hereby added to Section 2.1 of the
Agreement, which subsection shall read in its entirety as follows:
"(c) Networking Products. The EASi Networking Product(s)
shall be the EASi developed, licensed or otherwise acquired
equipment and products which incorporate the Licensed Technology
pertaining or related to the technology described in Exhibit H
attached hereto and are marketed and distributed by EASi through any
of its distribution channels."
(5) Section 2.2 of the Agreement is hereby amended to read in its
entirety as follows:
"2.2 License Grants. Extended hereby grants to EASi a royalty
bearing, non-exclusive, limited transferable (i.e., transfer shall
be limited to entities controlled by, controlling or under the
control of EASi), [*], to use, [*] and incorporate the Licensed
Technology into EASi IR Products and EASi Networking Products, and
to manufacture, distribute and sell products which incorporate the
Licensed Technology."
(6) The second sentence of Section 2.3 of the Agreement is hereby
amended to read in its entirety as follows:
"Except for the license granted hereunder, all rights, title
and interest in the Licensed Technology, the specifications
(Exhibits G and H), and updates, developments, enhancements or
modifications thereto made by Extended shall at all times remain
with Extended."
(7) EASi agrees to pay to Extended royalty payments on EASi
Networking Products equal to [*] percent ([*]%) of the sale price actually
received by EASi (net of returns and allowances) of such sold EASi
Networking Products; provided, however, that [*] with respect to sales of
EASi Networking Products [*]. The payment of royalties for EASi Networking
Products shall be the same as that provided for in subsections 2.10(b) and
(c) of the Agreement for EASi IR Products.
[*] CONFIDENTIAL TREATMENT REQUESTED
-2-
<PAGE> 21
(8) Subsections 2.4(b), 2.6(b), 4.1(a) and 4.1(b) of the Agreement
are hereby amended to include the EASi Networking Products to the same
extent as the EASi IR Products are included in such subsections.
(9) A new Exhibit H is hereby added to the Agreement, which
Exhibit H is attached hereto as Exhibit H.
(B) Miscellaneous.
(1) This Amendment shall be governed by the laws of the State of
Delaware.
(2) Except as specifically provided herein, the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC.
By: /s/ Charles R. Mollo
-------------------------------------------
Charles R. Mollo,
Chief Executive Officer
EXTENDED SYSTEMS INCORPORATED
By: /s/ Holmes Lundt
-------------------------------------------
Title: Vice President, Business Development
----------------------------------------
-3-
<PAGE> 22
EXHIBIT H
LICENSED TECHNOLOGY
Extended, through this agreement, grants to EASi a royalty-bearing,
non-exclusive, limited transferable right to use Licensed Technology in EASi
docking products (EASi Networking Products). This license is restricted to use
exclusively with the EASi networked docking products.
The Licensed Technology includes all of the following elements:
- [*]
- [*]
- [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 1
EXHIBIT 10.17
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
THIS OEM PURCHASING AGREEMENT ("Agreement"), dated as of August 14, 1997 is by
and between Apexx Technology, Inc. ("Apexx"), an Idaho corporation having a
principal place of business at 506 S. 11th Street, Boise, ID, USA and Extended
Systems Incorporated, a Delaware corporation ("ESI") having a principal place of
business at 5777 North Meeker Avenue, Boise, Idaho 83713. Apexx and ESI are each
a "Party" and are sometimes collectively referred to herein as the "Parties".
RECITALS
WHEREAS, ESI desires to buy from Apexx, and Apexx desires to sell to ESI
certain products manufactured by or for Apexx, subject to the terms and
conditions of this Agreement;
NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged and agreed, the parties hereto hereby agree as
follows:
1. Purchase of Products by ESI from Apexx.
(a) Purchase Rights. ESI shall, subject to the terms and
conditions set forth in this agreement, purchase Apexx
products as specified in Exhibit A ("Products"). ESI expressly
reserves the right to purchase similar products from other
vendors or to develop competitive products itself.
(b) New Product Notification. Apexx shall give to ESI thirty (30)
days notification prior to commercial shipment of any new
products offered by Apexx. Apexx and ESI will negotiate in
good faith to add additional Products to this Agreement by
addendum to Exhibit A. The Products are "original equipment
manufacturer" products, which will be sold by ESI. If Apexx
develops any product that is more efficient or less expensive
than the comparable product available under this Agreement,
ESI may substitute the newer Product for the comparable
Product for all subsequent purchases under this Agreement.
(c) Replacement Parts. ESI may also, pursuant to this Agreement,
purchase replacement parts, components, and documentation for
the Products (collectively "Parts") from Apexx at current
reasonable pricing provided by Apexx.
(d) Purchase Orders. ESI will submit to Apexx from time to time
purchase orders for Products (each, an "ESI Purchase Order" or
collectively "ESI Purchase Orders"), with all such ESI
Purchase Orders governing the specific terms and conditions of
such order, however, if a conflict arises between the terms of
any ESI Purchase Order and the terms of this Agreement, the
terms of this Agreement shall be given effect as to such
conflict and not the terms of such ESI Purchase Order, unless
agreed to in writing by both Parties.
(e) Manufacture of Products. All Products and Parts shall be new,
and shall be manufactured in accordance with the Product
specifications as stated in Exhibit A.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 2
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
(f) Order Placement and Delivery. Each delivery of Products or
Parts shall be initiated by a written or electronic Purchase
Order issued to Apexx by ESI. ESI agrees to furnish
instructions in writing to Apexx with regard to shipment and
delivery of Products. Apexx shall provide ESI with
acknowledgments of ship dates by facsimile within [*] ([*])
working days after receipt of Purchase Order. Likewise Apexx
shall provide ESI with notice of shipment by facsimile at
least [*] ([*]) working days in advance of such shipment. In
the event of a material, labor, or capacity shortfall which
may hinder shipment delivery dates of Products on ESI Purchase
Orders, said Products on Purchase Orders that are within the
[*] shall take priority over deliveries to all other Apexx's
customers and all Products on Purchase Orders that are greater
than the [*] shall be allocated proportionally to all order
commitments. Apexx shall provide to ESI the necessary product
information and documentation for ESI to generate customs
documentation for each shipment sufficient to comply with the
requirements of the customs authorities of the country of
receipt.
(g) Forecasting, Lead-time and Inventory Stocking. ESI will
provide to Apexx a non-binding [*] ([*]) day rolling forecast
of expected purchases. It is ESI's intention to place Purchase
Orders [*] ([*]) days prior to delivery. ESI may without
charge, decrease, or increase, any order not less than [*]
([*]) days prior to the Product delivery date. All purchase
orders become non-cancelable and non- changeable at [*] ([*])
days or less prior to the scheduled Product delivery date
unless agreed upon by both parties. In the case of purchase
orders with a requested ship date of less than [*] ([*])
days Apexx shall make every reasonable effort to ship the
given order to ESI's scheduled delivery date. In the event
that Apexx can not meet the scheduled delivery date Apexx
shall make delivery no later than ([*])[*] working days from
the requested shipment date for all units that are within the
forecast for that month. Delivery will be made F.O.B. Apexx
factory. Apexx will drop ship for ESI shipments [*] as
requested by ESI, and will provide ESI with a copy of shipping
documentation by facsimile on the date such orders are
shipped. Apexx will furnish ESI with such additional
information, which may be reasonably required for ESI to prove
that delivery of drop ship orders has occurred. ESI and Apexx
shall jointly develop a mutually agreed upon procedure for
execution of drop shipments. Apexx agrees to stock unique
parts or have stocked on Apexx's behalf by others for ESI
Products described in Exhibit A equal to [*] days supply of
the prior three month average daily sales rate or of the
forecasted next three month average daily sales rate whichever
is higher.
(h) Packaging. Apexx shall preserve, package, handle and pack all
Products so as to protect the Products from loss or damage, in
conformance with good commercial practice, ESI specifications,
government regulations, and other applicable standards. ESI
shall review and approve the Product packaging and packaging
procedures provided by Apexx. Apexx shall not change any
Product packaging without first obtaining written approval
from ESI prior to shipment of Product with any changed
packaging. Apexx shall be liable for any loss or damage due to
its failure to properly preserve, package, handle, or pack
Products; ESI shall not be required to assert any claims for
such loss or damage against the common carrier involved.
Apexx's liability in this paragraph is limited to the
replacement of loss or damaged products.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 3
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
(i) Country of Manufacture. Upon ESI's request, Apexx shall
provide ESI with an appropriate certification stating the
country of origin for Products and parts, sufficient to
satisfy the requirements of the customs authorities of the
country of receipt, and any applicable export licensing
regulations, including those of the United States. Apexx shall
mark each Product or the container if there is no room on the
Product, with the country of origin.
(j) Design Changes. Apexx may not modify any Products purchased
under this Agreement in any way that affects the Product's
form or function without prior written approval from ESI.
Apexx shall submit to ESI reasonable technical information
regarding such modification at least [*] ([*]) days prior to
implementing the modification, for approval by ESI. ESI may
suggest product improvements, bug fixes and customer
suggestions which Apexx shall respond to within [*] ([*]) days
with a written plan of action. Apexx reserves the right to
source components incorporated in the Product(s) from multiple
vendors, provided similar functional specifications, quality,
and qualification by Apexx. ESI may review and suggest changes
to material or vendor qualification programs used by Apexx to
select components used in the Products.
(k) Territory. ESI will have the right to sell the products listed
in Exhibit A worldwide through all ESI sales channels and
distribution.
(l) Export Regulations. ESI shall not export or re-export products
described in Exhibit A, directly or through others, to the
prescribed countries listed in Section 379.4 and associated or
successor sections of the U.S. Export Administration
Regulations unless properly authorized by the U.S. Government.
ESI agrees to indemnify Apexx for such violations of the
Export Administration Regulations.
2. Pricing of Apexx Products.
(a) Pricing and Price Changes. ESI agrees to purchase Apexx
products listed in Exhibit A, packaging, individual product
protective packaging, manuals, documentation, and auxiliary
components as may be required, from Apexx, at the prices
specified in Exhibit B ("Pricing") attached hereto, F.O.B.
factory. Apexx shall review with ESI the Product pricing on a
quarterly basis, at which time Apexx shall subsequently [*] on
the Product with ESI. Price reductions that are put into
effect by mutual agreement of both Parties shall apply to all
Purchase Orders issued by ESI after the date of such price
reductions and to all orders scheduled to ship. Apexx reserves
the right to increase prices upon [*] days ([*]) written
notice to ESI, if Apexx can document to ESI that the total
cost of components used in the given Product has increased
more than [*]%. Price increases that are put into effect by
mutual agreement of both Parties shall apply to all Purchase
Orders issued by ESI [*] ([*]) days after the notice date of
such changes. All price changes shall be effected by addendum
to Exhibit B reflecting the new pricing. In all cases Apexx
shall sell to ESI, Products [*].
ESI and Apexx agree to negotiate in good faith NEW pricing
following any ninety (90) day period that ESI's purchases
equal more than [*] ([*]) units.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 4
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
(b) Terms of payment. Terms for any purchase order shall be [*]%
net [*] ([*]) days, net [*] ([*]) days. Apexx shall invoice
ESI no earlier than the applicable shipping date for the
Products covered by such invoice. Invoices shall be
accompanied by proof of shipment. These terms of payment shall
be reflected on all invoices.
(c) Long Shipments. If Apexx ships more products than ordered, the
amount of the over shipment may either be kept by ESI for
credit against future Orders or returned to Apexx at Apexx's
expense.
(d) Short Shipments. Apexx shall grant a credit to ESI for any
short shipments claimed by ESI's customers on drop shipments
from Apexx, upon verification by Apexx.
3. Quality and Warranty
(a) Quality. Apexx shall maintain an objective quality program for
all Products and Parts supplied pursuant to this Agreement.
Upon ESI's request Apexx shall furnish related documents as
ESI reasonably requests concerning quality assurance. Apexx
shall maintain a quality standard defined as follows on
hardware/component related, out of box, Apexx shall verify
failures on a quarterly basis:
aa) System hardware defect level(s) not to exceed [*] PPM.
((The number of defective products/The number of products
delivered)*[*])
ab) An initial Annualized Failure Rate (AFR) rolling [*]
month target not to exceed [*]% with reaching an
established goal of <=[*]% within [*] months
((((The number of failures in the past three months/The number
of units under warranty)*[*])/[*])*[*])
Failure to meet the aforementioned established quality goals
shall be cause for written explanation /corrective action to
ESI as part of an ongoing compliant quality assurance and
corrective action program.
ESI shall have the right to inspect, with 2 working days
advance notification, at Apexx's facilities, and any vendor or
supplier components and the manufacturing processes used by
Apexx for those components in ESI product.
ESI's inspection may be for any reason reasonably related to
this Agreement, including to assure Apexx's compliance with
ESI's requirements. Apexx shall perform final test and
inspection of the products and certify that all products
comply with the requirements in Exhibit A.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 5
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
(b) Limited Warranty. Apexx warrants its products to be free from
defects in material, workmanship and performance, under normal
use and service and that each Product shall perform or operate
in compliance with the specifications in Exhibit A for a
period of [*] ([*]) months (hereinafter "Warranty Period")
from the date the product is shipped from Apexx's factory.
Apexx warrants that all Products shall comply with all
applicable governmental certificates as noted in Exhibit A.
Apexx warrants its products in the event of an Epidemic
Failure, defined as any failure of a same or similar nature
which occurs to more than [*]% of an quarters population of
Products or Parts within [*] ([*]) years after the ship date
from Apexx's factory. Upon ESI's request, Apexx shall furnish
a Corrective Action Report on any failures or defects. Apexx
shall keep specific production information corresponding to
each product purchased by ESI for a period of [*] ([*]) years.
This information will include but is not limited to serial
number, component and assembly manufacturer, component and/or
assembly lot code information.
(c) Product Return Policies.
Warranty Return. In the case of any product, which is still
under Warranty, ESI may return the product to Apexx, and Apexx
shall replace or repair the warranted Product as it deems
appropriate. Apexx shall, at its own expense be responsible
for shipping expenses to return defective units, by Apexx
crediting ESI for the shipping expenses ESI incurred. All
returned products must have a valid Return Materials
Authorization issued by Apexx.
Epidemic Failure Return. ESI shall return such products to
Apexx for repair or replacement within ten (10) business days
of Apexx's receipt of such products. Apexx shall, at its own
expense be responsible for shipping expenses to return
defective units, by Apexx crediting ESI for the shipping
expenses ESI incurred.
Software/Firmware Updates and Repackaging Returns. ESI may
return products in quantities of [*] to Apexx for
refurbishment, including updates to the latest version of
Apexx's software/firmware. Apexx agrees to complete
refurbishment within [*] ([*]) business days of receipt of
such products. ESI shall be responsible for shipping charges
related to such returns. Apexx shall bear the expense of
refurbishment to the extent of [*] ([*]) percent of the
previous [*] months shipment of products to ESI. The parties
agree to negotiate in good faith if returns under this
paragraph exceed [*] ([*]) percent of the previous [*] ([*])
months purchases.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 6
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
4. Manufacturing Rights
ESI has the right to manufacture Apexx products in Exhibit A in the event
that APEXX defaults on the terms of this agreement and the default is not
corrected within [*] ([*]) days of receipt of written notice from ESI. In
the case the default is not corrected within the [*] ([*]) day period,
APEXX will deliver all necessary documentation to ESI for ESI to
manufacture Apexx products. APEXX shall provide the documentation and up
to [*] hours of consultation to ESI manufacturing representatives at no
cost to ESI to assure a smooth transition. Apexx may charge ESI at a rate
of $[*] per hour plus reasonable travel expenses for additional
consultation regarding manufacturing transition or ongoing manufacturing
support. APEXX shall not warranty hardware manufactured by ESI. In the
case of Apexx defaulting and ESI manufacturing Apexx products in Exhibit
A, ESI shall pay to Apexx or its successor a royalty of [*]% of ESI's
Average Selling Price per unit manufactured by ESI for a period of [*]
from date of notice. Said royalty is the total payment due to Apexx or its
successor for manufacturing rights and software licenses. In the case of
ESI manufacturing Apexx products under this paragraph ESI acknowledges
that title for Apexx's software does not transfer to ESI.
ESI and Apexx agree to investigate and negotiate in good faith to find the
most cost effective manufacturing option, following any ninety (90) day
period that ESI's purchases equal more than [*] ([*]) units.
5. Copyright and Grant Of License
Apexx grants ESI the right to license the Apexx software contained in the
products described in Exhibit A subject to the terms and conditions of
this Agreement. Apexx further grants to ESI, as long as ESI is in
compliance with this Agreement, a non-exclusive, non-transferable license
to use, sell, or otherwise distribute all software associated with APEXX's
products described in Exhibit A.
ESI acknowledges that the Apexx SOFTWARE which is licensed with the
PRODUCT is protected by copyright laws and international copyright
treaties, as well as other intellectual property laws and treaties. The
Apexx SOFTWARE includes the TEAMPage control interface, installation
utilities and system software, whether localized for ESI or not, which is
copyright Apexx Technology, Inc. The Apexx SOFTWARE is licensed to ESI and
it's customers, not sold.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 7
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
6. Technical Support ESI shall provide all end user technical support, and
Apexx shall have no responsibility for the same. In the event ESI is
unable to diagnose and resolve an issue, ESI's designated support liaison
for that area will escalate the technical support call to Apexx's
technical support liaison. Apexx shall provide secondary telephone support
to ESI's designated support liaison to assist in resolving escalated
support issues. Apexx will make every reasonable effort to resolve open
support calls within [*] ([*]) hours. ESI shall make every reasonable
effort to develop at least one competent support liaison personnel who are
proficient in support of the Apexx OEM Products under this Agreement. At
the discretion of both Apexx and ESI, Apexx may work on support issues
directly with either ESI distributor or end-user customer. Apexx will
maintain a support log of all open and closed calls and report to ESI on a
monthly basis the nature and resolution of any support calls escalated to
Apexx. Apexx will provide to ESI full access to support notes and
database, and application notes. Apexx will provide one initial support
training session at a mutually agreed upon time and place and a complete
training package for ESI support staff. Further, Apexx will provide one
support training session at a mutually agreed upon time and place per six
month period.
7. Private Labeling
Manuals and Literature
Apexx shall provide ESI with current electronic copies of product
manuals and all other literature needed for shipping of products.
Apexx shall also provide all future updates to product manuals
and literature thirty (30) days prior to incorporation into
shipping version of products. ESI or ESI designees will modify
the electronic copy and return to Apexx for review. Apexx shall
purchase, manage and source the printing of the manual and any
product literature which ships inside the Product package. Apexx
shall grant ESI the rights to copy and duplicate Apexx literature
in whole or part.
Installation and Utility software
Apexx will make all modifications needed to private label all
shipping Installation and Utility software.
TeamPage Modifications
Apexx shall provide ESI with current electronic copies of
TeamPage text conversion files and graphics files to be modified
by ESI or ESI designees to Apexx specifications. Resulting files
will be returned to Apexx for incorporation into shipping version
of product software.
8. Software Upgrades
Apexx shall maintain the software for the ESI-label Product consistent
with updates to Apexx versions of the Product including but not limited to
design improvements, feature enhancements, quarterly releases and bug
fixes. Apexx shall also make, at least quarterly, lists available to ESI
reflecting Apexx's requested product improvements, bug fixes and customer
suggestions.
9. Term and Termination
(a) Term. This Agreement shall commence on the date hereof and
shall continue for an initial term ending on the [*]
anniversary of the date of this Agreement; provided, however
that this agreement will automatically renew each year for an
additional one year unless either party provides written
notice to the other Party of such Party's desire to terminate
this agreement at the end of the applicable term at least
ninety (90) days prior to the expiration of the then
applicable term.
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 8
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
(b) Early Termination. If either Party fails to perform any of its
obligations provided in this Agreement and does not complete
its performance in spite of the other party's demand to do so,
the other Party may, without incurring any liability on its
part, terminate all or any part of this Agreement. In no event
shall either party terminate this Agreement unless written
notice detailing the non-performance is given to the other
Party. Thereafter, the other Party shall have thirty (30) days
to correct such non-performance.
(c) Bankruptcy. Except as may be prohibited by the U.S. bankruptcy
laws, in the event of any insolvency or inability to pay debts
as they become due by a party hereto, or voluntary or
involuntary bankruptcy proceeding by or against a party
hereto, or appointment of a receiver or assignee for the
benefit of creditors, the other party may elect to cancel any
unfulfilled obligations hereunder.
(d) Right of Succession. In the event of bankruptcy, insolvency,
or any other condition that leaves Apexx unable to continue to
reliably manufacture and support it's products. ESI shall have
the right to manufacture and maintain the products that
includes all software described in the product specification
Exhibit A to this agreement. If ESI manufactures the product
under this paragraph it shall pay to Apexx or its successor a
royalty of [*]% of [*] per unit ESI manufactures for a period
of [*] from the date of succession. Said royalty is the total
payment due to Apexx or its successor for manufacturing rights
and software licenses. The right of ESI under this paragraph
shall apply notwithstanding any other provision in this
agreement. Apexx shall maintain back-up source code, and
development environment tools in a mutually agreed to escrow
account for such purpose.
10. Risk of Loss.
The Parties agree that Apexx shall bear the loss for the destruction of
any completed or partially completed Products which may occur prior to
delivery thereof ("delivery" being defined as F.O.B. Apexx factory), and
that ESI shall bear the loss from the destruction or breakage of any
Products after F.O.B Apexx factory, unless such loss is occasioned by some
act or omission of duty on the part of Apexx, and subject, in any event,
to Section 1(h) above.
11. Strikes and Lockouts: Excuse for Nonperformance.
This Agreement is subject to strikes and lockouts or refusal of employees
to work. Impossibility of performance by reason of any legislative,
executive or judicial act of any government or state, any disaster or act
of God, or any other similar or dissimilar cause which cannot be prevented
by either Party or by the exercise of proper diligence, shall excuse
performance of this Agreement. Bankruptcy or insolvency of either Party
shall operate to cancel this Agreement and shall not operate as an
anticipatory breach thereof, and no rights by or against any trustee in
bankruptcy shall arise by reason of or under the terms of this Agreement
nor from any failure of either Party to continue to perform under this
Agreement after the filing of any petition in bankruptcy or insolvency.
The Parties agree that the Party who is unable to perform its obligations
hereunder because of any of the reasons set forth in this Section 9 shall
give prompt written notice to the other Party of such inability to
perform. Nothing in this paragraph shall alter or impair ESI's rights
under paragraph 9 (d).
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 9
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
12. Confidentiality.
The Parties hereby acknowledge and agree that this Agreement and the terms
of this Agreement and all Information furnished by either Party to the
other Party with respect to Products, any ESI furnished technical
information or Apexx furnished technical information, and other products
and product plans shall be deemed confidential (collectively the
"Confidential Matters"). As used herein, "Information" shall include all
information concerning the Confidential Matters, including without
limitation, all information, designs, drawings, plans, pricing,
specifications, patent applications, and all other information pertaining
or relating to the Confidential Matters. Each Party agrees that it will,
except as required by any state or federal regulations, keep all
Information and the terms and provisions of this Agreement confidential
and will not: (a) disclose or permit the disclosure of any of such
Information to any person or entity (including without limitation, any of
its employees, agents, representatives and affiliates, but not including
any employees of either Party on a need-to-know basis, but only after such
Party informs such employees of the existence of this confidentiality
provision); it being hereby agreed by each Party that they will each exert
reasonable efforts to insure that such employees comply with the terms of
this confidentiality provision); or (b) use or permit the use of the
Information in any way detrimental to the other Party. From time to time,
either Party may wish to publicly disclose the existence of this contract
for promotional, legal or other reasons. In such cases, a request will be
presented in written form to the other Party for approval of disclosure.
Such approval shall not be unreasonably withheld.
13. Indemnity.
(a) against any claims, demands, liabilities, or expenses
(including attorney's fees and costs) for any injury, damage,
or liability of any type including, but not limited to, any
personal or bodily injury or property damage, arising out of
or resulting in any way from any defect in Products. This duty
to indemnify ESI shall be in addition to the warranty
obligations of Apexx.
(b) Infringement Claims. Apexx shall defend, indemnify and hold
ESI harmless from and against all damages and costs incurred
by ESI arising from the infringement of any patents,
copyrights, trademarks, trade secrets, or other proprietary
rights in the manufacture of the Products; provided that, ESI
promptly notifies Apexx of the charge of infringement or legal
proceeding. If there is a claim made or threatened, Apexx may,
at its expense and option, either procure the right to
continue using any part of Product, replace same with a
non-infringing Product, or modify Product such that it is
non-infringing; provided that, if within ninety (90) days
after a claim has been made, Apexx has not procured such
right, replaced the Product, or modified the Product so that
it does not infringe, ESI may return the Product to Apexx for
a full credit against future purchases or for a cash refund,
at ESI's option. In addition, upon the written request of
Apexx, ESI shall immediately cease selling any Apexx Products
which may be the subject of indemnification under this Section
8.
<PAGE> 10
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
(c) Except to the extent Apexx is responsible for a claim under
the above subparagraphs of this paragraph 13, ESI shall
indemnify, hold harmless and at Apexx's request defend Apexx
from and against and any and all claims, liabilities, damages
and expenses (including the actual fees of attorneys and other
professionals and all related costs and expenses) arising out
of or in connection with ESI's false or fraudulent use,
reproduction, representations or distribution of the software
and Products in Exhibit A.
14. [*] Reporting
ESI shall provide quarterly product [*] reports indicating [*] the
Products shipped, whether under OEM purchase or manufacturing
license, subtotaled by [*], for any [*] requested by Apexx. Apexx
shall handle this information as ESI company confidential.
15. Taxes
ESI will not hold Apexx responsible for export duties or export
taxes, which may be assessed with regard to the Products, sold and
licensed under this Agreement.
16. Miscellaneous.
(a) Parties in Interest. This Agreement and all terms, covenants
and conditions contained herein shall inure to the benefit of and
shall be binding upon the undersigned Parties and their respective
heirs' executors, administrators, trustees, successors and assigns.
Neither Party may assign or transfer any of its rights or
obligations hereunder without prior written consent of the other
Party, which consent shall not be unreasonably withheld; provided,
however, that any Party may assign this Agreement to any entity in
which such party has a controlling equity interest.
(b) Notices. All notices, requests, demands and other
communications hereunder shall be In writing and shall be deemed to
have been delivered on the date on which it is hand-delivered or
delivered by facsimile, or on the third business day following the
date on which it is pulled, first-class, postage prepaid, and
registered or certified with return receipt requested, for purposes
of notice, the addresses of the parties shall be:
If to ESI: Extended Systems, Inc.
5777 North Meeker Avenue
Boise, Idaho 83713
Robert G. Hamlin, Corporate Counsel
Ph: 208/322-7575
Fx: 208/327-5011
with copy to Extended Systems, Inc.
5777 North Meeker Avenue
Boise, Idaho 83713
Karla K. Rosa, CFO
Ph: 208/322-7575
Fx: 208/327-5011
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 11
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
If to Apexx: Apexx Technology, Inc.
506 S 11th Street
Boise, ID 83702
Attention: President
Ph: 208/336-9400
Fx: 208/336-9445
Any Party may change its address for notice by written notice given to the other
Party in accordance with this Section.
(c) Survival. Any debts, obligations, covenants or liabilities
accrued hereunder between the Parties hereto shall survive the
expiration or termination of this Agreement for whatever
reason.
(d) Entire Agreement. This Agreement constitutes the entire
agreement between the Parties regarding the subject matter
hereof and supersedes all prior agreements and understandings,
both written and oral, between the Parties with respect to the
subject matter hereof. Each of the Parties agrees to take such
actions as may be necessary or desirable to implement and
retain the intent and spirit of this Agreement, and omit to
take such actions which could hinder the furtherance of such
intent and spirit.
(e) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws
effective during the term, such provision shall be fully
severable and this Agreement shall be construed and enforced
as if such illegal invalid or unenforceable provision never
comprised a part hereof, and the remaining provisions hereof
shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or
by its severance here from. Furthermore, in lieu of such
illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement a provision as
similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and
enforceable.
(f) Governing Law. Any dispute regarding the enforcement,
interpretation or validity of this Agreement shall be governed
by the laws of the State of Idaho. The parties hereby agree
that any dispute relating to the products sold hereunder in
this Agreement shall be subject to the exclusive jurisdiction
of the courts within the State of Idaho, unless otherwise
mutually agreed to in writing by the Parties..
(g) Heading. The headings in the Agreement are for convenience of
reference only and shall not be limit or otherwise affect the
meaning of this Agreement.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and
all of this shall constitute one and the same instrument by
only one of which need be produced.
(i) Attorney Fees. In the event of litigation between the Parties
arising out of this agreement, the prevailing Party shall be
entitled to reasonable attorney fees from the non prevailing
Party.
<PAGE> 12
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
EXECUTED as of the date first above written.
EXTENDED SYSTEMS INCORPORATED.
By: /s/ Steven D. Simpson
----------------------------------------
Title: CEO/ President
-------------------------------------
Witness: /s/ Frank Mason
-----------------------------------
APEXX TECHNOLOGY INCORPORATED
By: /s/ Tom Loutzenheiser
----------------------------------------
Title: President
-------------------------------------
Witness: /s/ John Hanousek
-----------------------------------
<PAGE> 13
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
EXHIBIT A
PRODUCT SPECIFICATIONS AND MODEL OPTIONS
Specifications.
Overview.
Product is to be an Extended Systems OEM version of Apexx's Team
Internet product. The product will be identified as Extended
System's "ExtendNet Internet Access Server" or "ExtendNet IAS".
All software, product enclosures, manuals, labeling, packaging
and product references will identify it as such. ExtendNet IAS
models include System Hardware, System Software, and Client
Software and Model Options as listed.
Hardware.
System Hardware.
[*]
Packaging and Miscellaneous Parts.
Packaging
External Box for protection of Internal Box during shipment
Internal Box
Internal Tray
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 14
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
External and Internal Box Labels with Serial Number Labels
Protective Anti-Static bag for case
Foam Packaging Materials for product shipping protection
Miscellaneous Parts
TCP/IP Installation disk for Windows 3.1 Users (ESI
version)
Manual
Quick Install
Warranty Card with Model Number label
Software.
All software has an unlimited user license.
System Software.
[*]
Client Software.
Utility Software
[*]
3rd Party Software
Microsoft Internet Mail for Windows users
Microsoft Internet News for Windows users
Microsoft Internet Explorer v3.0 for Windows users
TCP/IP for Windows 3.x Users
Features
Dial Management
[*]
Mail Server (POP3/SMTP)
Supported Mail Delivery Schemes
[*]
DHCP Server
Security Firewall
[*]
Remote Technical Support
Allows Software Upgrades from Internet FTP Site
Supported Clients
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 15
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
Windows v3.x
Windows for Workgroups
Windows 95
Windows NT
Apple Macintosh System 7 or higher MacOS (MacTCP or Apple
Open Transport) DOS-based TCP/IP applications All UNIX
variants with TCP/IP support
Client Status Utility for Windows Clients
monitor TEAM Internet's status
connection status
users connected
data transfer speeds
Supported Clients
Windows v3.1
Windows for Workgroups
Windows 95
Windows NT
Networks Supported
Novell NetWare 3.x and 4.x, running TCP/IP protocol along
with IPX Microsoft Windows NT, Windows 95, and Windows for
Workgroups networks Windows peer-to-peer and Windows NT
server-based networks MacOS with TCP/IP support (MacTCP or
Apple Open Transport)
Model Options
<TABLE>
<CAPTION>
Power
Model Number Internal Card Options Cord Notes
- ---------------------------------- ------------------------------- ---------- ---------
ESI Apexx Communications Network
- -------------------- ------------ ----------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1200A-N1-I1-EUR/GRM [*] Euro-ISDN 10Mbs Combo EUR
1200A-N1-I1-UK [*] Euro-ISDN 10Mbs Combo UK
1200A-N1-I1-AUS [*] Euro-ISDN 10Mbs Combo AUS
1200A-N2-I1-EUR/GRM [*] Euro-ISDN 10/100 EUR
1200A-N2-I1-UK [*] Euro-ISDN 10/100 UK
1200A-N2-I1-AUS [*] Euro-ISDN 10/100 AUS
1200A-N1-I3-JP [*] NTT-ISDN 10Mbs Combo JP
1200A-N2-I3-JP [*] NTT-ISDN 10/100 JP
1200A-N1-M1-GRM [*] 33.6K GR 10Mbs Combo EUR
1200A-N1-M2-GRM [*] 56K x2 GR 10Mbs Combo EUR
1200A-N1-M3-GRM [*] 56K flex GR 10Mbs Combo EUR
1200A-N2-M1-GRM [*] 33.6K GR 10/100 EUR
1200A-N2-M2-GRM [*] 56K x2 GR 10/100 EUR
1200A-N2-M3-GRM [*] 56K flex GR 10/100 EUR
1200A-N1-M1-UK [*] 33.6K UK 10Mbs Combo UK
1200A-N1-M2-UK [*] 56K x2 UK 10Mbs Combo UK
1200A-N1-M3-UK [*] 56K flex UK 10Mbs Combo UK
1200A-N2-M1-UK [*] 33.6K UK 10/100 UK
1200A-N2-M2-UK [*] 56K x2 UK 10/100 UK
1200A-N2-M3-UK [*] 56K flex UK 10/100 UK
</TABLE>
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 16
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
<TABLE>
<S> <C> <C> <C> <C> <C>
1200A-N1-M1-SW [*] 33.6K SW 10Mbs Combo EUR
1200A-N1-M2-SW [*] 56K x2 SW 10Mbs Combo EUR
1200A-N1-M3-SW [*] 56K flex SW 10Mbs Combo EUR
1200A-N2-M1-SW [*] 33.6K SW 10/100 EUR
1200A-N2-M2-SW [*] 56K x2 SW 10/100 EUR
1200A-N2-M3-SW [*] 56K flex SW 10/100 EUR
1200A-N1-C0-EUR [*] None 10Mbs Combo EUR
1200A-N1-C0-UK [*] None 10Mbs Combo UK
1200A-N1-C0-AUS [*] None 10Mbs Combo AUS
1200A-N1-M1-AMR [*] 33.6K AMR 10Mbs Combo AMR
1200A-N1-M2-AMR [*] 56K x2 AMR 10Mbs Combo AMR
1200A-N1-M3-AMR [*] 56K flex AMR 10Mbs Combo AMR
1200A-N2-M1-AMR [*] 33.6K AMR 10/100 AMR
1200A-N2-M2-AMR [*] 56K x2 AMR 10/100 AMR
1200A-N2-M3-AMR [*] 56K flex AMR 10/100 AMR
1200A-N1-I2-AMR [*] Ext. AMR ISDN 10Mbs Combo AMR
1200A-N2-I2-AMR [*] Ext. AMR ISDN 10/100 AMR
1200A-N1-F1-AMR [*] 56K Frame AMR 10Mbs Combo AMR
1200A-N2-F1-AMR [*] 56K Frame AMR 10/100 AMR
</TABLE>
Communications Options
Euro-ISDN
NTT-ISDN
33.6K GR
56K x2 GR
56K flex GR
33.6K UK
56K x2 UK
56K flex UK
33.6K SW
56K x2 SW
56K flex SW
None
33.6K AMR
56K x2 AMR
56K flex AMR
Ext. AMR ISDN
56K Frame AMR
Network Options
10/100
10Mbs Combo
Power Cord Options
EUR
UK
AUS
AMR
JP
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 17
[EXTENDED SYSTEMS LOGO] OEM PURCHASING AGREEMENT
FOR
EXTENDNET INTERNET ACCESS SERVER
EXHIBIT B PRICING
<TABLE>
<CAPTION>
ESI Model # Apexx Model # OEM Price Notes
- ------------------------------ ------------- --------- --------------------------------
<S> <C> <C> <C>
1200A-N1-I1- [*] $[*]
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N2-I1- [*] $[*]
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N1-I3-JP [*] To be Negotiated at a later time
1200A-N2-I3-JP [*] To be Negotiated at a later time
1200A-N1-M1- [*] $[*]
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N2-M1- [*] $[*]
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N1-M2- [*] To be Negotiated at a later time
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N2-M2- [*] To be Negotiated at a later time
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N1-M3- [*] To be Negotiated at a later time
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N2-M3- [*] To be Negotiated at a later time
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N1-C0- [*] $[*] For Non-EU and Non-US sales
EUR/GRM/UK/AUS/FR/I/J/NL/SE/CH
1200A-N1-M1-AMR [*] $[*]
1200A-N2-M1-AMR [*] $[*]
1200A-N1-M2-AMR [*] $[*]
1200A-N2-M2-AMR [*] $[*]
1200A-N1-M3-AMR [*] $[*]
1200A-N2-M3-AMR [*] $[*]
1200A-N1-I2-AMR [*] $[*]
1200A-N2-I2-AMR [*] $[*]
1200A-N1-F1-AMR [*] $[*]
1200A-N2-F1-AMR [*] $[*]
</TABLE>
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 1
EXHIBIT 10.18
EXTENDED
SYSTEMS
AGREEMENT NO:
- --------------------------------------------------------------------------------
The Buyer named below agrees to purchase Extended Systems Incorporated (ESI)
products described in the attached Exhibit(s) subject to the following terms
and conditions.
PRICE
The price for products purchased hereunder for the initial contract period
shall be as set forth in the DEALER PRODUCT PRICING EXHIBIT plus applicable
taxes. Prices for subsequent contract years will be furnished to Buyer prior
to March 1 each year.
PAYMENT AND SECURITY TERMS
Buyer shall pay all invoices issued according to the credit terms specified on
each invoice calculated from the date of invoice and is subject to an overall
credit limit. ESI reserves the right to change the credit terms and credit
limit at anytime. A late payment is subject to a "FINANCE CHARGE" of 1 1/2%
per month which is an ANNUAL PERCENTAGE RATE of 18%. The finance charge is
computed by applying the periodic rate to the previous balance which is the
balance at the beginning of each billing cycle.
Should Buyer become delinquent in the payment of any sum due ESI, after ten
(10) days from the date of written notice to Buyer, ESI shall not be obligated
to continue performance under any agreement with Buyer.
DELIVERY AND TERM OF CONTRACT
Deliveries of products purchased under this agreement shall be initiated by
written orders. Orders for products must be received by ESI not more than one
hundred and eighty (180) days prior to Buyer's requested delivery dates. Each
order shall contain a reference to this agreement. Buyer shall issue orders
from one location within its organization to: P.O. Box 4937, Boise, ID 83711.
ESI shall make every reasonable effort to meet any delivery date(s) quoted or
acknowledged. However, ESI will not be liable for its failure to meet such
date(s).
This agreement shall have an initial term ending on_____________________ , and
shall renew automatically for additional one year periods. A new DEALER PRODUCT
PRICING EXHIBIT will be furnished to Buyer each year prior to March 1. Either
Buyer or ESI may, without cause, terminate this agreement at any time upon
thirty days prior written notice to the other party provided, however, that this
shall not affect any order received prior to termination.
SHIPMENT - RISK OF LOSS AND PACKING
Products are shipped FOB Boise, Idaho. Title and risk of loss and damage shall
pass to Buyer when the product leaves the ESI plant. All products shall be
packed, if appropriate, for shipment and storage in accordance with standard
commercial practices.
<PAGE> 2
ORDER OF PRECEDENCE
These Terms and Conditions of Sale and any attachments take precedence over
Buyer's additional or different terms and conditions. Acceptance by Buyer is
limited to these terms and conditions including all Exhibits and Attachments.
Buyer's purchase of ESI's products hereunder represents acceptance of these
Terms and Conditions of Sale and all Exhibits and Attachments, which together
constitute the entire understanding between the parties and supersede any
previous communications, representations, or agreements by either party whether
verbal or written. No change or modification of any of the terms or conditions
herein shall be valid or binding on either party unless in writing and signed
by an authorized representative of each party.
CHANGES, CANCELLATIONS, DAMAGES AND RETURNS
If Buyer cancels an order for Products any time after the order is received by
ESI, Buyer may be subject to additional charges for damages in accordance with
provisions in the Idaho Uniform Commercial Code.
Returns of Products will be accepted in accordance with the provisions of the
STOCK BALANCING EXHIBIT.
ACCEPTANCE OF PRODUCTS
Acceptance shall be accomplished by using applicable test procedures or
programs established by ESI.
PATENT AND COPYRIGHT INDEMNITY
ESI shall, except as otherwise provided below, defend or settle any claim made
or any suit or proceeding brought against Buyer so far as it is based on an
allegation that any product furnished hereunder infringes a patent or copyright
of the country in which Buyer takes delivery of said product, if notified
promptly in writing and given information, assistance and the sole authority to
defend or settle same at ESI's expense, and ESI shall pay all damages and costs
finally awarded therein against Buyer. In case said product is determined by
court decree to infringe and the use of said product is enjoined, or in the
case of a settlement as referred to above, ESI shall have the option, at its
own expense, to procure for Buyer the right to continue using said product; or
replace same with a non-infringing product; or modify same so it becomes
non-infringing; or refund the depreciated value of said product and accept
return of same. ESI shall have no liability for any infringement of patents,
copyrights, trademarks or other intellectual property rights resulting from
compliance with Buyer's designs, specifications, or instructions; from
modification of said product; from use of said product other than as specified
in relevant ESI publications or from use of said product with products not
supplied by ESI, and Buyer shall indemnify and hold ESI harmless from any such
liability.
The foregoing states the entire liability of ESI for infringement of
intellectual property rights by products furnished hereunder.
COPYRIGHTED MATERIALS
Unless otherwise agreed to in writing by ESI, copyrighted materials may not be
copied except for archive purposes, to replace a defective copy, or for program
error verification.
<PAGE> 3
WARRANTY
The warranty for products purchased hereunder shall be as set forth in the
WARRANTY EXHIBIT.
THE WARRANTY SET FORTH IN THE WARRANTY EXHIBIT IS EXCLUSIVE AND NO OTHER
WARRANTY, WHETHER WRITTEN OR ORAL, IS EXPRESSED OR IMPLIED. ESI SPECIFICALLY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
LIMITATION OF REMEDIES AND LIABILITY
THE REMEDIES PROVIDED IN THIS AGREEMENT ARE BUYER'S SOLE AND EXCLUSIVE
REMEDIES. IN NO EVENT SHALL ESI BE LIABLE FOR DIRECT, INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS) WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY.
MISCELLANEOUS
a. Except as may be prohibited by the U.S. bankruptcy laws, in the event
of any insolvency or inability to pay debts as they become due by a
party hereto, or voluntary or involuntary bankruptcy proceeding by or
against a party hereto, or appointment of a receiver or assignee for
the benefit of creditors, the other party may elect to cancel any
unfulfilled obligations hereunder.
b. Any required notices shall be given in writing at the address of each
party set forth, or to such other address as either party may
substitute by written notice to the other.
c. Neither party may assign or transfer any of the rights, duties, or
obligations herein, without the prior written consent of the other,
and any purported attempt to do so shall be null and void.
d. ESI's failure to exercise any of its rights hereunder shall not
constitute or be deemed a waiver or forfeiture of such rights.
e. No U.S. Government Procurement Regulations or comparable state
government regulations shall be included hereunder and binding on
either party unless specifically agreed to in writing prior to
incorporation herein.
f. Stenographical, typographical and clerical errors are subject to
correction.
g. Unless otherwise agreed to by ESI, Buyers who export from the U.S.
products purchased hereunder assume all responsibility for obtaining
any required export authorizations. Buyer shall not export or
re-export technical data supplied by ESI, directly or through others,
or the direct product of such data, to the prescribed countries listed
in Section 379.4 and associated or successor sections of the U.S.
Export Administration Regulations unless properly authorized by the
U.S. Government.
<PAGE> 4
h. Any dispute regarding the enforcement, interpretation or validity of
this Agreement shall be governed by the laws of the State of Idaho.
The parties hereby agree that any dispute relating to the products
sold hereunder in this Agreement shall be subject to the exclusive
jurisdiction of the courts within the State of Idaho.
Buyer: __________________________________________________________________
Dated this ____________ day of _________________________, 19______.
___________________________________________________________________
Signature of Authorized Representative
Company Name:
Name:
Title:
Address:
Extended Systems Incorporated
Dated this ____________ day of _________________________, 19______.
___________________________________________________________________
Signature of Authorized Representative
Name: Karla K. Rosa
Title: Contract Administrator
Address: 5777 N. Meeker Avenue
Boise, ID 83713 USA
List of Exhibits:
Dealer Product Pricing Exhibit
Stock Balancing Exhibit
Market Development Funds Exhibit
Warranty
<PAGE> 5
DEALER PRODUCT PRICING EXHIBIT
- --------------------------------------------------------------------------------
This Dealer Product Pricing Exhibit to the Purchase Agreement between Extended
Systems Incorporated (ESI) and (Buyer) is effective upon receipt of signed
contract and expires on .
ANNUAL DOLLAR VOLUME COMMITMENT
The contract discount percentage is based upon a minimum annual dollar volume
purchase forecast of $ at ESI List prices.
DISCOUNT SCHEDULE
<TABLE>
<CAPTION>
========================================================================================================
Annual Dollar Volume Commitment Contract Discount
========================================================================================================
<S> <C>
$ 25,000.00 to $ 99,999.99 37%
- --------------------------------------------------------------------------------------------------------
$ 100,000.00 to $ 249,999.99 39%
- --------------------------------------------------------------------------------------------------------
$ 250,000.00 to $ 749,999.99 40%
- --------------------------------------------------------------------------------------------------------
$ 750,000.00 to $ 1,999,999.99 41%
- --------------------------------------------------------------------------------------------------------
$ 2,000,000.00 and above 42%
- --------------------------------------------------------------------------------------------------------
</TABLE>
ESI RESERVES THE RIGHT TO MODIFY THE DISCOUNT SCHEDULE UPON 30 DAYS WRITTEN
NOTICE IN THE EVENT THAT ESI CHANGES ITS OVERALL PRICING AND/OR DISCOUNT
POLICIES.
PRODUCTS AND PRICE
1. Buyer may purchase products appearing on ESI's U.S. Price List on the
date of receipt of Buyer's applicable purchase order. The price for
each product purchased shall be the price appearing on the Price List
less the appropriate discount which will be determined in accordance
with Buyer's annual dollar volume commitment (see above).
2. If Buyer orders and accepts delivery of Products in excess of Buyer's
annual dollar volume commitment during the contract year, Buyer shall
be granted discounts on the additional orders at the aggregate
quantity level achieved at the time each additional order is received
by ESI. The issuance of additional orders shall not reduce the price
of Products purchased prior to reaching the applicable quantity.
3. In the event of a price reduction, ESI will price protect Buyer for
all product shipped to Buyer within thirty (30) days prior to the
effective date of the price change that is still in Buyer's inventory
on the effective date of the price change. Buyer's account will be
credited with an amount, to be used for future purchases only, equal
to the difference between the old and the new net price. To receive
credit, Buyer will notify ESI of the number and type of products in
its inventory as of the effective date of price change, by providing a
copy of an inventory report with ESI's model number and serial number.
Buyer must notify ESI within thirty (30) days following the effective
date of the price change.
Buyer hereby certifies that:
1. The products purchased hereunder are for resale.
2. Buyer has a service organization currently supporting customers at a
satisfactory level.
3. Buyer has an outbound sales force.
4. Buyer will provide by the 10th of the following month a report showing
the number of units, by product number, sold the previous month and
the number of units, by product number, in Buyer's inventory at the
end of the previous month.
<PAGE> 6
STOCK BALANCING EXHIBIT
- --------------------------------------------------------------------------------
This Stock Balancing Exhibit to the Purchase Agreement between Extended Systems
Incorporated (ESI) and (Buyer) is effective upon receipt of signed contract and
expires on .
ESI will accept returns of standard ESI products in their unopened original
packaging without a restocking fee subject to the conditions that follow. ESI
will accept returns of discontinued products for thirty (30) days after notice
from ESI to Buyer of discontinuance. Returns of products more than one year
after their original purchase date and of "Special Order" products as
designated on the ESI U.S. Price List will not be accepted under these stock
balancing provisions. Aggregate returns of current and discontinued products
cannot exceed 5% of the amount purchased from ESI during the preceding quarter.
All returns must be accompanied by a purchase order for an equal or greater
dollar amount of ESI's products. Credits issued for such returns can only be
used for the purchase of other ESI products. All returns require a valid
Return Materials Authorization from ESI prior to the return and must be
returned to ESI on a freight prepaid basis. To be eligible for stock balancing
Buyer must provide ESI with monthly reports showing quantity of ESI products in
inventory. These reports should be sent to ESI Attention of Contract
Administration. Only stock that shows on these reports will be eligible for
stock balancing.
Returns of opened products, or products purchased more than one year ago, or of
any other items not permitted by the preceding paragraph are subject to a
standard restocking fee.
The following person is authorized to return product for stock balancing:
Name:_____________________________ Title:___________________________________
Phone #:__________________________
<PAGE> 7
MARKET DEVELOPMENT FUNDS EXHIBIT
- --------------------------------------------------------------------------------
This Market Development Funds Exhibit to the Purchase Agreement between Extended
Systems Incorporated (ESI) and (Buyer) is effective from upon receipt of signed
contract and expires on .
MARKET DEVELOPMENT FUNDS
Buyer will be granted credit to its account for marketing programs approved in
advance by ESI if Buyer shows proof of the promotion of ESI's products in the
form of invoices and sample promotional materials. Such promotional materials
must contain ESI's logo and the product's name. Buyer's account will be
credited with an amount, to be used for future purchases only, equal to fifty
percent (50%) of complying invoiced promotion expense; however, in no case will
ESI issue credit for more than two percent (2%) of net shipments during the
calendar year. Claims for market development funds must be submitted to ESI
within 30 days of the promotion. Funds available are calculated on a calendar
year basis, and must be used no later than March 31 of the following calendar
year. If not used, funds do not carry forward to subsequent years.
ESI RESERVES THE RIGHT TO MODIFY THE TERMS AND CONDITIONS FOR USE OF MARKET
DEVELOPMENT FUNDS UPON 30 DAYS WRITTEN NOTICE.
<PAGE> 8
WARRANTY
- -------------------------------------------------------------------------------
HARDWARE WARRANTY
Hardware products are warranted for two (2) years from the purchase date of the
original product against defects in materials and workmanship. If ESI receives
notice of such defects during the warranty period, ESI will replace products
which prove to be defective. THIS IS AN EXCLUSIVE REMEDY AND ESI SHALL HAVE NO
LIABILITY OF ANY TYPE BEYOND REPAIR OR REPLACEMENT OF THE DEFECTIVE PRODUCT.
For product warranties requiring return to ESI, Buyer shall prepay shipping
charges (and shall pay all duties and taxes) for products returned to ESI for
warranty service. Except for products returned to Buyer from another country,
ESI shall pay for return of products to Buyer.
NO OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, ARE EXPRESSED OR IMPLIED. ESI
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
SOFTWARE WARRANTY
ESI does not warrant that the operation of software products (programs) will
meet the Buyer's requirements or be error free. The programs are provided "AS
IS" without warranty of any kind. The entire risk as to the quality and
performance of the programs is with the Buyer. If the programs prove defective
or inadequate, Buyer assumes the entire cost of service or repair and for any
damages caused by the defects. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND
THIS WARRANTY.
LIMITATION OF DAMAGES
The remedies set forth in the product warranty are the Buyer's sole and
exclusive remedies. In no event shall ESI be liable for direct, indirect,
special or consequential damages (including loss of profits), whether based on
contract, tort, or any other legal theory.
<PAGE> 1
EXHIBIT 10.19
EXTENDED
SYSTEMS
AGREEMENT NO:
- --------------------------------------------------------------------------------
The Buyer named below agrees to purchase Extended Systems Incorporated (ESI)
products described in the attached Exhibit(s) subject to the following terms
and conditions.
PRICE
The price for products purchased hereunder for the initial contract period
shall be as set forth in the DISTRIBUTOR PRODUCT PRICING EXHIBIT plus
applicable taxes. Prices for subsequent contract years will be furnished to
Buyer prior to March 1 each year.
PAYMENT AND SECURITY TERMS
Buyer shall pay all invoices issued according to the credit terms specified on
each invoice calculated from the date of invoice and is subject to an overall
credit limit. ESI reserves the right to change the credit terms and credit
limit at anytime. A late payment is subject to a "FINANCE CHARGE" of 1 1/2%
per month which is an ANNUAL PERCENTAGE RATE of 18%. The finance charge is
computed by applying the periodic rate to the previous balance which is the
balance at the beginning of each billing cycle.
Should Buyer become delinquent in the payment of any sum due ESI, after ten
(10) days from the date of written notice to Buyer, ESI shall not be obligated
to continue performance under any agreement with Buyer.
DELIVERY AND TERM OF CONTRACT
Deliveries of products purchased under this agreement shall be initiated by
written orders. Orders for products must be received by ESI not more than one
hundred and eighty (180) days prior to Buyer's requested delivery dates. Each
order shall contain a reference to this agreement. Buyer shall issue orders
from one location within its organization to: P.O. Box 4937, Boise, ID 83711.
ESI shall make every reasonable effort to meet any delivery date(s) quoted or
acknowledged. However, ESI will not be liable for its failure to meet such
date(s).
This agreement shall have an initial term ending on
, and shall renew automatically for additional one year
periods. A new DISTRIBUTOR PRODUCT PRICING EXHIBIT will be furnished to Buyer
each year prior to March 1. Either Buyer or ESI may, without cause, terminate
this agreement at any time upon thirty days prior written notice to the other
party provided, however, that this shall not affect any order received prior to
termination.
SHIPMENT - RISK OF LOSS AND PACKING
Products are shipped FOB Boise, Idaho. Title and risk of loss and damage shall
pass to Buyer when the product leaves the ESI plant. All products shall be
packed, if appropriate, for shipment and storage in accordance with standard
commercial practices.
<PAGE> 2
ORDER OF PRECEDENCE
These Terms and Conditions of Sale and any attachments take precedence over
Buyer's additional or different terms and conditions. Acceptance by Buyer is
limited to these terms and conditions including all Exhibits and Attachments.
Buyer's purchase of ESI's products hereunder represents acceptance of these
Terms and Conditions of Sale and all Exhibits and Attachments, which together
constitute the entire understanding between the parties and supersede any
previous communications, representations, or agreements by either party whether
verbal or written. No change or modification of any of the terms or conditions
herein shall be valid or binding on either party unless in writing and signed
by an authorized representative of each party.
CHANGES, CANCELLATIONS, DAMAGES AND RETURNS
If Buyer cancels an order for Products any time after the order is received by
ESI, Buyer may be subject to additional charges for damages in accordance with
provisions in the Idaho Uniform Commercial Code.
Returns of Products will be accepted in accordance with the provisions of the
STOCK BALANCING EXHIBIT.
ACCEPTANCE OF PRODUCTS
Acceptance shall be accomplished by using applicable test procedures or
programs established by ESI.
PATENT AND COPYRIGHT INDEMNITY
ESI shall, except as otherwise provided below, defend or settle any claim made
or any suit or proceeding brought against Buyer so far as it is based on an
allegation that any product furnished hereunder infringes a patent or copyright
of the country in which Buyer takes delivery of said product, if notified
promptly in writing and given information, assistance and the sole authority to
defend or settle same at ESI's expense, and ESI shall pay all damages and costs
finally awarded therein against Buyer. In case said product is determined by
court decree to infringe and the use of said product is enjoined, or in the
case of a settlement as referred to above, ESI shall have the option, at its
own expense, to procure for Buyer the right to continue using said product; or
replace same with a non-infringing product; or modify same so it becomes
non-infringing; or refund the depreciated value of said product and accept
return of same. ESI shall have no liability for any infringement of patents,
copyrights, trademarks or other intellectual property rights resulting from
compliance with Buyer's designs, specifications, or instructions; from
modification of said product; from use of said product other than as specified
in relevant ESI publications or from use of said product with products not
supplied by ESI, and Buyer shall indemnify and hold ESI harmless from any such
liability.
The foregoing states the entire liability of ESI for infringement of
intellectual property rights by products furnished hereunder.
COPYRIGHTED MATERIALS
Unless otherwise agreed to in writing by ESI, copyrighted materials may not be
copied except for archive purposes, to replace a defective copy, or for program
error verification.
<PAGE> 3
WARRANTY
The warranty for products purchased hereunder shall be as set forth in the
WARRANTY EXHIBIT.
THE WARRANTY SET FORTH IN THE WARRANTY EXHIBIT IS EXCLUSIVE AND NO OTHER
WARRANTY, WHETHER WRITTEN OR ORAL, IS EXPRESSED OR IMPLIED. ESI SPECIFICALLY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
LIMITATION OF REMEDIES AND LIABILITY
THE REMEDIES PROVIDED IN THIS AGREEMENT ARE BUYER'S SOLE AND EXCLUSIVE
REMEDIES. IN NO EVENT SHALL ESI BE LIABLE FOR DIRECT, INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS) WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY.
MISCELLANEOUS
a. Except as may be prohibited by the U.S. bankruptcy laws, in the event
of any insolvency or inability to pay debts as they become due by a
party hereto, or voluntary or involuntary bankruptcy proceeding by or
against a party hereto, or appointment of a receiver or assignee for
the benefit of creditors, the other party may elect to cancel any
unfulfilled obligations hereunder.
b. Any required notices shall be given in writing at the address of each
party set forth, or to such other address as either party may
substitute by written notice to the other.
c. Neither party may assign or transfer any of the rights, duties, or
obligations herein, without the prior written consent of the other,
and any purported attempt to do so shall be null and void.
d. ESI's failure to exercise any of its rights hereunder shall not
constitute or be deemed a waiver or forfeiture of such rights.
e. No U.S. Government Procurement Regulations or comparable state
government regulations shall be included hereunder and binding on
either party unless specifically agreed to in writing prior to
incorporation herein.
f. Stenographical, typographical and clerical errors are subject to
correction.
g. Unless otherwise agreed to by ESI, Buyers who export from the U.S.
products purchased hereunder assume all responsibility for obtaining
any required export authorizations. Buyer shall not export or
re-export technical data supplied by ESI, directly or through others,
or the direct product of such data, to the prescribed countries listed
in Section 379.4 and associated or successor sections of the U.S.
Export Administration Regulations unless properly authorized by the
U.S. Government.
<PAGE> 4
h. Any dispute regarding the enforcement, interpretation or validity of
this Agreement shall be governed by the laws of the State of Idaho.
The parties hereby agree that any dispute relating to the products
sold hereunder in this Agreement shall be subject to the exclusive
jurisdiction of the courts within the State of Idaho.
Buyer: __________________________________________________________________
Dated this ____________ day of _________________________, 19______.
___________________________________________________________________
Signature of Authorized Representative
Company Name:
Name:
Title:
Address:
Extended Systems Incorporated
Dated this ____________ day of _________________________, 19______.
___________________________________________________________________
Signature of Authorized Representative
Name: Karla K. Rosa
Title: Contract Administrator
Address: 5777 N. Meeker Avenue
Boise, ID 83713 USA
List of Exhibits:
Distributor Product Pricing Exhibit
Stock Balancing Exhibit
Market Development Funds Exhibit
Warranty
<PAGE> 5
DISTRIBUTOR PRODUCT PRICING EXHIBIT
- --------------------------------------------------------------------------------
This Distributor Product Pricing Exhibit to the Purchase Agreement between
Extended Systems Incorporated (ESI) and (Buyer) is effective upon receipt of
signed contract and expires on .
ANNUAL DOLLAR VOLUME COMMITMENT
The contract discount percentage is based upon a minimum annual dollar volume
purchase forecast of $____________________ at ESI List prices.
DISCOUNT PERCENTAGE
Buyer's discount percentage for the contract year will be_________________. As
consideration for this discount, Buyer agrees that:
1. The products purchased hereunder are for resale outside of North
America.
2. Buyer has primary responsibility for product technical support in
Buyer's market area and will maintain a technical support organization
serving customers at a satisfactory level.
3. Buyer will maintain sufficient inventory of ESI products offered for
sale to meet expected demand off the shelf and for immediate
replacement to Buyer's customers of failed units.
4. Buyer will offer Buyer's customers product warranties at least as good
as those offered directly by ESI and will administer warranty policy
in a manner consistent with ESI's warranty policies.
5. Buyer is responsible for product promotion and market development in
Buyer's market area.
ESI reserves the right to modify Buyer's discount percentage upon 30 days
written notice in the event that:
1. ESI or an agent of ESI other than Buyer, assumes primary
responsibility for technical support in Buyer's market area;
2. ESI or an agent of ESI other than Buyer, assumes responsibility for
maintaining off-the-shelf and replacement inventory in Buyer's market
area;
3. ESI or an agent of ESI other than Buyer, assumes responsibility for
promotion and/or market development in Buyer's market area; or
4. ESI changes its overall pricing and/or discount policies.
PRODUCTS AND PRICE
1. Buyer may purchase products appearing on ESI's U.S. Price List,
excluding Database Products, on the date of receipt of Buyer's
applicable purchase order. The price for each product purchased shall
be the price appearing on the Price List less the above discount
percentage.
2. If Buyer does not order at least one-third (1/3) of the Annual Dollar
volume commitment in the first six (6) months of the contract year,
ESI may terminate this contract.
3. In the event of a price reduction, ESI will price protect Buyer for
all product shipped to Buyer within thirty (30) days prior to the
effective date of the price change that is still in Buyer's inventory
on the effective date of the price change. Buyer's account will be
credited with an amount, to be used for future purchases only, equal
to the difference between the old and the new net price. To receive
credit, Buyer will notify ESI of the number and type of products in
its inventory as of the effective date of price change, by providing a
copy of an inventory report with ESI's model number and serial number.
Buyer must notify ESI within thirty (30) days following effective date
of price change.
<PAGE> 6
STOCK BALANCING EXHIBIT
- --------------------------------------------------------------------------------
This Stock Balancing Exhibit to the Purchase Agreement between Extended Systems
Incorporated (ESI) and (Buyer) is effective upon receipt of signed contract and
expires on _____________________.
ESI will accept returns of standard ESI products in their unopened original
packaging without a restocking fee subject to the conditions that follow. ESI
will accept returns of discontinued products for thirty (30) days after notice
from ESI to Buyer of discontinuance. Returns of products more than one year
after their original purchase date and of "Special Order" products as
designated on the ESI U.S. Price List will not be accepted under these stock
balancing provisions. Aggregate returns of current and discontinued products
cannot exceed 10% of the amount purchased from ESI during the preceding
quarter. All returns must be accompanied by a purchase order for an equal or
greater dollar amount of ESI's products. Credits issued for such returns can
only be used for the purchase of other ESI products. All returns require a
valid Return Materials Authorization from ESI prior to the return and must be
returned to ESI on a freight prepaid basis. To be eligible for stock balancing
Buyer must provide ESI with monthly reports showing quantity of ESI products in
inventory. These reports should be sent to ESI Attention of Contract
Administration. Only stock that shows on these reports will be eligible for
stock balancing.
Returns of opened products, or products purchased more than one year ago, or of
any other items not permitted by the preceding paragraph are subject to a
standard restocking fee.
The following person is authorized to return product for stock balancing:
Name:_____________________________ Title:___________________________
Phone #:____________________________
<PAGE> 7
MARKET DEVELOPMENT FUNDS EXHIBIT
- --------------------------------------------------------------------------------
This Market Development Funds Exhibit to the Purchase Agreement between Extended
Systems Incorporated (ESI) and__________________ (Buyer) is effective upon
receipt of signed contract and expires on .
MARKET DEVELOPMENT FUNDS
Buyer will be granted credit to its account for marketing programs approved in
advance by ESI if Buyer shows proof of the promotion of ESI's products in the
form of invoices and sample promotional materials. Such promotional materials
must contain ESI's logo and the product's name. Buyer's account will be
credited with an amount, to be used for future purchases only, equal to fifty
percent (50%) of complying invoiced promotion expense; however, in no case will
ESI issue credit for more than two percent (2%) of net shipments during the
calendar year. Claims for market development funds must be submitted to ESI
within 30 days of the promotion. Funds available are calculated on a calendar
year basis, and must be used no later than March 31 of the following calendar
year. If not used, funds do not carry forward to subsequent years.
ESI RESERVES THE RIGHT TO MODIFY THE TERMS AND CONDITIONS FOR USE OF MARKET
DEVELOPMENT FUNDS UPON 30 DAYS WRITTEN NOTICE.
<PAGE> 8
WARRANTY
- --------------------------------------------------------------------------------
HARDWARE WARRANTY
Hardware products are warranted for two (2) years from the purchase date of the
original product against defects in materials and workmanship. If ESI receives
notice of such defects during the warranty period, ESI will replace products
which prove to be defective. THIS IS AN EXCLUSIVE REMEDY AND ESI SHALL HAVE NO
LIABILITY OF ANY TYPE BEYOND REPAIR OR REPLACEMENT OF THE DEFECTIVE PRODUCT.
For product warranties requiring return to ESI, Buyer shall prepay shipping
charges (and shall pay all duties and taxes) for products returned to ESI for
warranty service. Except for products returned to Buyer from another country,
ESI shall pay for return of products to Buyer.
NO OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, ARE EXPRESSED OR IMPLIED. ESI
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
SOFTWARE WARRANTY
ESI does not warrant that the operation of software products (programs) will
meet the Buyer's requirements or be error free. The programs are provided "AS
IS" without warranty of any kind. The entire risk as to the quality and
performance of the programs is with the Buyer. If the programs prove defective
or inadequate, Buyer assumes the entire cost of service or repair and for any
damages caused by the defects. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND
THIS WARRANTY.
LIMITATION OF DAMAGES
The remedies set forth in the product warranty are the Buyer's sole and
exclusive remedies. In no event shall ESI be liable for direct, indirect,
special or consequential damages (including loss of profits), whether based on
contract, tort, or any other legal theory.
<PAGE> 1
EXHIBIT 10.21
[LOGO] EXTENDED
SYSTEMS
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made between EXTENDED SYSTEMS INCORPORATED (ESI) and
Steven D. Simpson (EMPLOYEE) for the employment of EMPLOYEE by ESI.
IT IS AGREED BETWEEN THE PARTIES:
1. EMPLOYMENT: ESI hereby hires EMPLOYEE and EMPLOYEE accepts initial
employment with ESI as President and Chief Executive Officer.
2. TERMS OF EMPLOYMENT: This Agreement shall commence the 21st day of
August, 1997, and shall continue until terminated by either party
pursuant to paragraph 5.
3. COMPENSATION: The EMPLOYEE shall receive as compensation for his/her
services the amount of $220,000 per year, plus all employee benefits as
set forth in the current issue of the Extended Systems Employee Handbook
and stock options, bonuses and incentives as approved by the
compensation committee of the Board of Directors. Employee's salary will
be reviewed on July 1, 1998 by the compensation committee.
4. DUTIES OF EMPLOYEE: EMPLOYEE shall have the following duties and
authority: President and Chief Executive Officer and additional duties
as assigned by the Board of Directors.
5. ROLLING TWELVE (12) MONTH CONTRACT: This contract is a continuous
rolling twelve (12) month agreement entitling employee to twelve (12)
months termination pay per paragraph 3 if terminated without cause or
without twelve (12) months written notice.
6. VACATION: EMPLOYEE shall accumulate 1.25 working days of paid vacation
for each month of employment. Vacation may be taken subject to advance
approval by ESI. A maximum of ten (10) vacation days may be carried over
into each new calendar year. Upon termination of this Agreement,
EMPLOYEE shall receive compensation for accumulated vacation time.
7. TRAVEL EXPENSES: EMPLOYEE shall be reimbursed for all authorized travel
and lodging expenses.
8. FRINGE BENEFITS: Fringe benefits shall be provided by ESI as set forth
in the Extended Systems Employee Handbook. I hereby acknowledge
receiving a copy of the Employee Handbook. I understand that I am
responsible for familiarizing myself with the contents of the handbook.
I understand that the contents in the Employee Handbook are subject to
change at Extended Systems' discretion and do not create any contractual
commitments by the Company. /s/ SDS (Employee Initials)
9. DRUG AND ALCOHOL POLICY: EMPLOYEE agrees to abide by the terms of the
Extended Systems Drug and Alcohol Policy. Receipt of Drug and Alcohol
Policy is hereby acknowledged. /s/ SDS (Employee Initials).
10. TERMINATION: TERMINATION OF THIS AGREEMENT SHALL NOT TERMINATE THE
NONDISCLOSURE AGREEMENT BETWEEN THE PARTIES. Either party may terminate
this agreement, with or without good cause, by giving twelve (12) months
written notice to the other.
DATED this 21st day of August, 1997.
ESI
By /s/ Robert G. Hamlin, Secretary /s/ Steven D. Simpson
------------------------------------- -----------------------------------
EMPLOYEE
<PAGE> 1
EXHIBIT 10.23
[LOGO] EXTENDED
SYSTEMS
EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT is made between EXTENDED SYSTEMS INCORPORATED (ESI) and
Thomas C. White (EMPLOYEE) for the employment of EMPLOYEE by ESI.
IT IS AGREED BETWEEN THE PARTIES:
1. EMPLOYMENT: ESI hereby hires EMPLOYEE and EMPLOYEE accepts initial
employment with ESI as Vice President, North American Sales.
2. TERMS OF EMPLOYMENT: This Agreement shall commence the 12th day of June,
1995, and shall continue until terminated by either party.
3. COMPENSATION: The EMPLOYEE shall receive as compensation for his/her
services the amount of 100,000 per year, plus all employee benefits as
set forth in the current issue of the Extended Systems Employee
Handbook, plus commissions and stock options.
4. DUTIES OF EMPLOYEE: EMPLOYEE shall have the following duties and
authority: As per job description.
5. PROBATIONARY PERIOD: The probationary period shall last six (6) months
from the employee's date of hire.
6. SICK LEAVE: If an EMPLOYEE misses five (5) consecutive work days, he/she
shall not return to work without a signed statement from a medical
doctor stating the nature of the illness that prevented the EMPLOYEE
from working.
7. VACATION: EMPLOYEE shall accumulate 1.25 working days of paid vacation
for each month of employment. Vacation may be taken subject to advance
approval by ESI. A maximum of ten (10) vacation days may be carried over
into each new calendar year. Upon termination of this Agreement,
EMPLOYEE shall receive compensation for accumulated vacation time.
8. TRAVEL EXPENSES: EMPLOYEE shall be reimbursed for all authorized travel
and lodging expenses.
9. FRINGE BENEFITS: Fringe benefits shall be provided by ESI as set forth
in the Extended Systems Employee Handbook. I hereby acknowledge
receiving a copy of the Employee Handbook. Receipt of Employee Handbook
is hereby acknowledged. /s/ TCW (Employee Initials)
10. DRUG AND ALCOHOL POLICY: EMPLOYEE agrees to abide by the terms of the
Extended Systems Drug and Alcohol Policy. Receipt of Drug and Alcohol
Policy is hereby acknowledged. /s/ TCW (Employee Initials).
11. TERMINATION: With or without good cause either party may terminate this
Agreement by giving fourteen (14) days written notice to the other.
Termination of this agreement shall not terminate the NONDISCLOSURE
AGREEMENT between the parties.
DATED this 12th day of June, 1995.
ESI
By /s/ Debbie Schumacker /s/ Thomas C. White
------------------------------------- -----------------------------------
EMPLOYEE
<PAGE> 1
EXHIBIT 10.24
EXTENDED SYSTEMS INCORPORATED EMPLOYMENT CONTRACT / OFFER
THIS CONTRACT IS MADE between EXTENDED SYSTEMS INCORPORATED (ESI) and
Holmes T. Lundt (EMPLOYEE) for the employment of EMPLOYEE by ESI.
IT IS AGREED BETWEEN THE PARTIES:
1. EMPLOYMENT: ESI hereby hires EMPLOYEE and EMPLOYEE accepts initial
employment with ESI as Development Engineer.
2. TERMS OF EMPLOYMENT: This Agreement shall commence the 25th day of June,
1984, and shall continue until terminated by either party.
3. COMPENSATION: The EMPLOYEE shall receive as compensation for his
services $100 per year, plus all employee benefits as set forth in the
current issue of the Extended Systems Employee Handbook.
4. DUTIES OF EMPLOYEE: EMPLOYEE shall have the following duties and
authority: Product research, definition, development and release.
Component selection, sourcing and vendor liason. .
_______________________________________________________________________
_______________________________________________________________________
5. SICK LEAVE: If an EMPLOYEE misses five (5) consecutive work days, he/she
shall not return to work without a signed statement from a medical
doctor stating the nature of the illness that prevented the EMPLOYEE
from working.
6. VACATION: EMPLOYEE shall accumulate 1.6 working days of paid vacation
for each month of employment. Vacation may be taken subject to advance
approval by ESI. A maximum of ten (10) vacation days may be carried over
into each new calendar year. Upon termination of this Agreement,
EMPLOYEE shall receive compensation for accumulated vacation time.
7. TRAVEL EXPENSES: EMPLOYEE shall be reimbursed for all authorized travel
and lodging expenses.
8. FRINGE BENEFITS: Fringe benefits shall be provided by ESI as set forth
in the Extended Systems Employee Handbook delivered to EMPLOYEE, which
is part of this Agreement.
9. TERMINATION: With or without good cause either party may terminate this
Agreement by giving fourteen (14) days written notice to the other.
Termination of this agreement shall not terminate the NONDISCLOSURE
AGREEMENT between the parties.
DATED this 25th day of June, 1984.
ESI
By /s/ Ted L. Wimer /s/ Holmes T. Lundt
------------------------------------- -----------------------------------
EMPLOYEE
<PAGE> 1
EXHIBIT 10.25
[LOGO] EXTENDED
SYSTEMS
EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT is made between EXTENDED SYSTEMS INCORPORATED (ESI) and
Scott J. Ritchie (EMPLOYEE) for the employment of EMPLOYEE by ESI.
IT IS AGREED BETWEEN THE PARTIES:
1. EMPLOYMENT: ESI hereby hires EMPLOYEE and EMPLOYEE accepts initial
employment with ESI as Vice President, Operations.
2. TERMS OF EMPLOYMENT: This Agreement shall commence the 11th day of
December, 1995, and shall continue until terminated by either party.
3. COMPENSATION: The EMPLOYEE shall receive as compensation for his/her
services the amount of 9,400 per month, plus all employee benefits as
set forth in the current issue of the Extended Systems Employee
Handbook, plus $15,000 signing bonus and 50,000 stock options.
4. DUTIES OF EMPLOYEE: EMPLOYEE shall have the following duties and
authority: As per job description and position plan.
5. PROBATIONARY PERIOD: The probationary period shall last six (6) months
from the employee's date of hire.
6. SICK LEAVE: If an EMPLOYEE misses five (5) consecutive work days, he/she
shall not return to work without a signed statement from a medical
doctor stating the nature of the illness that prevented the EMPLOYEE
from working.
7. VACATION: EMPLOYEE shall accumulate 1.25 working days of paid vacation
for each month of employment. Vacation may be taken subject to advance
approval by ESI. A maximum of ten (10) vacation days may be carried over
into each new calendar year. Upon termination of this Agreement,
EMPLOYEE shall receive compensation for accumulated vacation time.
8. TRAVEL EXPENSES: EMPLOYEE shall be reimbursed for all authorized travel
and lodging expenses.
9. FRINGE BENEFITS: Fringe benefits shall be provided by ESI as set forth
in the Extended Systems Employee Handbook. I hereby acknowledge
receiving a copy of the Employee Handbook. Receipt of Employee Handbook
is hereby acknowledged. /s/ SJR (Employee Initials)
10. DRUG AND ALCOHOL POLICY: EMPLOYEE agrees to abide by the terms of the
Extended Systems Drug and Alcohol Policy. Receipt of Drug and Alcohol
Policy is hereby acknowledged. /s/ SJR (Employee Initials).
11. TERMINATION: With or without good cause either party may terminate this
Agreement by giving fourteen (14) days written notice to the other.
Termination of this agreement shall not terminate the NONDISCLOSURE
AGREEMENT between the parties.
DATED this 11th day of December, 1995.
ESI
By /s/ Debbie Kaylor /s/ Scott J. Ritchie
------------------------------------- -----------------------------------
EMPLOYEE
<PAGE> 1
EXHIBIT 11.1
EXTENDED SYSTEMS INCORPORATED
Computation of Earnings Per Share(1)
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months
Year Ended June 30, Ended September
--------------------------- -------------------
1995 1996 1997 1996 1997
--------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRIMARY
Weighted-average shares outstanding 6,362 6,826 6,871 6,869 6,865
Net effect of dilutive stock options 494 356 385 350 335
---------- --------- --------- --------- ----------
Total shares 6,856 7,182 7,256 7,219 7,200
Net income $ 1,798 $ 2,279 $ 2,676 $ 632 $ 641
========= ========== ========== ========== ==========
Primary earnings per share $ .26 $ .32 $ .37 $ .09 $ .09
========== ========== ========== ========== ==========
FULLY DILUTED
Weighted-average shares outstanding 6,362 6,826 6,871 6,869 6,865
Net effect of dilutive stock options 494 362 385 350 335
Net effect of warrants 6 -- -- -- --
---------- ---------- ---------- --------- ----------
Total shares 6,862 7,188 7,256 7,219 7,200
Net income 1,798 2,279 2,676 632 641
========== ========== ========= ========= ==========
Fully diluted earnings per share .26 .32 .37 .09 .09
========== ========== ========= ========= ==========
</TABLE>
- ----------------
(1)Earnings per share are computed using the weighted-average number
of common and common equivalent shares outstanding. Common equivalent shares
result from the assumed exercise of outstanding stock options and affect
earnings per shares when they have a dilutive effect.
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries of the Registrant
Extended Systems of Idaho, Inc.
Counterpoint Systems Foundry, Inc.
Extended Systems GmbH
Extended Systems Ltd
Extended Systems SARL
Extended Systems International, Inc.
Extended Systems U.S. Virgin Islands, Inc.
Extended Systems of Wyoming, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated August 11, 1997, except as to notes 11 and 12, the date of
which is December 18, 1997, on our audits of the consolidated financial
statements of Extended Systems Incorporated. We also consent to the references
to our firm under the captions "Experts" and "Selected Financial Data."
Boise, Idaho
December 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 7,951 6,621
<SECURITIES> 0 0
<RECEIVABLES> 6,339 7,124
<ALLOWANCES> 233 207
<INVENTORY> 3,887 4,154
<CURRENT-ASSETS> 18,830 17,836
<PP&E> 11,942 11,055
<DEPRECIATION> 3,910 3,720
<TOTAL-ASSETS> 27,237 25,677
<CURRENT-LIABILITIES> 4,955 4,209
<BONDS> 7,342 7,210
0 0
0 0
<COMMON> 687 687
<OTHER-SE> 13,978 13,338
<TOTAL-LIABILITY-AND-EQUITY> 27,237 25,677
<SALES> 11,152 39,535
<TOTAL-REVENUES> 11,152 39,535
<CGS> 4,429 15,287
<TOTAL-COSTS> 4,429 15,287
<OTHER-EXPENSES> 5,562 19,434
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 167 629
<INCOME-PRETAX> 994 4,185
<INCOME-TAX> 353 1,509
<INCOME-CONTINUING> 641 2,676
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 641 2,676
<EPS-PRIMARY> .09 .37
<EPS-DILUTED> .09 .37
</TABLE>
