<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 2000.
REGISTRATION NO. 333-30264
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
AMENDMENT NO. 2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MOBILITY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3577 86-0843914
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
RICHARD W. WINTERICH
7955 EAST REDFIELD ROAD 7955 EAST REDFIELD ROAD
SCOTTSDALE, ARIZONA 85260 SCOTTSDALE, ARIZONA 85260
(480) 596-0061 (480) 596-0061
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code,
principal executive offices) of agent for service)
</TABLE>
---------------------
Copies of communication to:
<TABLE>
<S> <C>
RICHARD F. DAHLSON WILLIAM J. GRANT, JR.
JANIE E. JAMES WILLKIE FARR & GALLAGHER
JACKSON WALKER L.L.P. 787 SEVENTH AVENUE
901 MAIN STREET, SUITE 6000 NEW YORK, NEW YORK 10019
DALLAS, TEXAS 75202 (212) 728-8000
(214) 953-6000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value................. 4,600,000 $15.00 $69,000,000.00 $18,216.00
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 600,000 shares which the Underwriters have an option to purchase to
cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for the purpose of determining the amount of the
registration fee.
(3) $18,480 was previously paid at the time of the initial filing on February
11, 2000.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and we are not soliciting an offer
to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED MAY , 2000
[MOBILITY ELECTRONICS LOGO]
MOBILITY ELECTRONICS, INC.
4,000,000 SHARES
COMMON STOCK
This is the initial public offering of Mobility Electronics, Inc. We are
offering 4,000,000 shares of common stock. We expect that the public offering
price will be between $13.00 and $15.00 per share.
We have filed an application for our common stock to be quoted on the Nasdaq
National Market under the symbol "MOBE".
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS MOBILITY
<S> <C> <C> <C>
Per Share $14.00 $0.98 $13.02
TOTAL $56,000,000 $3,920,000 $52,080,000
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 600,000
additional shares of common stock solely to cover over-allotments, if any. If
all such shares are purchased, the total price to public will be $64,400,000,
the total underwriting discount will be $4,508,000 and the total proceeds to us
will be $59,892,000. See "Underwriting."
The shares of common stock are offered, subject to prior sale, by the
underwriters on a firm commitment basis when, and as if delivered and accepted
by them, and subject to approval of certain legal matters by counsel to the
underwriters and certain other conditions. Delivery of the shares of common
stock offered by this prospectus to underwriters is expected to be made in New
York, New York on or about , 2000.
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
J.C. BRADFORD & CO.
The date of this Prospectus is , 2000
<PAGE> 3
[DESCRIPTION OF GRAPHICS ON INSIDE FRONT COVER PAGE AND GATEFOLD]
The top of the inside front cover will contain the phrase "Revolutionizing
the Remote Bus Industry through Split Bridge(TM) technology." A diagram of a
printed circuit board will appear below the text. The diagram will illustrate
the ability of the Mobility Split Bridge(TM) chip to interface with a remote
secondary PCI bus rather than a traditional secondary PCI bus. The bottom of the
inside front cover will include a Split Bridge(TM) logo depicting the cable for
a remote secondary PCI bus and a picture of the "PCWeek Best of COMDEX" award we
received, which declared our Split Bridge(TM) technology the "Best New
Technology" at the fall 1999 COMDEX trade show.
The left side of the gatefold will contain, in the center of the page, the
text "PCI bridges are commonplace. Mobility's Split Bridge(TM) technology,
because of its unique remote PCI bus architecture, opens up a whole new world of
PCI bus applications never before feasible. Some of the potential markets are
listed here but the possibilities are endless because PCI is everywhere."
Starting in the upper left hand corner of the gatefold, and moving clockwise and
across to the right side of the gatefold, there will be graphics representing
the notebook computer, desktop computer, server/router, modular computer, home
networking, service industry, industrial, automotive, test equipment, business
machines, telecom and hand-held computer markets. These graphics will be
connected to a representation of the Mobility Split Bridge(TM) chip in the
center of the gatefold. The phrase "Because PCI is Everywhere ... the
Possibilities are Endless", accompanied by our company logo, will be written in
larger letters across the center of the entire spread.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 8
Forward-Looking Statements.................................. 20
Use of Proceeds............................................. 20
Dividend Policy............................................. 21
Capitalization.............................................. 22
Dilution.................................................... 24
Selected Consolidated Financial Data........................ 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 38
Management.................................................. 53
Principal Stockholders...................................... 61
Certain Transactions........................................ 63
Description of Capital Stock................................ 66
Shares Eligible For Future Sale............................. 74
Underwriting................................................ 76
Interests of Named Experts and Counsel...................... 79
Experts..................................................... 79
Additional Information Available To You..................... 79
Index to Consolidated Financial Statements.................. F-1
</TABLE>
Mobility Electronics(R), EASi(R), EasiDock(R), Split Bridge(TM) and our
stylized logo are trademarks of Mobility Electronics, Inc. All other tradenames
or trademarks appearing in this prospectus are the property of their respective
owners.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF OUR COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus including "Risk Factors" and the consolidated financial
statements, before making an investment decision.
OUR BUSINESS
Mobility Electronics designs, develops and markets technology and products
for the computer industry as well as for a broad range of related microprocessor
applications. These technologies and products allow the connection of the
computer to various peripherals using a remote peripheral component interface,
or PCI bus, technology. Our proprietary Split Bridge(TM) technology consists of
a Split Bridge(TM) link, typically two customized semiconductors, or chips, two
connectors and a high-speed cable. Our technology for the first time allows any
computer's primary PCI bus, which is the heart of the computer, to be extended
to a remote location of up to 15 feet with virtually no software requirements or
performance degradation. This enables architectural designs of computer systems
and applications that previously were not feasible.
Unlike traditional communication protocols such as universal serial bus, or
USB, firewire, or IEEE 1394, Ethernet and small computer systems interface, or
SCSI , Split Bridge(TM) offers a combination of simplicity, high performance and
technological superiority. Since Split Bridge(TM) technology extends the PCI
bus, it can accommodate any of the traditional communication protocols in the
remote location as if they are attached to the primary PCI bus. Our Split
Bridge(TM) technology won PC Week's "Best New Technology" award at the fall 1999
COMDEX trade show, and was runner-up for the "Technology Achievement of the Year
Award" at the Mobile Insights 2000 Conference. We have numerous Split Bridge(TM)
patents pending and related claims, and have received notice of allowance from
the U.S. Patent and Trademark Office for our key patents.
Today the most prevalent computer architecture, which is incorporated into
virtually all computer systems and in many related microprocessor applications,
uses the PCI bus. However, the PCI bus cannot be extended more than a few
inches. This extension is necessary to alleviate the physical printed circuit
board, or PCB, space constraints on the computer motherboard, and restrictions
on the number of lines, or circuits, and electrical loads that can be attached
to the PCI bus. Consequently, the industry today faces a number of difficult
physical and electrical constraints when designing computer systems and
products. Additionally, traditional communication protocols, which attempt to
address these limitations, have numerous disadvantages when compared to our
Split Bridge(TM) technology since they generally require a processor, extensive
software and other related items.
Our Split Bridge(TM) technology eliminates many of these physical and
electrical constraints by allowing one or more Split Bridge(TM) chips to be
attached to a computer's primary PCI bus, with the mating Split Bridge(TM) chips
installed at a remote location along with an extended secondary PCI bus. Split
Bridge(TM) technology thus substantially reduces the need for available physical
space on the primary PCB by eliminating the requirement that all the circuitry
be on the main computer motherboard, and by allowing the extension cable and
connectors to be small and flexible. Moreover, since all of the secondary PCI
bus loads and peripherals do not need to be physically attached to the primary
PCI bus, Split Bridge(TM) technology enables input/output devices, peripherals
and other technologies to be placed in multiple remote locations.
Our first major application for Split Bridge(TM) technology is the creation
of a new universal docking product category which allows users of portable
computers to configure a flexible, high performance docking solution that meets
their individual needs. More importantly, our universal docking products are
compatible with most makes and models of portable computers, thus, facilitating
the use of a portable computer as a true desktop replacement.
According to IDC, a leading industry source, the market for portable
computers, excluding handheld devices, is expected to grow at a compounded
annual growth rate of 13.8% from 15.5 million units in 1998 to approximately
29.6 million units in 2003. In addition, IDC forecasts that the handheld market
will grow at a compounded annual growth rate of over 39.8% from 6.6 million
units in 1998 to approximately
3
<PAGE> 6
35.2 million units by 2003. Coupled with this trend toward portability, there
has been an increased demand for computers that are smaller and lighter but have
processing functionality similar to that of the traditional desktop computer. To
make these smaller and lighter computers more convenient to use in the office
and home, docking stations are required to allow users to connect to networks,
peripheral devices and external power sources, providing users with all of the
features and functionality of a traditional desktop computer.
We believe that our Split Bridge(TM) docking station products, which offer
a combination of universality and expandability, create the basis for a
connectivity standard for the portable computer industry. This would allow the
user to replace the desktop computer with a fully integrated, customizable
mobile computing system and purchase docking solutions independent of the choice
of computer.
Our universal docking station product line further provides distributors,
retailers and value-added resellers with the ability to carry a limited number
of universal and expandable docking products, as opposed to many individual
docking stations that only work with one computer model. Thus, distributors,
retailers and value-added resellers can offer flexible choices to their
customers and have products readily available when new computer models are
launched, while at the same time simplifying their dock inventory requirements.
Finally, these products offer computer original equipment manufacturers, or
OEMs, the ability to use our standardized docking solution for all of their
portable computer models.
Our second major application for our Split Bridge(TM) technology is the
provision of additional lower cost expansion and backup capacity, remote access,
and enhanced communication among computers in the server, desktop, and
keyboard-video-mouse, or KVM, switch markets in partnership with Cybex Computer
Products Corporation. Potential future applications include business machines,
such as copiers and printers, test equipment, modular computers, computer data
storage, in-home remote computer extension, and any other application that can
benefit from extending the PCI bus or from enhanced communication among
computers.
In addition to our Split Bridge(TM) technology products, we also design,
develop and market a range of connectivity and power products for portable
computers. Our current major customers include Buy.com, Compaq, CompUSA,
Gateway, Hewlett-Packard, Hitachi, IBM, Ingram Micro, Merisel, Microwarehouse,
Mitsubishi, NEC, Pinacor, Targus, Tech Data and Toshiba. We also have important
strategic relationships with 3Com, Cybex, LSI Logic, Molex, Philips, Silicon
Image, Solectron, Targus and others.
We were formed as a limited liability company under the laws of the State
of Delaware in May 1995, and were converted to a Delaware corporation by a
merger effected in August 1996, in which we were the surviving entity. We
changed our name from "Electronics Accessory Specialists International, Inc." to
"Mobility Electronics, Inc." on July 23, 1998. Our principal executive offices
are located at 7955 East Redfield Road, Scottsdale, Arizona 85260, and our
telephone number is (480) 596-0061. Unless otherwise indicated in this
prospectus, references to "Mobility," "us," "we" and "our" refer to Mobility
Electronics, Inc. and shall include our predecessor, Electronics Accessory
Specialists International, L.L.C. Our website is located at
www.mobilityelectronics.com. The information contained on our website does not
constitute part of this prospectus.
---------------------
Unless otherwise indicated, this prospectus assumes:
- that the underwriters have not exercised their option to purchase
additional shares;
- conversion of 60% of the outstanding convertible debentures into 5,821
shares of common stock, at $7.73 per share, upon the completion of this
offering;
- conversion of all shares of Series C preferred stock into approximately
1,688,865 shares of common stock, on a 1-to-0.68995 basis, upon
completion of this offering;
- conversion of all shares of Series D preferred stock into approximately
375,940 shares of common stock on a 1-to-0.75188 basis, upon the
completion of this offering;
- the effect of a 1-for-2 reverse split of our common stock that was
consummated on March 31, 2000; and
- an initial public offering price of $14.00 per share, which is the
mid-point of the range on the cover of this prospectus.
4
<PAGE> 7
THE OFFERING
Common stock offered by Mobility....4,000,000 shares
Common stock to be outstanding after
this offering.......................12,768,745 shares
Use of proceeds.....................For working capital and general corporate
purposes including the repayment of debt,
increased spending on sales and marketing,
research and development, potential
acquisitions and expansion of our
operational and administrative
infrastructure. See "Use of Proceeds" for
more detailed information.
Proposed Nasdaq National Market
Symbol.............................."MOBE"
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of March 31, 2000,
assuming the conversion of 60% of the outstanding convertible debentures
($45,000) into 5,821 shares of common stock at $7.73 per share, the conversion
of 2,447,808 shares of Series C preferred stock into 1,688,865 shares of common
stock and the conversion of 500,000 shares of Series D preferred stock into
375,940 shares of common stock. This number excludes as of March 31, 2000: (1)
872,095 shares subject to outstanding options and 377,905 shares available for
future option grants under our Amended and Restated 1996 Long Term Incentive
Plan, or the 1996 Plan; (2) 102,828 shares subject to non-plan options; and (3)
2,083,776 shares subject to warrants to purchase common stock.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAY 5, THREE MONTHS
(INCEPTION) YEAR ENDED DECEMBER 31, ENDED MARCH 31,
TO DECEMBER 31, ------------------------------------------ ------------------
1995 1996 1997 1998 1999 1999 2000
--------------- ------- ------- -------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................... $ 118 $ 5,669 $12,744 $ 21,072 $ 13,952 $ 3,228 $ 5,002
Gross profit (loss)......................... 36 1,217 (591) (2,458) 2,201 433 1,395
Total operating expenses.................... 827 3,224 7,483 13,938 12,236 3,456 3,350
------ ------- ------- -------- -------- ------- -------
Loss from operations........................ (791) (2,007) (8,075) (16,396) (10,034) (3,023) (1,955)
Other expense (income):
Interest expense, net..................... (3) 112 676 1,638 6,297 628 929
Other, net................................ -- (7) 24 (1) 126 (1) (2)
------ ------- ------- -------- -------- ------- -------
Loss before provision for income taxes...... (788) (2,112) (8,775) (18,033) (16,457) (3,650) (2,882)
Provision for income taxes.................. -- -- -- -- -- -- --
------ ------- ------- -------- -------- ------- -------
Net loss ................................... (788) (2,112) (8,775) (18,033) (16,457) (3,650) (2,882)
Cumulative dividends on Series B preferred
stock..................................... -- (160) (317) -- -- -- --
Beneficial conversion cost of preferred
stock..................................... -- -- -- -- (1,450) -- (49)
------ ------- ------- -------- -------- ------- -------
Net loss attributable to common
stockholders.............................. $ (788) $(2,272) $(9,092) $(18,033) $(17,907) $(3,650) $(2,931)
====== ======= ======= ======== ======== ======= =======
Pro forma net loss attributable to common
stockholders.............................. $(16,815) $(2,562)
======== =======
Pro forma as converted net loss per share:
Basic..................................... $(0.39) $ (1.08) $ (3.45) $ (4.36) $ (3.59) $ (0.80) $ (0.46)
====== ======= ======= ======== ======== ======= =======
Diluted................................... $(0.39) $ (1.08) $ (3.43) $ (4.20) $ (3.14) $ (0.75) $ (0.43)
====== ======= ======= ======== ======== ======= =======
Weighted average common shares outstanding:
Basic..................................... 2,035 2,099 2,639 4,136 4,994 4,567 6,324
====== ======= ======= ======== ======== ======= =======
Diluted................................... 2,035 2,099 2,650 4,293 5,707 4,898 6,793
====== ======= ======= ======== ======== ======= =======
Pro forma loss per share:
Basic..................................... $ (3.02) $ (0.37)
======== =======
Diluted................................... $ (2.68) $ (0.35)
======== =======
Pro forma weighted average common shares
outstanding:
Basic..................................... 5,565 6,895
======== =======
Diluted................................... 6,278 7,364
======== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,318 $49,139
Working capital............................................. 4,230 51,727
Total assets................................................ 18,079 60,900
Long-term debt, less current installments................... 3,430 24
Total stockholders' equity.................................. 5,137 56,039
</TABLE>
See note 19 to our consolidated financial statements for an explanation of
the determination of shares used in computing net loss per share.
6
<PAGE> 9
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more detailed information.
The pro forma as adjusted data above adjusts the actual amounts to reflect
the conversion of 60% of outstanding convertible debentures to common stock at
$7.73 per share as of March 31, 2000, the conversion of 2,447,808 outstanding
shares of Series C preferred stock into 1,688,865 shares of common stock as of
March 31, 2000, on a 1-to-0.68995 basis and the conversion of 500,000 shares of
outstanding Series D preferred stock into 375,940 shares of common stock as of
March 31, 2000, on a 1-to-0.75188 basis, and the application of the net proceeds
from the sale of 4,000,000 shares of common stock offered by us at the initial
public offering price of $14.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses.
The pro forma net loss and pro forma loss per share reflect the reduction
of approximately $8.0 million of debt from the proceeds of issuing approximately
571,000 shares of common stock upon completion of this offering and give effect
to the reduction in interest expense had the debt reduction taken place at the
beginning of 1999.
7
<PAGE> 10
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. Any
of the following risks could cause the trading price of our common stock to
decline.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.
We have experienced significant operating losses since inception and, as of
March 31, 2000, have an accumulated deficit of approximately $49.5 million. We
expect to continue to incur operating losses in fiscal 2000. If we do not
achieve continued revenue growth sufficient to absorb our recent and planned
expenditures, we could experience additional losses in future periods. These
losses or fluctuations in our operating results could cause the market value of
our common stock to decline.
We anticipate that in the future we will make significant investments in
our operations, particularly to support technological developments and sales
activities and, that as a result, operating expenses will continue to increase.
We intend to make such investments on an ongoing basis, primarily from cash
generated from operations and, to the extent necessary, funds available from our
lines of credit and this offering, as we develop and introduce new products and
expand into new markets such as international, direct and OEM markets. If net
sales do not increase with capital or other investments, we are likely to
continue to incur net losses and our financial condition could be materially
adversely affected. We have not yet achieved profitability, and there can be no
assurance that we will achieve or sustain profitability on a quarterly or annual
basis.
OUR FUTURE SUCCESS IS UNCERTAIN BECAUSE SPLIT BRIDGE(TM) TECHNOLOGY IS NEW TO
OUR BUSINESS.
We began developing the Split Bridge(TM) technology during the first
quarter of 1998, and in the fourth quarter of 1998, we changed our overall
strategy to pursue the application of the Split Bridge(TM) technology as our
primary focus. Prior to changing our business strategy, we developed and
manufactured port replicators and power products. Our new business focus and
strategy may not be successful. In addition, because we have only recently begun
to focus our business on the development and application of the Split Bridge(TM)
technology, we cannot be sure that our business model and future operating
performance will yield the results that we seek. Our operating results for
future periods are subject to all of the risks and uncertainties inherent in the
establishment of new business enterprises. Our future operating results will
depend upon, among other factors:
- computer OEM acceptance of our Split Bridge(TM) technology and products;
- the level of product technology and price competition for our universal
docking, server and Split Bridge(TM) products;
- our ability to defend our patents and patents pending;
- our success in establishing and expanding our direct and indirect
distribution channels with corporate and consumer portable computer
users;
- our success in establishing universal docking products as a retail
product line;
- our success in attracting and retaining strategic partners, joint
ventures and licensing opportunities;
8
<PAGE> 11
- our success in attracting and retaining motivated and qualified
personnel, particularly in the technical area; and
- our development and marketing of new products and Split Bridge(TM)
technology applications.
WE MAY NOT ACHIEVE ANTICIPATED REVENUES IF MARKET ACCEPTANCE OF OUR SPLIT
BRIDGE(TM) TECHNOLOGY IS NOT FORTHCOMING.
We believe that revenues from universal docking stations will account for a
material portion of our revenues for the foreseeable future. Our future
financial performance will depend on market acceptance of our Split Bridge(TM)
technology, including our universal connectivity station product line. The
market for docking stations is characterized by ongoing technological
developments, frequent new product announcements and introductions, evolving
industry standards and changing customer requirements. As a result, if our Split
Bridge(TM) technology and universal connectivity product line do not achieve
widespread market acceptance, we may not achieve anticipated revenues. Although
PCI is an industry standard, the operating systems used by our customers may not
be compatible with certain products in our universal docking product line and,
as a result, the available market for our products may be limited.
Our future financial performance also depends in large part on the
existence and continued growth of market demand for universal connectivity
stations. There can be no assurance that the market or demand for universal
connectivity stations, if any, will develop and continue to grow. Any failure of
this market to develop or grow or our failure to develop a universal
connectivity station that satisfies market needs or that works with all computer
makes or models could have a material adverse effect on us. In addition, demand
for our products is primarily driven by the underlying market demand for
portable computers. Should the growth in demand for portable computers be
inhibited, we may not achieve anticipated revenues.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND AN
UNANTICIPATED DECLINE IN REVENUES MAY CAUSE OUR STOCK PRICE TO FALL.
It is likely that in some future quarter or quarters our operating results
will be below the expectations of securities analysts and investors. If a
shortfall in revenues occurs, the market price for our common stock may decline
significantly. The factors that may cause our quarterly operating results to
fall short of expectations include:
- our ability to develop and market our new Split Bridge(TM) products in a
timely manner;
- the timing of our, and our competitors, new product or technology
introductions and product enhancements;
- market acceptance of our Split Bridge(TM) products and technology;
- the size and timing of customer orders;
- difficulties with new Split Bridge(TM) production implementation or
supply chain;
- seasonality of sales;
- product defects and other product quality problems due to the recent
development of our Split Bridge(TM) technology;
- our ability to attract and retain strategic partners to continue the
advances necessary for Split Bridge(TM) technology;
9
<PAGE> 12
- the degree and rate of growth of the markets in which we compete and the
accompanying demand for our products;
- our ability to expand our internal and external sales forces and build
the required infrastructure to meet anticipated growth; and
- our suppliers' ability to perform under their contracts with us.
Many of these factors are beyond our control. For these reasons, you should
not rely on period-to-period comparisons of our financial results to forecast
our future performance.
WE MAY NOT BE ABLE TO ADEQUATELY MANAGE OUR ANTICIPATED GROWTH, WHICH COULD
IMPAIR OUR EFFICIENCY AND NEGATIVELY IMPACT OUR OPERATIONS.
We may not be able to manage our growth effectively, which could impair our
efficiency, reduce the quality of our solutions, impair further growth and harm
our business, financial condition and operating results. If we do not
effectively manage this growth, we may not be able to operate efficiently or
maintain the quality of our products. Either outcome could harm our operating
results. In the past, we have experienced rapid growth, and we plan to continue
to expand our operations. This expansion is expensive and places a significant
strain on our personnel and other resources. For example, our universal
connectivity station product line is expected to result in a significant
increase in the number of shipments to and from our Scottsdale, Arizona
facility. To manage our expanded operations effectively, we will need to further
improve our operational, financial and management systems and successfully hire,
train, motivate and manage our employees.
OUR FAILURE TO RESPOND TO RAPID TECHNOLOGICAL CHANGES MAY IMPAIR OUR OPERATING
RESULTS.
The market for our universal connectivity station product line is new and
emerging, and is characterized by rapid technological advances, changing
customer needs and evolving industry standards. Accordingly, to realize our
expectations regarding our operating results, we depend on our ability to:
- develop, in a timely manner, new products and services that keep pace
with developments in technology;
- meet evolving customer requirements; and
- enhance our current product and service offerings and deliver those
products and services through appropriate distribution channels.
We may not be successful in developing and marketing, on a timely and
cost-effective basis, either enhancements to our Split Bridge(TM) technology
products or new products which respond to technological advances and satisfy
increasingly sophisticated customer needs. If we fail to introduce new products,
our operating results may suffer. In addition, if new industry standards emerge
that we do not anticipate or adapt to, our products could be rendered obsolete
and our business could be materially harmed. Alternatively, any delay in the
development of technology upon which our products are based could result in our
inability to introduce new products as planned. For example, certain products
that we are currently developing depend upon the availability of USB 2.0. The
success and marketability of technology developed by others is beyond our
control.
WE DEPEND ON LARGE PURCHASES FROM A FEW SIGNIFICANT CUSTOMERS, AND ANY LOSS,
CANCELLATION OR DELAY IN PURCHASES BY THESE CUSTOMERS COULD CAUSE A SHORTFALL IN
REVENUE.
We derive a substantial portion of our product sales through a relatively
small number of OEMs and third-party distributors. For the year ended December
31, 1998, OEMs and
10
<PAGE> 13
distributors represented 42.8% and 26.8%, respectively, of our sales during that
period. For the year ended December 31, 1999, OEMs and distributors represented
60.8% and 24.8%, respectively, of our sales during that period.
While our financial performance depends on large orders from a few
significant OEMs and third-party distributors, with the exception of Targus, our
contractual relationships are generally non-exclusive and cancelable upon notice
to us. In addition:
- our distributor agreements generally do not require minimum purchases;
- our customers can stop purchasing and our distributors can stop
distributing our products at any time; and
- our distributor agreements generally are not exclusive and are for one
year terms, with no obligation of the distributors to renew the
agreements.
Sales to Targus totaled 16.2% for the year ended December 31, 1998 and
26.6% for the year ended December 31, 1999. We primarily sell custom products to
Targus. The agreement is renewable in one year increments and does not allow
product returns. Targus is responsible for all costs incurred on custom products
built on their behalf.
Because our expenses are based on our revenue forecasts, a substantial
reduction or delay in sales of our products to, or unexpected returns from OEMs
and distributors, or the loss of any significant customer could harm our
business. Although our largest customers may vary from period-to-period and we
expect to diversify our customers in the future, our operating results for any
given period may continue to depend to a significant extent on large orders from
a small number of customers.
There can be no assurance that our distributors will continue their current
relationships with us or that they will not give higher priority to the sale of
other products, which could include products of our competitors. In addition,
effective distributors must devote significant technical, marketing and sales
resources to an often lengthy sales cycle. There can be no assurance that our
current and future distributors will devote sufficient resources to market our
products effectively or that economic or industry conditions will not adversely
affect such distributors. A reduction in sales efforts or a discontinuance of
distribution of our products by our distributors could lead to reduced sales. In
addition, because we sell a significant portion of our products through
distributors, it is difficult for us to monitor end user demand for our products
on a current basis. For example, third-party distributors may place large
initial orders which may not be indicative of long-term end user demand.
Our operating results could also be materially adversely affected by
changes in distributors' inventory strategies, which could occur rapidly and, in
many cases, may not be related to end user demand. New products may require
different marketing, sales and distribution strategies than those for our
current products. There can be no assurance that our distributors will choose or
be able to effectively market these new products or to continue to market our
products.
OUR RELIANCE ON SINGLE OR LIMITED SOURCES FOR KEY COMPONENTS MAY INHIBIT OUR
ABILITY TO MEET CUSTOMER DEMAND.
The principal components of our docking station products are purchased from
outside vendors. We buy components under purchase orders and generally do not
have long-term agreements with our suppliers. Any termination of or significant
disruption in our relationship with our component suppliers may prevent us from
filling customer orders in a timely manner, as we generally do not maintain
large inventories of our components. We purchase a number of the components for
our products from sole or a limited number of suppliers; for example, Philips
Semiconductors is our sole supplier of Split Bridge(TM) technology ASIC chips,
11
<PAGE> 14
Molex is our sole supplier of certain system connectors for use with our
universal docking products, EFA is the only manufacturer of our USB docking
stations and Solectron is the only company that produces our Split Bridge(TM)
universal docking stations for us. EFA and Solectron are located in the Far
East. We have occasionally experienced and may in the future experience delays
in delivery of such components. Although alternate suppliers are available for
most of the components and services needed to produce our products, the number
of suppliers of some components is limited, and qualifying a replacement
supplier and receiving components from alternate suppliers could take several
months.
We depend upon our suppliers to deliver components that are free from
defects, competitive in functionality and cost and in compliance with our
specifications and delivery schedules. Disruption in supply, a significant
increase in the cost of one or more components, failure of a supplier to remain
competitive in functionality or price, the failure of a supplier to comply with
any of our procurement needs or the financial failure or bankruptcy of a
supplier could delay or interrupt our ability to manufacture or deliver our
products to customers on a timely basis.
OUR RELIANCE ON THIRD-PARTY MANUFACTURING VENDORS TO MANUFACTURE OUR PRODUCTS
MAY CAUSE A DELAY IN OUR ABILITY TO FILL ORDERS.
We rely on third-party manufacturers for assembly and subassembly of our
products. Any termination of or significant disruption in our relationship with
the third-party manufacturers of our products may prevent us from filling
customer orders in a timely manner, as we generally do not maintain large
inventories of our products. Additionally, our use of third-party manufacturers
reduces control over product quality and manufacturing yields and costs. We
depend upon our third-party manufacturers to deliver our products that are free
from defects, competitive in functionality and cost and in compliance with our
specifications and delivery schedules. Moreover, although arrangements with such
manufacturers may contain provisions for warranty obligations on the part of
third-party manufacturers, we remain primarily responsible to our customers for
warranty obligations. Disruption in supply, a significant increase in the cost
of the assembly of our products, failure of a third-party manufacturer to remain
competitive in functionality or price, the failure of a third-party manufacturer
to comply with any of our procurement needs or the financial failure or
bankruptcy of a third-party manufacturer could delay or interrupt our ability to
manufacture or deliver our products to customers on a timely basis.
OUR SUCCESS DEPENDS IN PART UPON SALES TO OEMS, WHOSE UNPREDICTABLE DEMANDS AND
REQUIREMENTS MAY SUBJECT US TO POTENTIAL ADVERSE REVENUE FLUCTUATIONS.
We expect that we will continue to be dependent upon a limited number of
OEMs for a significant portion of our net sales in future periods, although no
OEM is presently obligated either to purchase a specified amount of products or
to provide us with binding forecasts of product purchases for any period. Our
products are typically one of many related products used by portable computer
users. Demand for our products is therefore subject to many risks beyond our
control, including, among others:
- competition faced by our OEM customers in their particular end markets;
- market acceptance of Split Bridge(TM) technology and products by our OEM
customers;
- technical challenges which may or may not be related to the components
supplied by us;
- the technical, sales and marketing and management capabilities of our OEM
customers; and
- the financial and other resources of our OEM customers.
12
<PAGE> 15
Certain divisions within our OEM customers have developed products intended
to compete with our products. There can be no assurance that we will not lose
sales in the future as a result of such competing products. The reduction, delay
or cancellation of orders from our significant OEM customers, or the
discontinuance of our products by our end users may subject us to potential
adverse revenue fluctuations.
WE HAVE IN THE PAST EXPERIENCED RETURNS OF OUR PRODUCTS, AND AS OUR BUSINESS
GROWS WE MAY EXPERIENCE INCREASED RETURNS, WHICH COULD HARM OUR REPUTATION AND
NEGATIVELY IMPACT OUR OPERATING RESULTS.
In the past, some of our customers have returned our products to us because
they felt that the product did not meet their expectations, specifications and
requirements. Historically, these returns have been approximately 6.6% of sales.
It is likely that we will experience some level of returns in the future and, as
our business grows, the amount of returns may increase despite our efforts to
minimize them. Also, returns may adversely affect our relationship with affected
customers and may harm our reputation. This could cause us to lose potential
customers and business in the future. We maintain a financial reserve for future
returns that we believe is adequate given our historical level of returns. If
returns increase, however, our reserve may not be sufficient and our operating
results could be negatively affected.
INTENSE COMPETITION IN THE MARKET FOR CONNECTIVITY PRODUCTS COULD PREVENT US
FROM INCREASING REVENUE AND SUSTAINING PROFITABILITY.
Although the market for our universal docking products is relatively new
and emerging and we presently have few direct competitors, we expect that the
markets for our products will become increasingly competitive. The market for
computer products in general is intensely competitive, subject to rapid change
and sensitive to new product introductions or enhancements and marketing efforts
by industry participants. We expect to experience significant and increasing
levels of competition in the future. The principal competitive factors affecting
the markets for our product offerings include:
- corporate and product reputation;
- innovation with frequent product enhancement;
- breadth of integrated product line;
- product design, functionality and features;
- product quality and performance;
- ease-of-use;
- support; and
- price.
Although we believe that our products compete favorably with respect to
such factors, there can be no assurance that we can maintain our competitive
position against current or potential competitors, especially those with greater
financial, marketing, service, support, technical or other competitive
resources.
We currently compete primarily with the internal design efforts of OEMs.
These OEMs, as well as a number of our potential non-OEM competitors, have
larger technical staffs, more established and larger marketing and sales
organizations and significantly greater financial resources than we do. We,
however, believe that we have a proprietary position with respect to our Split
Bridge(TM) technology and universal connectivity stations which may pose a
barrier to entry that could keep our competitors from developing similar
products or selling competing products in our markets. There can be, however, no
assurance that such competitors will not be able to respond more quickly to new
or emerging technologies and changes in customer requirements, devote greater
resources to the development, sale and
13
<PAGE> 16
promotion of their products than we do or develop products that are superior to
our products or that achieve greater market acceptance.
Our future success will depend, in part, upon our ability to increase sales
in our targeted markets. There can be no assurance that we will be able to
compete successfully with our competitors or that the competitive pressures we
face will not have a material adverse effect on us. Our future success will
depend in large part upon our ability to increase our share of our target market
and to sell additional products and product enhancements to existing customers.
Future competition may result in price reductions, reduced margins or decreased
sales. See "Business -- Competition."
IF WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY OR IF WE
LOSE KEY PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS OR
ACHIEVE OUR OBJECTIVES.
We believe our future success will depend in large part upon our ability to
identify, attract and retain highly skilled managerial, engineering, sales and
marketing, finance and operations personnel. Competition for such personnel in
the computer industry is intense, and we compete for such personnel against
numerous companies, including larger, more established companies with
significantly greater financial resources than us. There can be no assurance we
will be successful in identifying, attracting and retaining such personnel.
Our success also depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, finance
and manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success depends on Charles R. Mollo,
Chief Executive Officer, Jeffrey S. Doss, Executive Vice President, and Richard
W. Winterich, Chief Financial Officer. Except for Mr. Doss, we do not maintain
key person life insurance on any of our executive officers. Except for Messrs.
Doss, Mollo, Winterich and Donald W. Johnson, our new Executive Vice President
of Worldwide Sales, Marketing and Operations, we do not have employment
contracts covering any of our senior management. The loss of the services of any
of our key personnel, the inability to identify, attract or retain qualified
personnel in the future or delays in hiring required personnel could make it
difficult for us to manage our business and meet key objectives, such as timely
product introductions.
IF OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES AND BE SUBJECT TO PRODUCT
LIABILITY CLAIMS.
Our products are based on new technology and are complex. As such, they may
contain undetected errors or performance problems, particularly during new or
enhanced product launches. Despite product testing prior to introduction, our
products have in the past, on occasion, contained errors that were discovered
after commercial introduction. Errors or performance problems may also be
discovered in the future. Any future defects discovered after shipment of our
products could result in loss of sales, delays in market acceptance or product
returns and warranty costs. We attempt to make adequate allowance in our new
product release schedule for testing of product performance. Because of the
complexity of our products, however, our release of new products may be
postponed should test results indicate the need for redesign and retesting, or
should we elect to add product enhancements in response to customer feedback. In
addition, third-party products, upon which our products are dependent, may
contain defects which could reduce or undermine the performance of our products.
In addition, although our sales agreements with our customers typically
contain provisions designed to limit our exposure to potential product liability
claims, there can be no assurance that such limitations of liability would be
enforceable or would otherwise protect us
14
<PAGE> 17
from liability for damages to a customer resulting from a defect in one of our
products. Although we maintain liability insurance covering certain damages
arising from implementation and use of our products, there can be no assurance
that such insurance would cover or be sufficient to cover any such claims sought
against us.
IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS AND ABILITY TO
COMPETE COULD SUFFER.
Our success and ability to compete are dependent upon our internally
developed technology and know-how. We rely primarily on a combination of patent
protection, copyright and trademark laws, trade secrets, nondisclosure
agreements and technical measures to protect our proprietary rights. While we
have certain patents and patents pending, there can be no assurance that patents
pending or future patent applications will be issued or that if issued, such
patents will not be challenged, invalidated or circumvented or that rights
granted thereunder will provide meaningful protection or other commercial
advantage to us. Moreover, there can be no assurance that any patent rights will
be upheld in the future or that we will be able to preserve any of our other
intellectual property rights. We typically enter into confidentiality,
noncompete or invention assignment agreements with our key employees,
distributors, customers and potential customers, and limit access to, and
distribution of, our product design documentation and other proprietary
information. Additionally, we believe that, due to the rapid pace of innovation
within the computer industry, factors such as:
- technological and creative skill of personnel;
- knowledge and experience of management;
- name recognition;
- maintenance and support of products;
- the ability to develop, enhance, market and acquire products and
services; and
- the establishment of strategic relationships in the industry
also represent important protections for our technology. There can be no
assurance that our confidentiality agreements, confidentiality procedures,
noncompetition agreements or other factors will be adequate to deter
misappropriation or independent third-party development of our technology or to
prevent an unauthorized third party from obtaining or using information that we
regard as proprietary. See "Business -- Proprietary Rights."
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT ARE COSTLY
TO DEFEND AND COULD LIMIT OUR ABILITY TO USE CERTAIN TECHNOLOGIES IN THE FUTURE.
The laws of some foreign countries do not protect or enforce proprietary
rights to the same extent as do the laws of the United States. There can be no
assurance that our competitors will not independently develop technology similar
to existing proprietary rights of others. We expect that computer products will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. There can be no assurance that third
parties will not assert infringement claims against us in the future or, if
infringement claims are asserted, that such claims will be resolved in our
favor. Any such claims, with or without merit, could be time-consuming, result
in costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms favorable to us, if at all. In addition,
litigation may be necessary in the future to protect our trade secrets or other
intellectual property rights, or to determine the validity and scope of the
proprietary rights of others.
15
<PAGE> 18
Such litigation could result in substantial costs and diversion of resources.
See "Business -- Proprietary Rights."
OUR ABILITY TO INCREASE INTERNATIONAL SALES AND MANAGE OUR INTERNATIONAL
OPERATIONS IS SUBJECT TO A NUMBER OF RISKS BEYOND OUR CONTROL.
Our success will depend, in part, on additional expansion of our sales in
foreign markets. We have established a relationship with a representative agency
that has exclusive rights to sell our products in Europe. We intend to expand
into other foreign markets. Our failure to expand international sales in a
timely and cost-effective manner could have a material adverse effect on us. In
addition, there can be no assurance we will be able to maintain or increase
international market demand for our products. Our international business
involves a number of risks, including:
- the impact of possible recessionary environments in foreign economies;
- political and economic instability;
- exchange rate fluctuations;
- longer receivable collection periods and greater difficulty in accounts
receivable collection from distributors and customers;
- difficulty in managing distributors or sales representatives;
- increased sales and marketing expense;
- difficulty in staffing foreign operations;
- unexpected changes in regulatory requirements;
- reduced or limited protection for intellectual property rights;
- export restrictions and availability of export licenses;
- tariffs and other trade barriers;
- seasonal reduction in business activities;
- complex foreign laws and treaties including employment laws; and
- potentially adverse tax consequences.
Our international sales are priced in both U.S. dollars and in foreign
currency, each of which presents certain risks and uncertainties. Currency
exchange fluctuations could have a material adverse effect on our sales
denominated in U.S. currency as a decrease in the value of foreign currencies
relative to the U.S. dollar could make our pricing more expensive than, or
non-competitive with, products priced in local currencies. Additionally, due to
the number of foreign currencies involved in our international sales and the
volatility of foreign currency exchange rates, we cannot predict the effect of
exchange rate fluctuations with respect to such sales on future operating
results. We have not engaged in hedging transactions with respect to our net
foreign currency exposure. To the extent we implement hedging activities in the
future with respect to foreign currency transactions, there can be no assurance
that we will be successful in such hedging activities.
Moreover, certain of our customer purchase agreements are governed by
foreign laws, which may differ significantly from U.S. laws. Therefore, we may
be limited in our ability to enforce our rights under such agreements and to
collect amounts owed to us should any customer refuse to pay such amounts. In
addition, we are subject to the Foreign Corrupt Practices Act which may place us
at a competitive disadvantage with respect to foreign companies that are not
subject to that act.
16
<PAGE> 19
In January 1999, the new "Euro" currency was introduced in European
countries that are part of the European Monetary Union, or EMU. During 2002, all
EMU countries are expected to completely replace their national currencies with
the Euro. Because a significant amount of uncertainty exists as to the effect
the Euro will have on the marketplace and because all of the final rules and
regulations have not yet been defined and finalized by the European Commission
regarding the Euro currency, we cannot determine the effect this will have on
our business.
RISKS RELATED TO THE OFFERING
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL
OVER OUR BUSINESS AFTER THE OFFERING WHICH COULD DELAY OR PREVENT A MERGER OR
OTHER CHANGE IN CONTROL OF US.
Upon completion of this offering, our principal stockholders, executive
officers, directors and affiliated individuals and entities together will
beneficially own approximately 19.86% of the outstanding shares of common stock
(18.96% if the underwriters' over-allotment option is exercised in full). As a
result, these stockholders, acting together, may be able to influence
significantly and possibly control most matters requiring approval by our
stockholders, including approvals of:
- amendments to our certificate of incorporation;
- mergers;
- sale of all or substantially all of our assets;
- going private transactions; and
- other fundamental transactions.
In addition, our certificate of incorporation does not provide for
cumulative voting with respect to the election of directors. Consequently, our
present directors, executive officers, principal stockholders and their
respective affiliates may be able to control the election of the members of the
board of directors. Such a concentration of ownership could have an adverse
effect on the price of the common stock, and may have the effect of delaying or
preventing a change in control, including transactions in which stockholders
might otherwise receive a premium for their shares over then current market
prices.
SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT
COULD DISCOURAGE A CHANGE IN CONTROL AND REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.
Some provisions of our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire us even if a change of control
would be beneficial to our stockholders. These provisions include:
- authorizing the issuance of preferred stock without common stockholder
approval;
- prohibiting cumulative voting in the election of directors; and
- limiting the persons who may call special meetings of stockholders.
See "Description of Capital Stock -- Delaware Anti-Takeover Law and Certain
Charter and Bylaw Provisions" for more information regarding anti-takeover
matters.
17
<PAGE> 20
AS OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED, OUR STOCK PRICE MAY BE
EXTREMELY VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE
OFFERING PRICE.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price has been determined through
negotiations between the underwriters and us. You may not be able to resell your
shares at or above the initial public offering price.
Equity markets, particularly the market for technology companies, have
recently experienced significant price and volume fluctuations that are
unrelated to the operating performance of individual companies. These broad
market fluctuations may cause the market price of our common stock to decline.
In addition, the market price of our common stock is likely to be highly
volatile. In the past, securities class action litigation has often been
instituted against companies following periods of volatility in the market price
of their securities. This litigation could result in substantial costs and a
diversion of management's attention and resources.
Significant fluctuations in the market price of our common stock could be
caused by a number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in expectations as to our future financial performance;
- changes in financial estimates of securities analysts;
- changes in market valuations of other technology companies;
- announcements by us or our competitors of significant technical
innovations, design wins, contracts, standards or acquisitions; and
- the operating and stock price performance of other comparable companies.
Due to these factors, the value of your investment in our common stock
could be reduced. These market fluctuations may cause our stock price to decline
regardless of our performance.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO USE THE PROCEEDS OF THIS OFFERING
AND THEIR USES MAY NOT YIELD A FAVORABLE RETURN.
While we intend to use the net proceeds from this offering principally for
working capital needs and general corporate purposes, including the repayment of
approximately $8.0 million of outstanding debt, product and market development,
acquisitions or investments in complimentary businesses or products and the
right to use complimentary technologies, most of the net proceeds of this
offering have not been allocated for specific uses. Our management will have
broad discretion to spend the proceeds from this offering in ways with which
stockholders may not agree. The failure of our management to use these funds
effectively could result in unfavorable returns. This could have significant
adverse effects on our financial condition and could cause the price of our
common stock to decline. See "Use of Proceeds."
THE PURCHASERS IN THE OFFERING WILL IMMEDIATELY EXPERIENCE SUBSTANTIAL DILUTION
IN NET TANGIBLE BOOK VALUE.
The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock immediately after
the offering. As a result, purchasers of shares will experience immediate and
substantial dilution of approximately $9.73 in net tangible book value per
share, or approximately 69.5% of the initial public offering price of $14.00 per
share. In contrast, existing stockholders paid an average price of $6.53 per
share.
18
<PAGE> 21
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Upon completion of this offering, we will have 12,768,745 shares of common
stock outstanding. All the shares sold in this offering can be freely traded.
Certain of the remaining 8,768,745 shares of common stock outstanding after this
offering are subject to lock-up agreements that prohibit the sale of the shares
for 180 days after the effective date of the registration statement filed
pursuant to this offering. Immediately after the 180 day lock-up period,
6,936,239 of these shares will become available for sale. The remaining shares
of our common stock will become available at various times thereafter upon the
expiration of a one-year holding period. Sales of a substantial number of shares
of common stock in the public market after this offering or after the expiration
of the lock-up and holding periods could cause the market price of our common
stock to decline. See "Shares Eligible for Future Sale" for a discussion of
potential future sales of our common stock.
19
<PAGE> 22
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that involve risks and
uncertainties. These forward-looking statements include statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. You should not rely on these
forward-looking statements which apply only as of the date of this prospectus.
These statements refer to our future plans, objectives, expectations and
intentions. We use words such as "believe," "anticipate," "expect," "will,"
"intend," "estimate" and similar expressions to identify forward-looking
statements. This prospectus also contains forward-looking statements attributed
to third parties relating to their estimates regarding the growth of certain
markets. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those discussed in these forward-looking
statements. Factors that could contribute to these differences include those
discussed in the preceding pages and elsewhere in this prospectus.
USE OF PROCEEDS
The net proceeds to us from the sale of the 4,000,000 shares being offered
by us at an assumed initial public offering price of $14.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be $50,857,295, or $58,669,295 if the
underwriters' over-allotment option is exercised in full. We expect to use the
net proceeds of this offering for working capital and general corporate
purposes, including repayment of approximately $8.0 million of debt in the
aggregate as described below, increased spending on sales and marketing,
research and development and expansion of our operational and administrative
infrastructure. Specific amounts for these purposes, other than the repayment of
debt, have not yet been determined. In addition, we may use a portion of the net
proceeds to acquire or invest in complementary businesses, technologies, product
lines or products. However, we have no current plans, agreements or commitments
with respect to any such acquisition, and we are not currently engaged in any
negotiations with respect to any such transaction. Pending these uses, we intend
to invest the net proceeds in short-term, interest-bearing, investment grade
securities.
We are using a portion of the proceeds from this offering to fully repay
two revolving loan agreements and one term loan agreement with Bank of America,
N.A. These agreements with Bank of America all mature on March 31, 2001.
Borrowings under the revolvers bear interest at a floating rate of prime plus
2.5% per annum. The amounts outstanding under the revolvers at March 31, 2000
were $1.4 million and $514,000. Borrowings under the term loan bear interest at
a floating rate of prime plus 3.5% per annum. The amount outstanding under the
term loan at March 31, 2000 was $750,000.
We are using a portion of the proceeds from this offering to fully repay
two term loans with Sirrom Capital Corporation, now known as Finova Capital
Corporation, or Finova, each bearing interest at 13.5% per annum and each
maturing on June 23, 2002. At March 31, 2000 the amounts outstanding under the
Finova loans were $1.6 million and $1.75 million. The proceeds from the Finova
loans were used for working capital purposes.
We are using a portion of the proceeds from this offering to fully repay
two outstanding Bridge Note debt offerings. At March 31, 2000, the principal
amount outstanding under the offering that will mature on March 31, 2001,
bearing interest at 14% per annum, was approximately $1.4 million and the
principal amount outstanding under the offering that will mature on July 31,
2000, bearing interest at 13% per annum, was $550,000.
20
<PAGE> 23
We have Convertible Debentures that bear interest at 12% per annum with an
aggregate principal amount outstanding as of March 31, 2000 of $75,000 that will
mature on dates ranging from October 2003 to May 2004. Assuming the holders of
the Convertible Debentures exercise their conversion rights prior to the closing
of this offering, we intend to convert 60% of the outstanding principal amount
under the Convertible Debentures into 5,821 shares of our common stock at the
closing of this offering. At such time, we plan to fully repay the remaining
$30,000, or whatever amount remains unconverted under the Convertible
Debentures. The proceeds from the Convertible Debentures were used for working
capital purposes.
In connection with the acquisition of certain assets of Miram
International, Inc., we assumed a promissory note bearing interest at 8% per
annum and maturing on July 31, 2000. At March 31, 2000, $105,000 was outstanding
under this note, which amortizes in equal installments on April 30, 2000 and
July 31, 2000. The April 30, 2000 installment has been paid. We are using a
portion of the proceeds from this offering to fully repay this note.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and do not anticipate paying any cash dividends
in the foreseeable future. Furthermore, covenants in our loan agreements with
Bank of America prohibit the payment of dividends on common stock without the
consent of Bank of America and the terms of the Series C and Series D preferred
stock prohibit the payment of cash dividends without the consent of the Series C
and Series D preferred stockholders, respectively. See Notes 7, 10 and 20 to our
consolidated financial statements.
21
<PAGE> 24
CAPITALIZATION
The following table shows:
- our actual capitalization as of March 31, 2000;
- our capitalization as of that date on a pro forma basis to give effect to
the conversion of 60% of the outstanding convertible debentures into
5,821 shares of common stock at $7.73 per share, the conversion of
2,447,808 shares of Series C preferred stock into 1,688,865 shares of
common stock, on a 1-to-0.68995 basis, the conversion of 500,000 shares
of Series D preferred stock into 375,940 shares of common stock, on a
1-to-0.75188 basis, upon the closing of this offering;
- our capitalization as of such date on a pro forma basis to give effect to
the 1-for-2 reverse stock split of our common stock that was effected on
March 31, 2000, and the post-December 31, 1999 changes in the number of
our authorized shares of common and preferred stock; and
- our capitalization on a pro forma as adjusted basis to reflect our
receipt of the net proceeds from the sale of common stock offered by us
at an assumed offering price of $14.00 per share, and after deducting
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Debt:
Note payable -- Bridge loans.............................. $ 1,935 $ 1,935 $ --
Lines of credit -- Bank of America........................ 1,866 1,866 --
Note payable -- Bank of America........................... 750 750 --
Notes payable -- Finova................................... 3,350 3,350 --
Convertible debt.......................................... 75 30 --
Note payable -- Moroz..................................... 105 105 --
Capital leases............................................ 114 114 114
-------- -------- --------
Total debt........................................ 8,195 8,150 114
Stockholders' equity (deficiency):
Preferred stock, $0.01 par value; 15,000,000 shares
authorized; 2,500 shares of which are designated Series
A preferred stock, none of which are issued and
outstanding; 4,186 shares of which are designated
Series B preferred stock, none of which are issued and
outstanding; 4,500,000 shares of which are designated
Series C preferred stock, 2,447,808 of which are issued
and outstanding; 500,000 shares of which are designated
Series D preferred stock, 500,000 of which are issued
and outstanding........................................ 30 -- --
Common stock $0.01 par value; 90,000,000 shares
authorized; 6,698,119 issued and outstanding; 8,768,745
issued and outstanding pro forma; 12,768,745 issued and
outstanding pro forma as adjusted...................... 67 88 128
Additional paid-in capital.................................. 57,130 57,184 108,001
Accumulated deficit......................................... (49,542) (49,542) (49,542)
Stock subscription and deferred compensation................ (2,548) (2,548) (2,548)
-------- -------- --------
Net stockholders' equity.................................... 5,137 5,182 56,039
-------- -------- --------
Total capitalization.............................. $ 13,332 $ 13,332 $ 56,153
======== ======== ========
</TABLE>
22
<PAGE> 25
The number of shares of capital stock referenced above excludes: (1)
148,152 shares of common stock which may be issued upon the exercise of
currently outstanding vested options issued under the 1996 Plan; (2) options to
purchase 102,828 shares of common stock outside the 1996 Plan at $3.52 per
share; and (3) warrants to purchase 2,083,776 shares of common stock at a
weighted average exercise price of $4.88 per share. See "Management -- Amended
and Restated 1996 Long Term Incentive Plan" and note 11 to our consolidated
financial statements. See notes 10 and 11 to our consolidated financial
statements for more information regarding our equity structure.
23
<PAGE> 26
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value per
share by dividing the net tangible book value (total assets less intangible
assets and total liabilities) by the number of outstanding shares of common
stock.
Our pro forma net tangible book value at March 31, 2000, was approximately
$3.6 million, or $0.41 per share, based on 8,768,745 shares of our common stock
outstanding after giving effect to the conversion of 60% of the outstanding
convertible debentures into 5,821 shares of common stock at $7.73 per share, the
conversion of 2,447,808 outstanding shares of our Series C preferred stock into
1,688,865 shares of common stock, on a 1-to-0.68995 basis and the conversion of
500,000 outstanding shares of our Series D preferred stock into 375,940 shares
of common stock, on a 1-to-0.75188 basis, upon the closing of this offering.
After giving effect to the sale of the 4,000,000 shares of common stock by
us at the assumed initial public offering price of $14.00 per share (less the
underwriting discounts and commissions and estimated offering expenses payable
by us), our pro forma as adjusted net tangible book value at March 31, 2000,
would be $54.5 million, or $4.27 per share. This represents an immediate
increase in the pro forma as adjusted net tangible book value of 3.86 per share
to existing stockholders and an immediate dilution of $9.73 per share to new
investors, or approximately 69.5% of the initial public offering price of $14.00
per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Net tangible book value per share before the offering..... $ 0.41
Increase per share attributable to new investors.......... 3.86
------
Pro forma net tangible book value per share after the
offering.................................................. 4.27
------
Dilution per share to new investors......................... $ 9.73
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
the differences between existing stockholders and new investors with respect to
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- --------- -------- ---------
(000'S)
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 8,768,745 68.7% $ 57,272 53.0% $ 6.53
New investors.................... 4,000,000 31.3 50,857 47.0 12.71
---------- ---- -------- ----
Totals................. 12,768,745 100% $108,129 100%
---------- ---- -------- ----
</TABLE>
The information in the table is based upon the initial public offering
price of $14.00 per share before deducting underwriting discounts and
commissions and offering expenses payable by us. The information concerning
existing stockholders is based on the number of shares of common stock
outstanding on March 31, 2000 and gives effect to the conversion of 2,447,808
outstanding shares of Series C preferred stock into 1,688,865 shares of common
stock, on a 1-to-0.68995 basis as of March 31, 2000 the conversion of 60% of the
outstanding convertible debentures at $7.73 per share and the conversion of
500,000 outstanding shares of our Series D preferred stock into 375,940 shares
of common stock as of March 31, 2000, on a 1-to-0.75188 basis, upon completion
of this offering. The information presented with respect
24
<PAGE> 27
to existing stockholders excludes as of March 31, 2000: (1) 872,095 shares
subject to outstanding options and 377,905 shares available for future option
grants under our 1996 Plan; (2) 102,828 shares subject to non-plan options; and
(3) 2,083,776 shares subject to warrants to purchase common stock. The issuance
of common stock in connection with the exercise of these options and warrants
will result in further dilution to new investors. See notes 10 and 11 to our
consolidated financial statements for more information regarding our equity
structure.
25
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data should be read together
with our consolidated financial statements and notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other information contained in this prospectus. The selected financial data
presented below under the captions "Consolidated Statement of Operations Data"
and "Consolidated Balance Sheet Data" as of December 31, 1998 and 1999 and for
each of the years in the three-year period ended December 31, 1999, are derived
from our consolidated financial statements, which have been audited by KPMG LLP,
independent certified public accountants, included elsewhere in this prospectus.
We derived the consolidated financial data for the period ended December 31,
1995 (unaudited) and the year ended December 31, 1996 from our consolidated
financial statements that are not included in this prospectus. The selected data
presented below for the three months ended March 31, 1999 and 2000, and as of
March 31, 2000, are derived from our unaudited consolidated financial statements
included elsewhere in this prospectus and, in the opinion of management, have
been prepared on a basis consistent with the audited consolidated financial
statements and include all adjustments, which consist only of normal recurring
adjustments necessary to present fairly in all material respects the information
in those statements.
<TABLE>
<CAPTION>
THREE MONTHS
MAY 5, ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
-------------- ------- ------- -------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 118 $ 5,669 $12,744 $ 21,072 $ 13,952 $ 3,228 $ 5,002
Cost of sales............................. 82 4,452 13,335 23,530 11,751 2,795 3,607
------ ------- ------- -------- -------- ------- -------
Gross profit (loss)....................... 36 1,217 (591) (2,458) 2,201 433 1,395
Operating expenses:
General and administrative.............. 283 1,978 1,907 4,446 3,651 829 1,255
Research and development................ 159 711 2,951 4,361 3,377 1,073 951
Marketing and sales..................... 385 535 2,625 5,131 5,208 1,554 1,144
------ ------- ------- -------- -------- ------- -------
Total operating expenses.......... 827 3,224 7,483 13,938 12,236 3,456 3,350
------ ------- ------- -------- -------- ------- -------
Loss from operations...................... (791) (2,007) (8,075) (16,396) (10,034) (3,023) (1,955)
Other expense (income):
Interest expense, net................... (3) 112 676 1,638 6,297 628 929
Other, net.............................. -- (7) 24 (1) 126 (1) (2)
------ ------- ------- -------- -------- ------- -------
Loss before provision for income taxes.... (788) (2,112) (8,775) (18,033) (16,457) (3,650) (2,882)
Provision for income taxes(a)............. -- -- -- -- -- -- --
------ ------- ------- -------- -------- ------- -------
Net loss.................................. (788) (2,112) (8,775) (18,033) (16,457) (3,650) (2,882)
Cumulative dividends on Series B preferred
stock................................... -- (160) (317) -- -- -- --
Beneficial conversion cost of preferred
stock................................... -- -- -- -- (1,450) -- (49)
------ ------- ------- -------- -------- ------- -------
Net loss attributable to common
stockholders............................ $ (788) $(2,272) $(9,092) $(18,033) $(17,907) $(3,650) $(2,931)
====== ======= ======= ======== ======== ======= =======
Pro forma net loss attributable to common
stockholders(d)......................... $(16,815) $(2,562)
======== =======
Pro forma as converted net loss per
share(b)(c):
Basic................................... $(0.39) $ (1.08) $ (3.45) $ (4.36) $ (3.59) $ (0.80) $ (0.46)
====== ======= ======= ======== ======== ======= =======
Diluted................................. $(0.39) $ (1.08) $ (3.43) $ (4.20) $ (3.14) $ (0.75) $ (0.43)
====== ======= ======= ======== ======== ======= =======
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS
MAY 5, ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
-------------- ------- ------- -------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average common shares
outstanding(b)(c):
Basic................................... 2,035 2,099 2,639 4,136 4,994 4,567 6,324
====== ======= ======= ======== ======== ======= =======
Diluted................................. 2,035 2,099 2,650 4,293 5,707 4,898 6,793
====== ======= ======= ======== ======== ======= =======
Pro forma loss per share(b)(c)(d):
Basic................................... $ (3.02) $ (0.37)
======== =======
Diluted................................. $ (2.68) $ (0.35)
======== =======
Pro forma weighted average common shares
outstanding(b)(c)(d):
Basic................................... 5,565 6,895
======== =======
Diluted................................. 6,278 7,364
======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
----------- ------ ------- ------- ------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $352 $ 290 $ 2,216 $ 2,433 $ 4,792 $ 6,318
Working capital (deficit)......................... 424 388 1,928 (3,511) 5,483 4,230
Total assets...................................... 815 4,380 12,250 12,735 14,899 18,079
Long-term debt, less current installments......... -- 1,168 3,919 3,587 8,051 3,430
Total stockholders' equity (deficiency)........... 568 607 430 (3,496) 2,310 5,137
</TABLE>
- ------------
(a) During August 1996, Mobility was converted from a limited liability
corporation to a C-corporation. As a limited liability company, we were not
subject to income taxes.
(b) See note 19 to our consolidated financial statements for an explanation of
the determination of the number of shares and share equivalents used in
computing per share amounts.
(c) As adjusted to reflect a 1-for-2 reverse stock split effected on March 31,
2000. All share amounts, share prices and per share information have been
retroactively adjusted to reflect this 1-for-2 reverse split.
(d) The pro forma net loss and pro forma net loss per share reflect the
reduction of approximately $8.0 million of debt from the proceeds of
issuing approximately 571,000 shares of common stock upon completion of
this offering and give effect to the reduction in interest expense had the
debt reduction taken place at the beginning of 1999.
27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read together with "Selected Consolidated
Financial Data" and our consolidated financial statements and notes thereto
contained in this prospectus. This discussion and analysis contains certain
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including but not
limited to those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
In the first quarter of 1998 we began to pursue a technology that would
enable us to create a new universal docking product category which allows
portable computer users to configure a flexible, high performance docking
solution that is compatible with essentially all makes and models of portable
computers. The fundamental technology that we developed has far reaching
applications. In the first quarter of 1999 we changed our overall business
strategy to pursue the application of our Split Bridge(TM) technology as our
primary focus.
Mobility was founded in May 1995 to develop products for the portable
computer market. Initial sales were generated primarily from reselling
third-party power products. In mid-1996 we began manufacturing and shipping our
first port replicator and monitor stand products to Toshiba. During 1997 we
expanded our product offering to include port replicators for other computer
original equipment manufacturers, or OEMs, to meet the growing end user demand
for such products. Sales grew from $118,000 in 1995, to $5.7 million in 1996, to
$12.7 million in 1997 and $21.1 million in 1998. Sales in 1999 declined to $14.0
million primarily due to the phase out of the mechanical port replicator product
line. Net losses increased from $788,000 in 1995, to $2.1 million in 1996, to
$8.8 million in 1997, to $18.0 million in 1998 and decreased slightly to $16.5
million in 1999.
After reviewing our financial performance relative to the mechanical port
replicator product line, we determined that we needed to discontinue this
product line. The then available technology required each port replicator to be
unique to each portable computer. It typically took two months to design a unit
and an additional month to implement production and have product available in
the market. Lifecycles of portable computers vary, but they average
approximately nine months. With one-third of the lifecycle consumed in design
and production implementation, it was difficult to generate sufficient unit
volume over the remaining life of the portable computer to amortize the design
and tooling costs. In addition, once the portable computer was replaced in the
market by a new model, we faced the economic issues associated with the
distribution channel's return of unsold product. This resulted in obsolete
inventory, as the unit was model specific to the discontinued portable computer.
In December 1998 we booked reserves for inventory obsolescence, product
returns and tooling equipment impairment. An additional inventory reserve was
established in the amount of $4.5 million, unamortized tooling in the amount of
$275,000 was written off and an additional reserve for product returns was
recorded in the amount of $235,000.
The product line abandonment plan called for an immediate stop to
mechanical port replicator development. The engineering staff supporting this
activity was dismantled in the first quarter of 1999. The port replicator
product offering was reduced to the finished goods on hand and the build out of
existing component inventory. The final build was completed in July 1999, and we
have continued to sell out of finished goods inventory throughout the year ended
December 31, 1999. During 1999 we booked an incremental $1.7 million of obsolete
inventory reserve to specifically reserve all remaining mechanical port
replicator inventory.
28
<PAGE> 31
The product line abandonment plan assumed a migration from the mechanical
port replicator product offering to a universal line of docking stations.
Universal docking stations are a natural application for the Split Bridge(TM)
technology. These docking stations will represent the first commercial
application of the technology. A line of products was designed around our Split
Bridge(TM) technology and existing USB technology. The universal nature of the
product line overcomes the issues that made the mechanical port replicator
financially unviable. Specifically, the products are not model specific to
portable computers and therefore provide leverage to the engineering and tooling
cost. In addition, the product is compatible with virtually all PCI-based
computers, which eliminates the inventory obsolescence issues, as the products
will be compatible with new portable computer models into the foreseeable
future.
We also evaluated our basic business strategy relative to the power
products and monitor stand product lines and determined that a fundamental
change was required. During the first half of 1999, we implemented a
manufacturing strategy that migrated in-house production to contract
manufacturers in Taiwan. This decision was made to take advantage of lower costs
offered by contract manufacturers and the ability to reduce in-house fixed
overhead expenses. Implementation of this strategy was completed in September
1999. The outsourcing of manufacturing allows us to concentrate our efforts on
technological development and application.
As a result of the product line abandonment plan and our outsourcing of
manufacturing, we experienced significant improvement in gross margins in the
third quarter of 1999. The new universal connectivity product line has been set
up to use our contract manufacturing partner in Malaysia and the cost of net
sales is predictable based upon committed price quotations.
We sell our products directly to OEMs and the retail channel, as well as
through distributors. We have also established a few select worldwide private
label accounts, most notably IBM, NEC and Targus. A substantial portion of our
sales are concentrated among a number of OEMs, including Compaq, Dell,
Hewlett-Packard, IBM, NEC, Targus and Toshiba. Direct sales to OEMs accounted
for approximately 60.8% of net sales in the twelve months ended December 31,
1999. Direct sales to OEMs have declined as a percentage of sales as we have
expanded our channels of distribution in the United States to include
distributors and resellers. We expect that we will continue to be dependent upon
a number of OEMs for a significant portion of our net sales in future periods,
although no OEM is presently obligated to purchase a specified amount of
products.
A portion of our sales to distributors and resellers is generally under
terms that provide for certain stock balancing return privileges and price
protection. Sales to this channel have increased and are expected to further
increase significantly. Accordingly, we make a provision for estimated sales
returns and other allowances related to those sales. Returns, which have been
netted in the sales presented herein, were approximately 6.6% of sales for 1999.
The major distributors are allowed to return up to 15.0% of their prior
quarter's purchases under the stock balancing programs, provided that they place
a new order for equal or greater dollar value of the stock balancing return.
Historically, the returns have been primarily mechanical port replicators that
are associated with portable computers that have been replaced in the market. It
is anticipated that the return activity will diminish significantly due to the
nature of the universal docking station and the reduced obsolescence issues.
We derive a significant portion of our sales outside the United States,
principally in France, Germany and the United Kingdom, to OEMs, retailers and a
limited number of independent distributors. On October 1, 1999 we sold Mobility
Electronics, L.L.C., our international sales subsidiary, which owned
subsidiaries in France, Germany and the United Kingdom, for nominal value to
Cameron Wilson, our former president. Mr. Wilson has
29
<PAGE> 32
resigned from Mobility to develop these former subsidiaries into an independent
representative agency that will market our products exclusively in Europe.
International sales accounted for approximately 17.9% of our net sales for the
twelve months ended December 31, 1999. We expect sales outside the United States
to continue to account for a large portion of our net sales. International sales
are generally denominated in the currency of our foreign customers. A decrease
in the value of foreign currencies relative to the U.S. dollar could result in a
significant decrease in U.S. dollar sales received by us for our international
sales. That risk may be increased as a result of the introduction in January
1999 of the new "Euro" currency in European countries that are part of the
European Monetary Union, or EMU. During 2002, all EMU countries are expected to
completely replace their national currencies with the Euro. However, we cannot
determine the impact this may have on our business because a significant amount
of uncertainty exists as to the effect the Euro will have on the marketplace and
because all of the final rules and regulations have not yet been defined and
finalized by the European Commission regarding the Euro currency. We intend to
develop and implement a plan to mitigate this risk once the final rules and
regulations are established. We recognized net foreign exchange gains of
approximately $17,368 in the twelve months ended December 31, 1999. We have not
engaged in hedging transactions with respect to our net foreign currency
exposure. To the extent that we implement hedging activities in the future with
respect to foreign currency transactions, there can be no assurance that we will
be successful in such hedging activities.
Various factors have in the past affected and may continue in the future to
affect our gross profits, including but not limited to, our product mix, lower
volume production and higher fixed costs for newly introduced product platforms
and technologies, market acceptance of newly introduced products and the
position of our products in their respective lifecycles. The initial stages of
our product introductions are generally characterized by lower volume production
which is accompanied by higher costs, especially for specific products which are
initially purchased in small volumes during the development lifecycle.
We were formed as Electronics Accessory Specialists International, L.L.C.
in May 1995 and converted to Electronics Accessory Specialists International,
Inc. by a merger effected in August 1996 in order to convert from a limited
liability company to a C-corporation. The Company purchased all the issued and
outstanding common stock of Mobility Electronics, L.L.C. in May 1996 for $500.
The purchase price approximated the fair value of the net assets acquired, and
thus no goodwill resulted from this acquisition. On July 29, 1997 we acquired
certain assets and assumed certain liabilities of Miram International, Inc.
("Miram"), in exchange for 55,000 (giving effect to the 1-for-2 reverse stock
split) shares of common stock valued at $425,000. The purchase price
approximated the fair value of the net assets acquired, and thus no goodwill
resulted from this acquisition. Each of these acquisitions was accounted for
using the purchase method of accounting. In October 1999 we sold Mobility
Electronics, L.L.C. for $10, resulting in a loss of approximately $134,000.
We purchased Miram to gain access to and control of their in-process
universal docking technology. The fundamental technology was believed to be a
basis on which we could develop a commercially viable line of universal docking
products. The Miram acquisition was driven by the concern that we would have to
spend twelve to eighteen months in a development program to create a workable
technology. At the time of acquisition, the technology had not reached
technological feasibility and was at a point where software drivers had to be
written to support the numerous peripheral devices and compatibility issues had
to be resolved. Without the software, the basic technology was of little value.
We had engaged a third party appraiser to assess the value of the
technology. The appraisal was done as of the date of acquisition using the
income approach methodology. Based upon the determination that the in-process
technology had not yet reached technologi-
30
<PAGE> 33
cal feasibility and had no future alternative uses, we wrote off $965,000 of
in-process research and development in 1997.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data for the
periods indicated expressed as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- ---------------
1997 1998 1999 1999 2000
----- ----- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 104.6 111.7 84.2 86.6 72.1
----- ----- ------ ------ ------
Gross profit (loss)...................... (4.6) (11.7) 15.8 13.4 27.9
Operating expenses:
General and administrative............... 15.0 21.1 26.2 25.7 25.1
Research and development................. 23.1 20.7 24.2 33.2 19.0
Marketing and sales...................... 20.6 24.3 37.3 48.1 22.9
----- ----- ------ ------ ------
Total operating expenses......... 58.7 66.1 87.7 107.0 67.0
----- ----- ------ ------ ------
Loss from operations.................. (63.3) (77.8) (71.9) (93.7) (39.0)
Other expense:
Interest expense, net.................... 5.3 7.8 45.1 19.4 18.6
Other, net............................... .2 -- .9 -- --
----- ----- ------ ------ ------
Loss before provision for income
taxes............................... (68.8) (85.6) (118.0) (113.1) (57.6)
Provision for income taxes................. -- -- -- -- --
----- ----- ------ ------ ------
Net loss......................... (68.8)% (85.6)% (118.0)% (113.1)% (57.6)%
===== ===== ====== ====== ======
</TABLE>
Years Ended December 31, 1998 and 1997
Net sales. Net sales consist of sales of product net of returns and
allowances. We recognize sales at the time goods are shipped and the ownership
of the goods is transferred to the customer, and maintain a reserve for stock
rotation transactions with the distribution channel. Net sales increased 65.3%
to $21.1 million for the year ended December 31, 1998 from $12.7 million for the
year ended December 31, 1997. The increase in net sales for the year ended
December 31, 1998 was mainly due to the expansion of our product offering of
mechanical port replicators and docking stations.
Gross profit (loss). Our cost of sales consist primarily of costs
associated with components, outsourced manufacturing and in-house labor
associated with assembly, testing, packaging, shipping, quality assurance,
depreciation of equipment and indirect manufacturing costs. Cost of sales for
the year ended December 31, 1998 increased 76.5% to $23.5 million from $13.3
million for the year ended December 31, 1997. The increase was due to the
overall increase in sales volume and a product mix shift to mechanical port
replicators that had higher component costs and start up issues. An incremental
inventory reserve provision in the amount of $4.5 million was recorded during
the year ended December 31, 1998, reflective of the excess and obsolete
inventory and the write-off associated with our decision to discontinue the
mechanical port replicator product line. The short lifecycles of the mechanical
port replicators generated a significant obsolescence exposure for components
and finished goods which are returned under the stock balancing contract
provision with the major channel distributors. The gross profit (loss) percent
declined to (11.7)% of net sales for the year ended December 31, 1998 from
(4.6)% of net sales for the year ended December 31, 1997.
31
<PAGE> 34
General and administrative. General and administrative costs consist of
salaries and other personnel related costs of our finance, human resources, MIS,
corporate development and other administrative personnel, professional fees, bad
debt, depreciation and amortization and related expenses. General and
administrative expenses increased 133.1% to $4.4 million for the year ended
December 31, 1998 from $1.9 million in the year ended December 31, 1997, which
represents 21.1% of net sales in 1998 and 15.0% of net sales in 1997. The cost
increase was attributed to staffing and infrastructure additions to support the
higher sales volume and anticipated launch of the universal connectivity
products.
Research and development. Research and development expenses generally
consist of salaries and other personnel related costs, facilities, outside
consulting, lab costs and travel related costs of our product development group.
Research and development expenses increased 47.8% to $4.4 million for the year
ended December 31, 1998 from $3.0 million in the year ended December 31, 1997,
which included purchased research and development of $965,000 in connection with
the Miram acquisition and which represents 20.7% of net sales in the year ended
1998 and 23.1% of net sales in the year ended 1997. The increased expense was
the result of increased activity on the Split Bridge(TM) technology program.
Marketing and sales. Marketing and sales costs generally consist of
salaries, commissions and other personnel related costs of our sales, marketing
and support personnel, advertising, public relations, promotions, printed media
and travel. Marketing and sales expense increased 95.5% to $5.1 million for the
year ended December 31, 1998 from $2.6 million in the year ended December 31,
1997. In 1998 we canceled our distribution agreements with Extended Systems and
developed the internal infrastructure to distribute our products directly
through the established U.S. distribution channels. We also increased sales and
marketing expenses in anticipation of the launch of the universal connectivity
station products based upon the Split Bridge(TM) technology. The delay in the
ASIC development resulted in a twelve month delay in the launch program.
Interest expense, net. Interest expense consists of interest on our bank
revolving lines of credit and promissory notes as well as our subordinated debt
and convertible debentures, partially offset by interest earned on our cash
balances and short-term investments. Interest expense increased 142.3% to $1.6
million for the year ended December 31, 1998 from $676,000 for the year ended
December 31, 1997. The increase was due to increases in the outstanding debt
balance and the amortization of deferred loan costs related to warrants issued
in conjunction with debt.
Income taxes. We have incurred losses from inception to date; therefore, no
provision for income taxes was required for the years ended December 31, 1998 or
1997.
Years Ended December 31, 1999 and 1998
Net sales. Net sales declined 33.8% to $14.0 million for the year ended
December 31, 1999 from $21.1 million for the year ended December 31, 1998. There
were several factors that contributed to the sales decline. We elected to
migrate out of the mechanical port replicator business. Sales in 1999 were
limited to existing products, as all new mechanical port replicator product
development was terminated in the first quarter of 1999. No new products were
introduced in 1999 into a market that changes approximately every nine months
due to constant change of portable computer models. We also terminated our
exclusive distribution arrangement with Extended Systems in July 1998, which
resulted in a charge to income of approximately $295,000, and initiated
relationships directly with the distribution channel. The volume sold through
the distribution channel increased monthly in the first quarter of 1999, after
relationships were established in the fourth quarter of 1998, but did not reach
the volumes previously sold through Extended Systems until the second quarter of
1999. In
32
<PAGE> 35
addition, we had changed from in-house manufacturing to contracted
manufacturing. Product availability was negatively impacted during the
implementation of this transition.
Gross profit (loss). Cost of sales for the year ended December 31, 1999
decreased 50.1% to $11.8 million from $23.5 million for the year ended December
31, 1998. The decrease in cost of sales was primarily the result of the volume
decrease in net sales. Gross profit (loss) increased to 16.4% of net sales for
the year ended December 31, 1999 from (11.7)% of net sales for the year ended
December 31, 1998. The gross profit for the period ended December 31, 1998 was
adversely affected by the inventory reserve provision of $4.5 million to reflect
obsolescence issues with the mechanical port replicator dock product line.
Additionally, during 1999 $5.3 million of inventory was scrapped and charged to
the inventory reserve. Although improved as a percentage of net sales, the gross
profit for the period ended December 31, 1999 was adversely affected by a
reduction in sales volume and the additional initial costs incurred as the shift
to contract manufacturing was implemented.
General and administrative. General and administrative costs decreased
17.9% to $3.7 million for the year ended December 31, 1999 from $4.4 million for
the year ended December 31, 1998. The cost decrease was attributed to staffing
cuts in the United States implemented due to the decline in sales volume. We
expect general and administrative costs to increase in the future, in particular
as we incur higher legal, accounting and other expenses associated with being a
public reporting company.
Research and development. Research and development expenses decreased to
$3.4 million for the year ended December 31, 1999 from $4.4 million for the year
ended December 31, 1998. Expenses increased significantly in the product
development efforts in connection with our Split Bridge(TM) technology and its
application to the universal docking product line. This increase was more than
offset by reductions in research and development expenses associated with
mechanical port replicator products. We expect engineering costs to increase in
the future as we continue to develop next generation chips in order to keep us
at the leading edge of universal docking and remote PCI bus applications.
Marketing and sales. Marketing and sales expenses increased 1.5% to $5.2
million for the year ended December 31, 1999 from $5.1 million for the year
ended December 31, 1998. The increase in costs was primarily due to the launch
costs and packaging development costs for the universal docking product line. We
also incurred incremental expenses to establish direct relationships with the
U.S. distribution channels. We expect marketing and sales costs to continue to
increase in the future as we continue to launch new product lines and as sales
increase.
Interest expense, net. We also issued convertible bridge loan debt that
included warrants. In connection with the offering of Bridge Promissory Notes in
March and July 1999, we recorded a charge for deferred loan expense of $5.2
million relative to such warrants. Based upon normal amortization or the
conversion of the underlying debt, we expensed $4.8 million related to these and
other warrants for the year ended December 31, 1999. The warrants are amortized
over the life of the loan and are recorded as interest expense upon conversion.
Net interest expense increased by 284.4% to $6.3 million for the year ended
December 31, 1999 from $1.6 million for the year ended December 31, 1998. The
increase was primarily due to the non-cash expense associated with amortization
of the bridge loan warrants which totaled $4.8 million in the year ended
December 31, 1999. We expect to pay down substantially all of our debt with the
proceeds of the offering.
Income taxes. We have incurred losses from inception to date; therefore, no
provision for income taxes was required for the years ended December 31, 1999 or
1998.
33
<PAGE> 36
Three Months Ended March 31, 2000 and 1999 (Unaudited)
Net sales. Net sales increased 55.0% to $5.0 million for the three months
ended March 31, 2000 from $3.2 million for the three months ended March 31,
1999. There were several factors that contributed to the sales growth. Sales of
our core product lines, power products and monitor stands increased 121.8% to
$2.9 million for the three months ended March 31, 2000 from $1.3 million for the
three months ended March 31, 1999. Sales from new products totaled $1.8 million
in the three months ended March 31, 2000. Sales of mechanical port replicators
decreased 77.9% to $430,000 for the three months ended March 31, 2000 from $1.9
million for the three months ended March 31, 1999. This decrease was anticipated
based upon our decision to abandon this product line.
Gross profit. Cost of sales increased 29.1% to $3.6 million for the three
months ended March 31, 2000 from $2.8 million for the three months ended March
31, 1999. The increase in cost of sales was primarily the result of the volume
increase in net sales. Gross profit increased to 27.9% of net sales for the
three months ended March 31, 2000 from 13.4% of net sales for the three months
ended March 31, 1999. The gross profit rate improvement had two primary drivers:
the shift of manufacturing to outsourced contract manufacturers and a different
mix of mechanical port replicators that have low gross margin percentages.
General and administrative. General and administrative costs increased
51.4% to $1.3 million for the three months ended March 31, 2000 from $829,000
for the three months ended March 31, 1999. The cost increase was primarily
attributed to the amortization of deferred compensation costs which totaled
$308,000 in the three month period ended March 31, 2000. We expect general and
administrative costs to increase in the future, in particular as we incur higher
legal, accounting and other expenses associated with being a public company.
Research and development. Research and development expenses decreased 11.4%
to $951,000 for the three months ended March 31, 2000 from $1.1 million for the
three months ended March 31, 1999. Expenses increased significantly in the
product development efforts in connection with our Split Bridge(TM) technology.
This increase was more than offset by reductions in the research and development
expenses associated with mechanical port replicator products which were
abandoned. We expect research and development costs to increase in the future as
we continue to develop next generation ASIC chips in order to keep us at the
leading edge of universal docking and remote PCI bus applications.
Marketing and sales. Marketing and sales expenses decreased 26.4% to $1.1
million for the three months ended March 31, 2000 from $1.6 million for the
three months ended March 31, 1999. The cost reductions were primarily in
salaries and personnel related costs as the marketing support was outsourced
resulting in a headcount reduction. We expect marketing and sales expenses to
increase in the future as we continue to launch new product lines and as sales
increase.
Interest expense, net. We issued convertible bridge loan debt that included
warrants. In connection with the offering of bridge promissory notes in March
and July 1999, we recorded a charge for deferred loan expense of $710,000
relative to such warrants in the three months ended March 31, 2000. Net interest
expense increased 48.0% to $929,000 for the three months ended March 31, 2000
from $628,000 for the three months ended March 31, 1999. The increase was
primarily due to the non-cash expense associated with the amortization of the
bridge loan warrants. We expect to pay down substantially all of our debt with
the proceeds of the offering. See "Use of Proceeds".
Income taxes. We have incurred losses from inception to date; therefore, no
provision for income taxes was required for the three months ended March 31,
2000.
34
<PAGE> 37
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through debt and
equity financing, as the cost of our operating activities have exceeded our
sales. Our operating activities used cash of $8.9 million, $12.9 million, $11.5
million and $2.4 million for the years ended December 31, 1997, 1998 and 1999
and the three months ended March 31, 2000, respectively. The increased cash used
in operations was primarily due to our increased operating losses.
Our financing activities generated cash of $11.6 million, $14.1 million,
$14.6 million and $4.1 million for the years ended 1997, 1998 and 1999 and the
three months ended March 31, 2000, respectively. In March 1999 we issued an
aggregate of $3.5 million of 13% Bridge Promissory Notes, which were due and
payable in March, 2000, and issued warrants for the purchase of 525,000 shares
of common stock. In June 1999 $2.3 million of the Bridge Notes were converted to
common stock at a price of $8.00 per share. In February 2000, $1.2 million of
the outstanding Bridge Loans, plus accrued interest thereon of approximately
$160,000, were extended to March 31, 2001, and we issued additional warrants for
the purchase of 138,502 shares of common stock in connection therewith. In June
through August 1999 we issued an additional aggregate of $3.7 million of 13%
Bridge Promissory Notes and issued warrants for the purchase of 449,200 shares
of common stock. $3.2 million of these Bridge Notes were immediately converted
to common stock at a price of $8.00 per share. The balances are due and payable
in July 2000. In November 1998 through January 1999 we sold 827,209 shares of
Series C preferred stock for an aggregate of approximately $5 million in a
private placement. In October 1999 through January 2000 we sold 1,231,450 shares
of Series C preferred stock for an aggregate of approximately $7.4 million in a
private placement and issued warrants to purchase 1,231,450 shares of common
stock at $0.02 per share. In March 2000 we sold 500,000 shares of Series D
preferred stock for $5.0 million. In April and May 1998 we sold 742,500 shares
of common stock for an aggregate of $8.5 million in a private placement, and in
September 1997 we sold 1.25 million shares of common stock for an aggregate of
$10.0 million and issued warrants to purchase an additional 312,500 shares of
common stock in a private placement. In late 1996 and early 1997 we issued an
aggregate of approximately $2.2 million of 12% convertible debentures. In
December 1998 approximately $2.1 million of the convertible debentures were
converted to common stock at a price of $7.73 per share. We also issued an
aggregate of $3.4 million of 13.5% Secured Promissory Notes to Finova in June
1997 and March 1998 (the "Finova Notes"), which are due and payable on June 23,
2002. In connection with the issuance of the Finova Notes, we issued warrants to
Finova which are currently exercisable for an aggregate of 209,062 shares of
common stock at an exercise price of $0.02 per share (the "Finova Warrants").
The unconverted portion of the convertible debentures and the Finova Notes will
be repaid with part of the proceeds of this offering.
Our investing activities used cash of $805,000, $903,000, $724,000 and
$120,000 for the years ended 1997, 1998 and 1999 and the three months ended
March 31, 2000, respectively. From inception through March 31, 2000, cash used
in investing activities was primarily used for capital purchases, including
tooling and capital leases.
Our cash and cash equivalents increased to $6.3 million at March 31, 2000,
compared to $4.8 million at December 31, 1999, $2.4 million at December 31, 1998
and $2.2 million at December 31, 1997. Our net working capital (deficit) at
those same dates was $4.2 million, $5.6 million, $(3.5 million) and $1.9
million, respectively. At March 31, 2000 our primary source of liquidity other
than our cash and cash equivalents were our foreign and domestic lines of credit
with Bank of America totaling $3.75 million. At March 31, 2000 the $3.0 million
domestic line of credit and the $750,000 foreign line of credit had outstanding
balances of approximately $1.4 million and $0.5 million, respectively, bearing
interest at 2.5% plus the bank's corporate base rate (11.5% at March 31, 2000),
per annum, payable monthly. Advances
35
<PAGE> 38
under both lines are limited to a percentage of eligible accounts receivable and
inventory and are secured by our accounts receivable, inventory and property and
equipment. The foreign line of credit is guaranteed by the U.S. Export-Import
Bank, and both lines of credit are also guaranteed by certain of our
stockholders. See "Certain Transactions." The Company was in violation of
certain restrictive debt covenants with respect to the lines of credit with Bank
of America as of December 31, 1998 and 1999 which have been subsequently waived
by the bank. Audited December 31, 1998 financial statements were required to be
provided to the bank by March 31, 1999 under the domestic loan agreement and by
April 30, 1999 under the foreign loan agreement. The required financial
statements were not provided until February 4, 2000. We were also required to
maintain a current ratio of 0.90:1 under the domestic loan agreement and 1.00:1
under the foreign loan agreement. Our current ratio at December 31, 1998 was
0.72:1. At December 31, 1998, our foreign loan agreement required us to have
tangible net worth of $1,190,000 and a total liabilities to tangible net worth
ratio of 3.40:1. Those amounts, calculated with adjustments as provided by the
loan agreement, were $(319,684) and -40.00:1, respectively. Our 1999 payments of
compensation to officers exceeded those same payments for 1998 by $190,779,
which was in violation of the domestic loan agreement covenant requiring that
total compensation paid to officers for the year 1999 could not exceed the
amount of payments in 1998. Both the domestic and foreign loan agreements
prohibited loans to officers. However, we entered into a loan with Jeffrey Doss
in 1999. See "Certain Transactions". Also in 1999, we sold our European
subsidiary without the consent of the bank, which was in violation of covenants
in both the domestic and foreign loan agreements. The outstanding balances of
both lines of credit will be repaid with part of the proceeds of this offering.
See "Use of Proceeds".
At December 31, 1999 we had $32.0 million of federal net operating loss
carryforwards which expire at various dates. We anticipate that the sale of
common stock in this offering coupled with prior sales of common stock will
cause an annual limitation on the use of our net operating loss carryforwards
pursuant to the change in ownership provisions of Section 382 of the Internal
Revenue Code of 1986, as amended. This limitation is expected to have a material
effect on the timing of our ability to use the net operating loss carryforward
in the future. Additionally, our ability to use the net operating loss
carryforward is dependent upon our level of profitability, which cannot be
determined.
We believe that our existing sources of liquidity and net proceeds to us
from this offering will be sufficient to satisfy our expected working capital,
debt repayment requirements and capital expenditures needs for at least the next
twelve months.
YEAR 2000 READINESS
In preparation for the year 2000, we engaged in efforts to ensure that our
products and business systems properly recognize date-sensitive information in
the year 2000 and beyond. These efforts and their costs are described below. We
have not experienced any significant "year 2000 problems" with our products and
business systems and do not expect that we will do so in the future.
State of Readiness. In 1999 we hired outside consultants to audit and
assess the ability of our hardware and software systems to operate properly in
the year 2000 and beyond. We investigated the year 2000 readiness of our
software, hardware and other significant vendors by requiring them to complete
questionnaires and submit internal year 2000 plans to insure no disruption would
occur in our supply chain. To date we have not encountered any material year
2000 issues or significant disruptions to our operations.
Cost of Assessment and Remediation. We have incurred direct costs of less
than $100,000 in assessing and remediating year 2000 problems, and we do not
expect to spend more than $100,000 in the aggregate to complete the process.
36
<PAGE> 39
Risks. We could be exposed to a loss of revenues and our operating expenses
could increase if our products or business systems have year 2000 problems. Our
potential areas of exposure include products purchased from third parties,
information technology, including computers and software, and non-information
technology, including telephone systems and other equipment used internally. The
reasonably likely worst case scenario for year 2000 problems would be if a
significant defect exists in key hardware or software and if a solution for such
a problem were not immediately available.
Contingency Plan. Although we have not experienced any year 2000-related
problems affecting our internal systems, we have developed contingency plans to
be implemented if our efforts to identify and correct year 2000 problems are not
effective. Depending on the systems affected, these plans include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of back-up equipment and software or other
redundant systems; and
- increased work hours for our personnel or the hiring of additional
information technology staff.
The discussion of our efforts and expectations relating to year 2000
compliance are forward-looking statements. Our ability to achieve year 2000
compliance, and the level of incremental costs associated with compliance, could
be adversely affected by, among other things, the availability and cost of
external resources, third party suppliers' ability to modify proprietary
software and unanticipated problems not identified in our ongoing review.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Prototype and beta
site units are also expensed. Production tooling and fixtures are capitalized.
Tooling and fixturing costs are accumulated as a prepaid asset in the financial
statements until the associated products are launched into production. At that
time the accumulated costs are amortized to expense over the estimated useful
life of the tool or fixture or the estimated life of the product, whichever is
shorter.
MARKET RISK
To date we have not utilized derivative financial instruments or derivative
commodity instruments. We do not expect to employ these or other strategies to
hedge market risk in the foreseeable future. We invest our cash in money market
funds, which are subject to minimal credit and market risk. We believe that the
market risks associated with these financial instruments are immaterial.
Our revolving lines of credit and certain other debt obligations are
subject to variable rate interest which could be adversely affected by increases
in rates, however, our intent is to pay off our debt from a portion of the
proceeds of this offering, which should minimize this interest rate risk.
37
<PAGE> 40
BUSINESS
THE COMPANY
Mobility Electronics designs, develops and markets connectivity and remote
peripheral component interface, or PCI bus, technology and products for the
computer industry and for a broad range of related microprocessor applications.
The PCI bus is the electrical transmission path linking the computer's central
processing unit with its memory and other peripheral devices, such as modems,
disk drives and local area networks, or LANs. Our proprietary Split Bridge(TM)
technology consists of a Split Bridge(TM) link, typically two customized
semiconductors, known as application-specific integrated circuits, or ASIC
chips, two connectors and a high-speed, bi-directional cable. Our technology for
the first time allows the primary PCI bus of any computer to be extended to a
remote location, up to 15 feet, with virtually no software requirements or
performance degradation, thereby enabling architectural designs of computer
systems and applications that previously were not feasible. Unlike traditional
communication protocols such as universal serial bus, or USB, firewire, or IEEE
1394, Ethernet and small computer systems interface, or SCSI, Split Bridge(TM)
technology offers a combination of:
- high performance, bi-directional gigabit speeds;
- plug and play ease of use with no unique software requirements;
- flexible architectural design choices;
- minimal special size, heat and power requirements; and
- cost effective pricing.
Since Split Bridge(TM) technology extends the PCI bus, it can also
accommodate any of the traditional communication protocols in the remote
location as if they are attached to the primary PCI bus.
Split Bridge(TM) technology is suitable for many applications, including
universal docking stations for portable and handheld computers, desktop
expansion modules, servers, keyboard-video-mouse, or KVM, switches, and
potentially routers, business machines, such as copiers and printers, test
equipment, modular computers, computer data storage, in-home remote computer
extension and other applications that could benefit from extending the PCI bus
or from enhanced communication among computers.
Our first major application for Split Bridge(TM) technology is the creation
of a new universal docking product category which provides portable computer
users with the ability to configure a flexible, high performance docking
solution that meets their individual needs, and more importantly, is compatible
with most makes and models of portable computers.
Our second major application is the provision of additional lower cost
expansion and back up capacity, remote access and enhanced communication among
computers in the server, desktop and KVM switch markets in partnership with
Cybex Computer Products Corporation.
Our Split Bridge(TM) technology won PC Week's "Best New Technology" award
at the fall 1999 COMDEX trade show, the world's largest information technology
event in the computer industry. Our Split Bridge(TM) technology and its
universal docking application was also runner-up for the "Technology Achievement
of the Year Award" at the Mobile Insights 2000 Conference which was held in
March 2000. Mobile Insights is a professional services company that focuses on
the mobile computing and data communications market. Additionally, our flagship
EasiDock(R) 3000 universal docking product was a runner-up for the Byte.com
"Best New Peripheral Award" at the fall 1999 COMDEX show.
38
<PAGE> 41
In addition to our Split Bridge(TM) technology products, we also design,
develop and market a range of connectivity and power products for portable
computers. Our current major customers include Buy.com, Compaq, CompUSA,
Gateway, Hewlett-Packard, Hitachi, IBM, Ingram Micro, Merisel, Microwarehouse,
Mitsubishi Electronics, NEC, Pinacor, Targus, Tech Data and Toshiba.
INDUSTRY BACKGROUND
PCI Computer Architecture
Today the most prevalent computer architecture, which is incorporated into
virtually all computer systems and in many related embedded processor
applications, uses the PCI bus. However, the PCI bus has a number of key
limitations, most notably a constraint on the number of lines, or circuits, and
loads that can be attached to it. Historically, these limitations have been
mitigated to some extent by attaching a bridge chip to the PCI bus, which in
turn permits a number of additional loads or peripherals to be attached to a
secondary PCI bus, which is also connected to the bridge chip. This procedure
has the major limitation of requiring the secondary PCI bus to be located on the
main PCI bus printed circuit board, or PCB, or attached physically by a
connector which enables extension of the secondary PCI bus to a maximum of
approximately three inches from the PCB. Consequently, the industry today faces
a number of physical and electrical constraints when designing a computer
system, and has been unable to move the secondary PCI bus more than a few inches
from the primary PCI bus. Additionally, traditional communication protocols,
which attempt to address these limitations, have numerous disadvantages since
they generally require a processor, extensive software and other related items.
Universal Docking
The portable computer market, which is a rapidly growing segment of the
personal computer industry, could benefit from solutions that address the
inherent limitations on PCI bus architecture. Demand in this market has been
fueled by advances in computer technology and the demand for computer mobility.
According to IDC, a leading industry source, the market for portable computers,
excluding handheld devices, is expected to grow at a compounded annual growth
rate of 13.8% from 15.5 million units in 1998 to approximately 29.6 million
units in 2003. In addition, IDC forecasts that the handheld market, which can
also benefit from Split Bridge(TM) technology, will grow at a compounded annual
growth rate of over 39.8% from 6.6 million units in 1998 to approximately 35.2
million units by 2003. Along with this unit growth, there is an increasing
dependence on portable computers. IDC reported that 65.3% of all notebook
computers sold in 1998 served as the user's primary computer.
Coupled with this trend toward portability, there has been an increased
demand for computers that are smaller and lighter but have processing
functionality similar to that of the traditional desktop computer. To meet this
demand, there has been an increased use of peripheral and external devices such
as hard drives, CD-ROM drives, networking connections, printers, tape backup
units and USB devices which enable the core laptop to be smaller and lighter. To
make these smaller and lighter computers more convenient to use in the office
and home, port replicators and docking stations have been developed to allow
users to connect to networks, peripheral devices and external power sources,
providing users with all of the features and functionality of a traditional
desktop computer. Port replicators are simple devices that provide users with a
cable management system for peripherals such as full-sized keyboards, power
cords, mice and monitors. Docking stations include basic port replicator
features, as well as more advanced capabilities such as networking, PC card
slots, storage devices and internal power supplies. Attaching and releasing a
portable computer from a port replicator or docking station is typically a
one-step procedure that takes seconds to complete compared to the burdensome
task of attaching or releasing each external device separately.
39
<PAGE> 42
When a portable computer is detached from a connectivity product, all external
devices connected to the connectivity product stay in place.
To date, there has not been a provider of a standardized, complete,
cost-effective, quick-to-market connectivity solution. Computer original
equipment manufacturers, or OEMs, have historically designed port replicators
and docking stations internally and subcontracted these products for assembly by
various vendors. Because computer OEMs primarily focus on providing portable
computers with the latest technological capabilities and strong price and
performance characteristics, their development of port replicators and docking
stations is a secondary focus and often lack state-of-the-art technology and
innovation. These OEM-developed port replicators and docking stations are
generally expensive, lack configuration flexibility and are often available only
well after the computer model is launched. Additionally, computer OEMs generally
retool each generation of portable computers and have not created standardized
port replicators and docking stations that are independent of manufacturer or
model.
Servers, Desktop Computers and KVM Switches
The server market, which is a rapidly growing segment of the computer
industry, is driven by the increasing demands of the Internet. According to
Dataquest, the server market is expected to grow at an annual compounded growth
rate of 15.1% from approximately 3.7 million units in 2000 to approximately 5.6
million units in 2003. The desktop PC market is expected to grow at an annual
compounded growth rate of 14.8% from approximately 110.5 million units in 2000
to approximately 167.2 million units in 2003.
Currently this growth is met by adding additional servers and PCs because
the main PCI bus can only support a fixed number of electrical loads.
Additionally, communication among servers, desktop computers and portable
computers is limited due to constraints of the PCI bus. These servers are often
operated with either an individual KVM switch, or with a dedicated local or, in
some cases, remote KVM switch. In all cases, due to current technical
limitations these servers operate independently from the desktop or portable
computer system, and are generally expensive to expand. Additionally, it is
often difficult or expensive to isolate related peripherals for expansion,
backup and security reasons.
THE MOBILITY SOLUTION
Split Bridge(TM) Technology
Our Split Bridge(TM) technology allows the primary PCI bus of any computer
to be extended to a remote location with virtually no software or performance
degradation. This technology enables architectural designs of computer systems
and applications that previously were not feasible. The implementation of such
new solutions can potentially include replacing current bridge chips with Split
Bridge(TM) chips, integrating Split Bridge(TM) technology into other chips and
technologies or using Split Bridge(TM) technology to create new products and
product categories in a variety of potential applications.
More specifically, Split Bridge(TM) technology eliminates many of the
physical and electrical constraints on a primary PCI computer bus and PCB, by
allowing one or more Split Bridge(TM) chips to be attached to the primary
computer PCI bus, with the mating Split Bridge(TM) chips installed at a remote
location along with the secondary PCI bus. As a result, all of the secondary PCI
bus loads and peripherals do not need to be attached to the primary PCI bus,
therefore eliminating their respective constraints on the primary PCI bus PCB.
Additionally, Split Bridge(TM) technology substantially reduces the physical
space requirements on the primary PCB by eliminating the need for multiple
traditional bridge chip connections and allows the connecting cable to be small
and flexible.
40
<PAGE> 43
Universal Docking
We believe that our universal Split Bridge(TM) docking station product line
will advance the state-of-the-art in docking capability by enabling the user to
configure a docking system which incorporates standard docking station
functionality with the user's preferred peripheral devices and PCI expansion
capability. Our universal Split Bridge(TM) docking station is capable of being
upgraded due to its modular design, providing the user with enhanced
flexibility. Our universal docking station is designed to work with most
standard notebook computers and PCI-based computing devices, regardless of the
manufacturer or model. Today Split Bridge(TM) technology allows the remote
universal docking station to be located up to 15 feet away from the computer.
These distances may be much greater as we complete the development of our next
generation ASIC chips.
Our universal docking station provides end users with the flexibility to
configure virtually any type of desired docking system, including the ability to
convert almost any PCI-based portable computer into a full desktop system. This
creates a basis for a connectivity standard for the portable computer industry
which would allow the user to replace the desktop computer with a fully
integrated, customizable mobile computing system. These universal docking
products also provide a range of docking options that were not previously
available for many of the existing installed base of portable computers. Our
solution further provides distributors, retailers and value-added resellers with
the ability to carry a limited number of universal and expandable docking
products, as opposed to many individual docking stations that only work with one
computer model. Thus, distributors, retailers and value-added resellers can
offer flexible choices to their customers and have products readily available
when new computer models are launched, while at the same time maintaining a
limited SKU count. Finally, these products offer OEMs the ability to create a
standardized docking solution for portable computer models, and to provide
creative docking solutions.
Servers, Desktop Computers and KVM Switches
Split Bridge(TM) technology enables servers, desktop computers,
input/output devices, peripherals and other technologies to be placed in
multiple remote locations. Thus, our Split Bridge(TM) technology will permit the
configuration of new ways to meet the server, desktop and portable computer
needs of corporate users. For example, by using our Split Bridge(TM) link, each
expansion slot of a server can be expanded to accommodate an additional four
loads. This allows the use of a physically smaller server without expansion
slots to be expanded as necessary with a Split Bridge(TM) connector, and allows
users to avoid adding additional servers until they require more processing
capacity. Alternatively, Split Bridge(TM) technology can be used to connect
servers, KVM switches, desktop PC computers and portable computers in various
locations within the office. This would allow a common connectivity station that
accesses any of the above computing devices with enhanced communication between
servers, desktop computers and portable computers at different times. With Split
Bridge(TM) technology, PCI peripherals can also be easily isolated for
expansion, backup and security reasons. Since servers are a rapidly growing
segment of the computer industry, and because they often already require
multiple bridges, the growth potential for Split Bridge(TM) technology in the
server segment could be quite large.
41
<PAGE> 44
TECHNOLOGY
The heart of most computing architecture today and into the foreseeable
future is the PCI bus or a derivative of PCI. A traditional PCI computer
architecture together with our Split Bridge(TM) chip alternative is shown in the
following figure:
[A diagram of a printed circuit board will appear here. This diagram will
illustrate the ability of the Mobility Split Bridge(TM) chip to interface with a
remote secondary PCI bus rather than a traditional secondary PCI bus.]
As shown above, the primary PCI bus is typically connected to a north
bridge chip, which in turn is connected to the central processing unit, or CPU,
memory and advanced graphic processor, or AGP, and various peripherals such as
audio peripherals, a card bus controller, LAN adapters, SCSI adapters, a bridge
chip and other devices. The bridge chip then connects to a secondary PCI bus
that can handle additional functions just like the primary PCI bus.
The key limitations of traditional technology and architecture are:
- the requirement that the primary and secondary PCI bus be on the same
PCB, or be physically attached via a connector which limits the distance
to approximately three inches; and
- the limited number of allowable lines and loads on the PCI bus.
Thus, substantial expansion requires many bridges on the PCB, creating a variety
of physical and loading constraints. These constraints are the reason bridges
were invented in the first place, but their limitation is that they take up a
load on the bus and the secondary bus is on the same PCB as the primary PCI bus.
Split Bridge(TM) chips are like any other bridge chip, except they are divided
into two halves separated by a high speed link. Consequentially, Split
Bridge(TM) technology eliminates the requirement of having the secondary PCI bus
on the
42
<PAGE> 45
primary PCI bus PCB. As a result, multiple secondary PCI buses can be created at
a number of remote locations. The first generation Split Bridge(TM) ASIC chips
have been designed for distances of up to 15 feet. We believe future generations
may extend this distance substantially.
The traditional and the Split Bridge(TM) approaches are shown in the figure
above. While a traditional bridge chip has many lines in and out of the chip,
typically over 60, on the same PCB, with Split Bridge(TM) technology, these
lines are reduced to four, sent over a high-speed link at gigabit speed and
returned to the full number of lines at the remote PCI bus location. An
additional benefit of this technology is that it is transparent to software. No
operating system or device drivers are required since we actually move the PCI
bus. Thus, Split Bridge(TM) technology can replace traditional bridge chips in
many applications.
Historically, the above limitations have been addressed by using a range of
communication protocols such as USB, IEEE 1394, Ethernet and SCSI. These
approaches are generally software intensive, require processors and are
applicable for only certain uses since they involve moving data as opposed to
extending the PCI bus. The following table illustrates the advantages of Split
Bridge(TM) architecture:
SPLIT BRIDGE(TM) TECHNOLOGY ADVANTAGES
<TABLE>
<CAPTION>
<S> <C>
- - Gigabit speed - No storage requirements
- - Bi-directional - Minimal size, heat and power requirement
- - PCI superset (transfers bus, not data) - Highly upgradeable technology migration path
- - Full PCI bus compatibility - Small, flexible cable
- - No processor requirements - Cost effective
- - No software requirement
</TABLE>
STRATEGY
Our objective is to be the leading provider of Split Bridge(TM) products
and technology. Key elements of our strategy include:
Leverage Technological Leadership. We intend to continue to accelerate
the development of Split Bridge(TM) technology and invest in research and
development of related advanced technologies.
Maximize Penetration in the Universal Docking Market. We intend to
capitalize on our current strategic position in the universal docking
market by continuing to introduce high-technology Split Bridge(TM) products
that suit the needs of a broad range of users. These products will provide
users with multiple configuration choices and will include a family of
universal docking products designed to provide customers with timely,
easy-to-use connectivity choices and solutions that meet individual
customer needs at optimal price and performance levels. One of our goals is
to eventually have Split Bridge(TM) technology installed on every PCI-based
computer motherboard for the purpose of providing a standard docking
solution. To achieve this goal, we have entered into a joint strategic
development agreement with Molex and Silicon Image to provide an integrated
Split Bridge(TM) and digital video, or DVI, universal, industry-wide
docking solution.
Establish Licensing and Strategic Partnerships. We intend to license
Split Bridge(TM) technology and enter into strategic partnerships in order
to fully realize the market potential of our Split Bridge(TM) technology.
These activities will specifically include exploiting the server, KVM
switch and desktop computer market with our strategic partner, Cybex, as
well as expanding current strategic partnerships and establishing a wide
variety of additional relationships.
43
<PAGE> 46
Expand Split Bridge(TM) Applications. We intend to pursue the further
commercialization of Split Bridge(TM) technology so that we are able to
expand our product offerings to include additional applications.
Broaden Distribution Capabilities Worldwide. We currently sell our
products worldwide through distributors, value-added resellers, retailers
and private label partners. We believe that broadening the distribution of
our products through strategic alliances with a variety of companies within
the computer industry is a critical element in establishing our technology
and products as industry standards.
Expand OEM Relationships. We intend to provide a broad range of OEM
products by partnering with OEMs globally in a manner that meets their
current and future connectivity and remote PCI bus requirements. We will
also work with both OEMs and other chip makers, such as DVI partners, card
bus controller partners, processor manufacturers and others, to design and
implement solutions that can meet the integrated requirements of OEMs.
Pursue Strategic Acquisitions. We intend to evaluate opportunities to
acquire complementary businesses, technologies and products that can
benefit from Split Bridge(TM) technology. We also plan to pursue
acquisitions that will enable us to offer products and features to better
serve our customers or to more fully realize the market potential of our
Split Bridge(TM) technology, to more rapidly develop and bring to market
advanced technology, to expand distribution capabilities and to penetrate
other targeted markets or geographic locations.
STRATEGIC RELATIONSHIPS
We have entered into a number of strategic relationships to develop and
enhance our existing and future technology, product lines and market
opportunities. We own all of the Split Bridge(TM) technology and do not pay
royalties to any of our strategic partners with which we have strategic
relationships. These relationships include the following:
Technology
Cybex Computer Products Corporation. Cybex is a leader in providing
KVM switches in the server market. In March 2000 we entered into a
strategic partnership agreement with Cybex to pursue the development of new
server, desktop and KVM switch systems, technology and products. As part of
this strategic partnership: (i) we entered into a private label agreement
with Cybex pursuant to which we have agreed to sell Cybex our universal
docking products; (ii) we have agreed with Cybex to cross-license certain
of our respective technologies for permitted applications; and (iii) Cybex
purchased $5 million of our Series D preferred stock. A major focus of our
strategic partnership with Cybex will be the potential substantial
extension of the distances over which Split Bridge(TM) technology can be
used.
LSI Logic Corporation. LSI is a major supplier of custom,
high-performance semiconductors and is focused on building complete systems
on a single chip. Pursuant to our strategic partnership, LSI has committed
to develop two next generation chips, at its expense, which will enhance
the universal docking solution by eliminating the need for an external
serialization/deserialization, or SerDes, chip. This development will
reduce our costs and provide us with a one-chip motherboard solution for
our OEM customers.
Molex Incorporated. Molex is a major developer and manufacturer of
connectors and cable. Together with Molex, we have developed our
proprietary connector and 1.25 gigabit bi-directional cable for use with
our Split Bridge(TM) and docking technology. Molex is our sole supplier of
certain system connectors for use with our universal docking
44
<PAGE> 47
products, has invested a significant amount of capital in this technology
and continues to support the development of our Split Bridge(TM)
technology. Further, Molex has agreed to support the development of a major
new integrated Split Bridge(TM)/DVI universal docking solution in
partnership with Silicon Image and us, as well as support Split Bridge(TM)
connector and cable requirements in other market areas. Molex is also one
of our investors.
Silicon Image, Inc. Silicon Image is a provider of DVI technology.
Silicon Image, Mobility and Molex have entered into a joint strategic
development agreement to develop and promote a new integrated Split
Bridge(TM)/DVI universal docking solution.
Philips Semiconductors. Philips, formerly VLSI Technology, Inc., is a
leading designer, developer and manufacturer of ASIC chips. Together with
Philips, we have developed our proprietary first generation digital ASIC
chip, which incorporates our Split Bridge(TM) technology. Until the next
generation chip is available from LSI, Philips is our sole supplier of
Split Bridge(TM) technology ASIC chips. Philips has invested a significant
amount of capital in developing this technology and is one of our
investors.
Contract Manufacturers
Solectron Corporation. Solectron is a leading, high quality contract
manufacturer for the electronics industry. Solectron currently manufactures
all of our Split Bridge(TM) universal docking stations in its Malaysian
facility.
EFA Corporation. EFA is a leading, high quality Taiwanese contract
manufacturer for the electronics industry. EFA currently manufactures all
of our USB docking stations.
Private Labels and Arrangements With Key OEMs
3Com Corporation. 3Com is a leader in the Ethernet networking market.
Pursuant to our strategic partnership, 3Com provides us with their latest
10/100 base T Ethernet ASIC chip, which we incorporate into a range of our
connectivity products. Additionally, 3Com will promote our products as part
of the 3Com Connected(TM) partner program.
Targus, Inc. Targus is the largest worldwide provider of carrying
cases for portable computers. Targus distributes a range of our products,
on a private label basis, primarily to major retail outlets and certain OEM
fulfillment outlets worldwide. Unlike traditional U.S. distributors, Targus
is responsible for all stock balancing, advertising and other retail
oriented discounts and issues with their customers.
Cybex Computer Products Corporation. Cybex is a leading provider of
KVM switches for the server market. Cybex has entered into a private label
agreement with us to purchase a range of our universal docking products,
potentially including the integration of a Cybex KVM switch. Cybex will be
responsible for the marketing of such products through its distribution
channels at its cost.
PRODUCTS
Standard Split Bridge(TM) Products
We have designed and internally tested the Split Bridge(TM) products
described below. In March 2000 we began shipping commercial quantities of the
EasiDock(R) 1000E and completed the commercialization of the Split Bridge(TM)
link which is now available for sale pursuant to certain licensing agreements.
We expect to begin shipping commercial production quantities of all of the
remaining products described below in the second or third quarter of 2000.
Split Bridge(TM) Link. This product allows the extension of the primary PCI
bus. It includes two Split Bridge(TM) ASIC chips, two connectors and a 1.25
gigabit bi-directional, high-speed
45
<PAGE> 48
cable. The choice of connectors and chips depends on the application. We will
offer this Split Bridge(TM) link, which can be incorporated into a customer's
custom product, provided that the purchaser executes a license or royalty
arrangement with us similar to the Cybex agreement.
Split Bridge(TM) Universal Docking Products. We will offer a variety of
Split Bridge(TM) products which enable the user to connect a portable computer
to a universal docking station in the home or office, thereby expanding the
connectivity and capability of the portable computer. These products will
include the following:
- EasiDock(R) 1000 and 1000E Series. This product series enables the user
to connect most portable computers to a universal docking station at a
speed of 1.25 gigabits, which is 100 times faster than USB. The
EasiDock(R) 1000 provides key port replicator functions consisting of a
mouse, keyboard, serial and full parallel port and a USB hub with four
USB ports. Most notably, each two USB ports will have a full 12 Megabits
per second, or Mbs, bandwidth, as opposed to a total of only 12 Mbs
across all ports for a USB only product. The second product in this
category, the EasiDock(R) 1000E, includes the features listed above plus
10/100 base T Ethernet networking. The suggested retail price for this
product is $249 without Ethernet and $299 with Ethernet.
- EasiDock(R) 2000 Series/Desktop Expansion Products. The 2000 Series
products will allow the user to add two USB ports, three additional PCI
expansion cards and four additional enhanced integrated drive
electronics, or EIDE, drive bays to most portable computers, desktop
computers or servers. Thus, the user will have the capability to provide
almost unlimited expansion capacity in any of these applications. The
suggested retail price for this product line is expected to be $399.
- EasiDock(R) 3000 and 3000E Series. The EasiDock(R) 3000 will offer all
the functionality of the EasiDock(R) 1000 Series, except it will have two
USB ports versus four, and also will offer expansion options including
two EIDE expansion bays, which can be used for applications such as CD
ROMs, storage, drives, two standard PCI expansion slots and two of our
proprietary expansion card slots. The EasiDock(R) 3000E includes 3Com
10/100 base T Ethernet networking. The suggested retail price for this
product is expected to be $499 without Ethernet and $549 with Ethernet.
Custom Split Bridge(TM) Products
We have historically worked closely with OEMs to provide a wide variety of
unique products and programs that use traditional connectivity technology. We
are currently marketing these solutions to a number of OEMs. These products
include or will include:
Standard Card Bus Universal Dock Offering. These products will provide OEMs
with a docking solution for products that have no docking connector or no OEM
dock offering as well as a complementary dock offering for certain of these
products. Such products include all of the previously described Split Bridge(TM)
products, which may be privately labeled at an OEM's request.
Universal Expansion Modules. We will offer OEMs an expansion module option
that interfaces with a standard, low-end port replicator OEM product. This
module will provide OEMs with the opportunity to continue with a low cost,
standard port replicator that provides video, USB and other port replication
functions, while also offering a PCI expansion card and enhanced integrated
drive electronic drive bay capability. This solution will eliminate the need for
OEMs to design and develop an expensive high end docking station with such
expansion capability, while offering the customer such option.
Universal Desktop Expansion Module. These products will provide an
expansion module for desktop computers, providing PCI and drive bay expansion
capabilities.
46
<PAGE> 49
Chip On Board Programs. We will offer OEMs the possibility of installing
one of our ASIC chips on the computer motherboard, either independently or in
combination with DVI or other technologies. Also, OEMs or other chip technology
companies will be able to integrate our technology into other main motherboard
chips. These programs will generally take much longer to implement due to
computer design cycles.
USB Products
We currently offer two universal USB docking stations which provide the
portable computer user with basic connectivity in the home or office. These
products use standard industry technology, and thus operate at 12 Mbs, and
provide five USB ports as well as a PS/2 mouse, PS/2 keyboard, serial port and
printer port. The second of these products provides the above mentioned features
plus 10 base T Ethernet networking.
USB is not currently capable of handling higher performance items such as
video, 100 base T networking and PCI and EIDE drive bay expansion capability. It
does, however, provide a lower cost product that is well suited for the consumer
and small business market and other niche applications. The suggested retail
price for this product is currently $149 without Ethernet and $199 with
Ethernet. Our EasiDock(R) USB 200 was selected as one of the nominees in the
peripheral category for the "2000 Mobility Awards" that were given by Mobile
Insights in March 2000.
Other Products
We also offer a range of in-car/in-air chargers and monitor stands. The
in-car/in-air chargers allow the user to power and charge a portable computer in
a car or in an airplane that supports the Empower standard, the airline
industry's on-board computer product power standard.
PRODUCTS UNDER DEVELOPMENT
We are currently in various stages of developing or planning the following
products:
Split Bridge(TM) Products
Next Generation EasiDock(R) 1000 and 1000E Series. We intend to expand
the current EasiDock(R) 1000 and 1000E series with a product series that is
expected to include all the current EasiDock(R) 1000 and 1000E features
plus the addition of video and a mini PCI card slot for user expansion. We
also plan to include additional USB capacity to provide for a full 12 Mbs
on each USB port as opposed to 12 Mbs for each two USB ports. Subsequently,
some of the USB ports will be replaced with USB 2.0 ports when USB 2.0
becomes available.
Next Generation EasiDock(R) 3000 Series. We intend to expand the
current EasiDock(R) 3000 series with the next generation EasiDock(R) 3000
Series when USB 2.0 becomes widely available. We plan to include all the
current EasiDock(R) 3000 features, plus integrated USB 2.0 with two full
bandwidth USB ports and a newly integrated docking chip.
ASIC Chips. We intend to offer several new ASIC chips. These
developments will help us stay at the leading edge of universal docking and
remote PCI bus applications. We intend to develop and market the following
chips:
- Chip On Board. We are currently working with LSI to combine our Split
Bridge(TM) technology with LSI's SerDes technology to develop a
single chip OEM solution for use on OEM motherboards and for
non-docking applications. This product will
47
<PAGE> 50
be in a small package and will not have any of the docking functions,
thus providing OEMs with a low-cost, small, single chip solution.
- Integrated Dock Chip. We are also currently working with LSI to
combine our Split Bridge(TM) technology with LSI's SerDes technology
to develop a single docking chip for use in our range of docking
products. We expect that this product will allow us to replace the
need for an external SerDes, reducing cost and circuit board size
requirements.
- Dock on a Chip. We intend to develop a next generation chip which
integrates Split Bridge(TM) and SerDes technology into other docking
functions such as USB 2.0, networking, video, EIDE and other
functions. The specific items that will be included will be
determined based on the best information available at the time the
development program is initiated. We expect that this program will
substantially reduce the cost of all our Split Bridge(TM) docking
products and reduce space requirements for the docking circuit board.
- Other Chips. We are currently evaluating the potential of integrating
Split Bridge(TM) technology into other intellectual property blocks,
such as digital video, and expect to develop several of these
options.
All of the chips described above are intended to be used throughout our docking
product family, as well as in other applications, generally increasing
capability and reducing cost.
Next Generation EasiDock(R) USB Product. This product is planned for
introduction when USB 2.0 becomes available and is intended to replace the
current EasiDock(R) USB series. We plan to include all the EasiDock(R) USB
features, plus the addition of a full parallel port, a 100 base T networking
option, video and other unique features. Based on the acceptance of USB
peripherals by the time this product is released, legacy port replication ports
may or may not be included.
Retractable Cord Power Product. This product is a unique version of our
current in-car/in-air charger product line that can be used across all power
products. The Retractable Cord Power Product is expected to include an
innovative and unique mechanical feature, which will allow the user to store the
input and output cables of the user's adapter via a retractable cord system. It
is intended to be used in both model specific, which is 2 wire output, or
universal, which is 4 wire output, in-car/in-air charger configurations. Through
the use of creative industrial design, we believe this product will offer the
customer the smallest, self-contained in-car/in-air power adapter on the market.
This product would complement our current line of power products.
48
<PAGE> 51
CUSTOMERS
Our major customers include:
<TABLE>
<CAPTION>
OEM CUSTOMERS DISTRIBUTION CHANNEL CUSTOMERS
- -------------------------- -------------------------------------------------------
<S> <C> <C>
- - Acer - Buy.com* - Merisel
- - Compaq - CDW* - Microwarehouse*
- - Gateway - Comark* - Mobile Planet*
- - Hewlett-Packard - CompUSA* - Pinacor
- - Hitachi - Computers for Sure* - Propeller Portable
- - IBM - Dell Computer*
- - Mitsubishi - Ingram Micro - Tech Data
- - NEC - Insight* - Value America*
- - Toshiba
- - Targus
</TABLE>
- ---------------
* these customers purchase from us through distributors
As a group, the OEMs and distributors listed in the chart above accounted
for 53.0% and 24.0%, respectively, of sales for the year ended December 31,
1999. For the three months ended March 31, 2000 the OEMs accounted for 57.7% of
sales and distributors accounted for 31.2% of sales. Targus accounted for 26.6%
of our total sales for the year ended December 31, 1999, and 29.4% for the three
months ended March 31, 2000. Targus distributes a range of our products, on a
private label basis, primarily to major retail outlets and certain OEM
fulfillment outlets worldwide. Our distributors sell a wide range of our
products to value-added resellers, system integrators, catalog houses, major
retail outlets and certain OEM fulfillment outlets worldwide. Our largest
distributor, Tech Data, accounted for 22.2% of net sales for the three months
ended March 31, 2000. IBM, who buys brand labeled monitor stands and USB docking
stations, accounted for 11.1% of net sales for the three months ended March 31,
2000.
SALES, MARKETING AND DISTRIBUTION
Sales. We have a dedicated, senior level OEM sales person who, along with
top management, focuses on developing and expanding relationships with top tier
computer OEMs on a worldwide basis. We are pursuing the sale of our standard
products, whether Mobility branded or private labeled, and the sale of custom
products and chips on board with all OEMs on a worldwide basis.
In North America, we use an internal sales organization and a sales
representative organization to penetrate the traditional two-tier distribution
channel, including Ingram Micro, Merisel, Pinacor and Tech Data. We leverage
major catalog houses such as CDW and OEM catalog programs such as Dell, top
retailers such as CompUSA and a broad range of value-added resellers and dealers
such as Insight and Propeller Portable Computers. We also work with major
corporations and key accounts as part of our strategic efforts.
We also plan to aggressively pursue markets outside North America by
establishing strategic sales representatives and distribution or private label
arrangements in each significant geographic region. We plan to execute bundling
programs with major OEMs, drive manufacturers, selected related vendors and
synergistic suppliers to our market. We have also established an e-commerce
capability and marketing program, which will include in the future build to
order capability. Additionally, we plan to use website links to help maintain
relationships with related parties and OEMs, and will establish a "preferred
vendor" program for products that integrate into our universal docking products.
49
<PAGE> 52
In Europe, we distribute our products through a sales representative
arrangement through a company operated by several of our former employees, which
primarily focuses on the marketing and sales of our products.
We also have entered into an agreement with Targus whereby Targus
distributes a range of our products in its worldwide distribution channels,
primarily to major retail outlets and certain OEM fulfillment outlets. This
agreement provides that we are the exclusive supplier to Targus for some of our
products, and that we will develop certain products for Targus on an exclusive
basis. Targus markets our products to its retail customers, which include Best
Buy Co., Circuit City Stores, CompUSA, Computer City, OfficeMax and Staples.
Marketing. We intend to implement a variety of marketing activities in 2000
to aggressively market our Split Bridge(TM) and our new range of other universal
docking products. Such activities include participation in major user groups and
trade shows, key OEM and distribution catalogs, distribution promotions,
value-added reseller and information technology manager advertising, on-line
advertising and banner ads, direct mail and telemarketing and bundle
advertisements with OEMs and related product partners. In addition, we intend to
implement a strong public relations program to continually educate the market
about us, our Split Bridge(TM) technology and our products, with a major
emphasis on timely product and news releases, speaking opportunities and feature
stories. Attending and speaking at key trade shows, such as PC Expo, Mobile
Insights and COMDEX, will provide a forum to provide additional market education
about us, our Split Bridge(TM) technology and our products. We also intend to
leverage our web site as a major marketing and direct sales mechanism.
MANUFACTURING
The proprietary components of our Split Bridge(TM) technology are
manufactured by our strategic partners. Philips supplies us with our Split
Bridge(TM) technology chips, and Molex supplies us with our high-speed cable and
connectors. In the future LSI will supply us with our next generation chips. Our
USB product line, power products and monitor stands are supplied by contract
manufacturers in Taiwan. We have selected Solectron as our primary contract
manufacturing source for the Split Bridge(TM)universal docking product line.
Solectron has begun commercial production of the EasiDock(R) 1000E and has
sourced components and built prototype units and customer evaluation units on
production lines that have been established for production of the EasiDock(R)
3000 Series, the EasiDock(R) 2000 Series and the EasiDock(R) 1000 Series
products.
In-house manufacturing activity has primarily been reduced to packaging and
fulfillment activity. Some product is shipped in bulk quantities which are not
packaged for delivery to our customers. These products are packaged in the
appropriate box with the corresponding operations manual and other product
documentation. We currently assemble one mechanical port replicator under a
contract with NEC. The volume levels on this product are too small to outsource
economically. We will continue to build this product in-house for the
foreseeable future.
COMPETITION
Competition for our Split Bridge(TM) technology primarily comes from
traditional communication protocols, such as USB, IEEE 1394, Ethernet and SCSI.
These protocols are generally well established, particularly in certain
applications, and thus will provide competition for our Split Bridge(TM)
technology depending upon the application.
The market for our universal docking products is relatively new and
emerging and we presently have few direct competitors. However, we expect that
the markets for our products will become increasingly competitive. The market
for computer products in general is intensely competitive, subject to rapid
change and sensitive to new product introductions or
50
<PAGE> 53
enhancements and marketing efforts by industry participants. The principal
competitive factors affecting the markets for our product offerings include
corporate and product reputation, innovation with frequent product enhancement,
breadth of integrated product line, product design, functionality and features,
product quality, performance, ease-of-use, support and price. Although we
believe that our products compete favorably with respect to such factors, there
can be no assurance that we can maintain our competitive position against
current or potential competitors, especially those with greater financial,
marketing, service, support, technical or other competitive resources.
We currently compete primarily with the internal design efforts of OEMs.
These OEMs, as well as a number of our potential non-OEM competitors, have
larger technical staffs, more established and larger marketing and sales
organizations and significantly greater financial resources than we have. We
believe that we have a proprietary position with respect to our Split Bridge(TM)
and universal docking technology, which could pose a competitive barrier for
companies seeking to develop similar products or sell competing products in our
markets.
PROPRIETARY RIGHTS
Our success and ability to compete is dependent in part upon proprietary
technology. We rely primarily on a combination of patent protection, copyright
and trademark laws, trade secrets, nondisclosure agreements and technical
measures to protect our proprietary rights. Mobility has two key Split
Bridge(TM) patents pending. One patent covers Split Bridge(TM) technology in
general, and the other patent covers the application of Split Bridge(TM)
technology in universal docking. Notice of Allowance was mailed February 25,
2000 by the U.S. Patent and Trademark Office allowing all claims under both U.S.
patent applications. The respective issue fees have been duly paid and the
patents will issue shortly. Eighty-one claims were allowed in one patent
application and 64 claims were allowed in the other patent application.
Two international patent applications were also filed for the Split
Bridge(TM) patents under the Patent Cooperation Treaty designating all member
countries and thereby preserving the right to file patent applications in those
member countries. Multiple additional Split Bridge(TM) patents are planned to be
filed before the U.S. Patent and Trademark Office and cover, or will cover, a
host of other related follow-on items. Additionally, we have two issued patents
and three U.S. patent applications pending covering other related items.
We typically enter into confidentiality agreements with our employees,
distributors, customers and potential customers, and limit access to, and
distribution of, our product design documentation and other proprietary
information. Moreover, we enter into noncompetition agreements with employees,
whereby the employees are prohibited from working for and sharing confidential
information with our competitors for a period of two years after termination of
their employment. Additionally, we believe that, due to the rapid pace of
innovation within the computer industry, the following factors also represent
protection for our technology:
- technological and creative skill of personnel;
- knowledge and experience of management;
- name recognition;
- maintenance and support of products;
- the ability to develop, enhance, market and acquire products and
services; and
- the establishment of strategic relationships in the industry.
51
<PAGE> 54
RESEARCH AND DEVELOPMENT
Our future success depends on our ability to enhance existing products and
develop new products that incorporate the latest technological developments. We
work with customers and prospects, as well as partners and industry standards
organizations, to identify and implement new solutions that meet the current and
future needs of our customers. Whenever possible, our products are designed to
meet and drive industry standards to ensure interoperability. We intend to
continue to support industry standards integral to our product strategy as well
as drive new initiatives relating to remote bus technology.
Our research and development efforts will focus on enhancing our current
technology for use in docking as well as other broad applications. These
enhancements will center on issues of speeds, distance, cost and integration. We
intend to develop internal and external resources to more fully integrate chip
design capabilities.
Currently, our Split Bridge(TM) technology group consists of 17 people who
are responsible for architecture, hardware, software and quality. This group is
active in industry committees, special interest groups and other activities that
provide industry knowledge and leadership. Additionally, we have substantial
resources dedicated to development efforts by our strategic partners, most
notably, Molex, LSI, Philips and Silicon Image.
Amounts spent on research and development for the years ended December 31,
1997, 1998 and 1999 and the three months ended March 31, 2000 were $2.0 million,
$4.4 million, $3.4 million and $951,000, respectively.
EMPLOYEES
As of March 31, 2000 we had 48 full-time employees, all of whom are located
in the United States, including 9 employed in operations, 18 in engineering, 7
in sales and marketing and 14 in administration. We engage temporary employees
from time to time to augment our full time employees, generally in operations.
None of our employees are covered by a collective bargaining agreement. We
believe we have good relationships with our employees.
FACILITIES
Our executive offices and operations are located in Scottsdale, Arizona.
This facility consists of approximately 38,712 square feet of leased space
pursuant to a lease for which the current term expires on January 31, 2002.
Additionally, we lease an office in Scottsdale, Arizona, which was our former
executive office. This office has been sublet to a tenant for the balance of the
original lease term at a rate resulting in no net expense. We believe that our
facility is suitable and adequate for our current business activities for the
remainder of the term of our lease.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
52
<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The names and ages of our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles R. Mollo....................... 48 President, Chief Executive Officer and
Chairman of the Board
Jeffrey S. Doss........................ 38 Executive Vice President and Director
Richard W. Winterich................... 45 Vice President and Chief Financial
Officer
Donald W. Johnson...................... 52 Executive Vice President of Worldwide
Sales, Marketing and Operations
Scott Smith............................ 38 Vice President
Robert P. Dilworth(1).................. 57 Director
William O. Hunt(1)..................... 66 Director
Jeffrey R. Harris(2)................... 50 Director
Kenneth A. Steel, Jr.(2)............... 42 Director
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Charles R. Mollo is one of our founders and has been our Chief Executive
Officer and Chairman of our Board of Directors since our formation in May 1995,
and our President since July 1999, having previously served as our President
between March 1997 and June 1998. From September 1992 to May 1995 Mr. Mollo was
the director of the Wireless Telephone Products Division of Andrew Corporation,
a communications equipment services and systems company. From September 1986 to
July 1992 Mr. Mollo was the Vice President of Corporate Development of Alliance
Telecommunications Corporation, a wireless telecommunications company. Between
1980 and 1986 Mr. Mollo was a Vice President of Meadows Resources, Inc., where
he managed a venture capital and investment portfolio of approximately $150
million. In the past he has served on the boards of a number of companies,
including Alliance Telecommunications Corporation and he currently serves on the
board of an internet startup company, SuperGroups.com. Mr. Mollo has a B.S.E.E.
from Manhattan College, an M.S.E.E. from Newark College of Engineering and an
M.B.A. from the University of New Mexico.
Jeffrey S. Doss is one of our founders, served as our President from our
formation until March 1997 and has served as an Executive Vice
President -- Product Strategy & Development since that time. Mr. Doss has served
as a director since May 1995. From May 1994 to December 1999 Mr. Doss was the
owner of Doss Enterprises, which provided consulting services to various
companies in the consumer electronics industry. From March 1994 through May 1995
Mr. Doss served as a consultant for cellular accessories for Andrew Corporation,
a communications equipment company. From January 1991 to April 1994 Mr. Doss
held various positions, including Vice President of Operations, President and
Chief Executive Officer of Unitech Industries, Inc., a manufacturer of cellular
telephone accessories.
Richard W. Winterich has served as Vice President and our Chief Financial
Officer since January 1999. From 1993 to December 1998 Mr. Winterich served in
various capacities for Harbour Group, an industrial conglomerate. These
capacities included serving as Executive Vice President/General Manager from
1995 to December 1998 and as Chief Financial Officer from 1995 to 1997 of AEC,
Inc., a supplier of auxiliary capital equipment, and as Chief Financial Officer
from 1993 to 1995 of Acadia Corporation, a rubber molding company. From 1991 to
1993 Mr. Winterich served in various capacities, including Director of Finance,
with
53
<PAGE> 56
Square D Corporation, in its automation and control business sector. From 1984
to 1991 Mr. Winterich served in various capacities with Burr-Brown Corporation,
a manufacturer of electronic components. Prior to his private career, Mr.
Winterich spent five years in public accounting with predecessor firms of Ernst
and Young. Mr. Winterich is a licensed Certified Public Accountant in the State
of Ohio and received a B.A. from Baldwin-Wallace College.
Donald W. Johnson has served as our Executive Vice President of Worldwide
Sales, Marketing and Operations, since April 2000. From 1998 until March 2000
Mr. Johnson served in various capacities for UNISYS Corporation, most recently
as Vice President and General Manager of the enterprise server business. From
1980 to 1998 Mr. Johnson served in various capacities for IBM, including
Director of Servers and Commercial Systems, Product Marketing, Brand Management
and Product Development in IBM's PC business, and worldwide sales manager and
product manager. Mr. Johnson has a B.S. Degree in Business Administration from
the University of California at Berkeley.
Scott Smith has been employed by us since September 1996 and has served in
the capacity of program manager, manager of the power product and monitor stand
business unit and since July 1999 has served as Vice President of Operations.
Prior to that time, he was an owner and partner of an industrial design
consultancy, Design Form, Inc. He has an undergraduate degree in Industrial
Design from Arizona State University.
Robert P. Dilworth has served as a director since May 1999. Prior to the
acquisition of VLSI by Royal Philips Electronics in June 1999, Mr. Dilworth was
a Senior Vice President of the Computer & Consumer Products Group at VLSI
Technologies, Inc. and also a member of VLSI's board of directors. Mr. Dilworth
was responsible for VLSI's businesses in Advanced Computing, ASIC's Consumer
Digital Entertainment and Local/Wide Area Networking. Mr. Dilworth also serves
as a director and is chairman of the board at Metricom. He also served as
Metricom's President and as Chief Executive Officer. Prior to joining Metricom,
Mr. Dilworth was President of Zenith Electronics Corp. He has served as
President of Morrow Designs, a microcomputer manufacturer, and Vice President of
Finance for Varian Data Machines. Mr. Dilworth is also a director of eOn
Communications Corporation and Graphon, Inc.
William O. Hunt has served as director since December 1999. Mr. Hunt is
currently chairman of the board of Intellicall, Inc., a diversified
telecommunications company providing products and services to pay telephone
networks on a worldwide basis. Mr. Hunt is also currently chairman of the board
of Internet America, Inc., an internet service provider. From 1992 to 1998 Mr.
Hunt served as Chief Executive Officer of Intellicall, Inc. From 1990 to 1996
Mr. Hunt served as chairman or vice chairman of the board and director of Hogan
Systems, Inc., a designer of integrated online application software products for
financial institutions. Prior to that time, Mr. Hunt served as chairman of the
board, Chief Executive Officer and President of Alliance Telecommunications
Corporation. He is also a director of American Homestar Corporation, Andrew
Corporation and Digital Convergence.com.
Jeffrey R. Harris has been a director since September 1995. Mr. Harris has
been employed by Public Service Company of New Mexico, a public utility company,
since 1972, and currently serves as Director, International Business
Development. Mr. Harris is President of New Vistas Investment Corporation, a
real estate development and management company, and was a founder of the Bright
Beginnings Child Development Centers, a child care chain in New Mexico.
Kenneth A. Steel, Jr. has served as a director since September 1997. Since
October 1999 Mr. Steel has been President and Chief Operating Officer of
COVALEX.com, a business-to-business, e-commerce web company servicing the
chemical process industry. Mr. Steel has been President of San Francisco Foods,
Inc., a manufacturer of frozen pizza, calzones and foccacia bread, since 1998.
Mr. Steel has been the Executive Vice President of K.A. Steel
54
<PAGE> 57
Chemicals, Inc., a chemical manufacturing and distribution company, since 1978.
Mr. Steel also served as Chief Executive Officer of Monterey Pasta Company, a
manufacturer of refrigerated pastas and sauces, from October 1996 to August
1997. Since 1995 Mr. Steel has been a director of Organic Food Products, Inc.
BOARD OF DIRECTORS
Our board of directors has seven authorized directors and currently
consists of six members. Each director holds office until his or her term
expires, he or she resigns, is removed or dies or until his or her successor is
duly elected and qualified. Our bylaws provide for a classified board of
directors. In accordance with the terms of our bylaws, our board is divided into
three classes whose terms expire at different times. The three classes are
comprised of the following directors:
- Class I consists of Mr. Steel, who will serve until the annual meeting of
stockholders to be held in 2001;
- Class II consists of Messrs. Dilworth, Harris and Hunt, who will serve
until the annual meeting of stockholders to be held in 2002; and
- Class III consists of Messrs. Doss and Mollo, who will serve until the
annual meeting of stockholders to be held in 2003.
At each annual meeting of stockholders beginning with the 2001 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified any additional directorships resulting from an increase in
the number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of an equal number of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The compensation committee of the board of directors consists of Messrs.
Dilworth and Hunt. The compensation committee makes recommendations to the board
concerning salaries and incentive compensation for our executive officers,
directors, employees and consultants and administers our 1996 Plan.
The audit committee of the board of directors consists of Messrs. Harris
and Steel. The audit committee aids management in the establishment and
supervision of our financial controls, evaluates the scope of the annual audit,
reviews audit results, makes recommendations to our board of directors regarding
the selection of independent auditors, consults with management and our
independent auditors prior to the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into aspects of our
financial affairs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither Messrs. Dilworth or Hunt, who are members of our compensation
committee, has at any time been one of our officers or employees. None of our
executive officers serves as a member of the board of directors or compensation
committee of any entity which has one or more executive officers serving as a
member of our board of directors or compensation committee. For a description of
the transactions between us and any member of the compensation committee and
entities affiliated with any compensation committee member, see "Certain
Transactions."
55
<PAGE> 58
DIRECTOR COMPENSATION
Each director who is also our employee does not receive additional
compensation for serving as a director. Each non-employee director, upon initial
election to the board, will receive a non-qualified option to purchase 10,000
shares of common stock, which will be fully exercisable on the one-year
anniversary of the date of grant (if that director is then serving as a
director). In addition, each non-employee director will receive a non-qualified
option to purchase 15,000 shares of common stock at the annual meeting of our
stockholders following the initial year of service as a director, and every
fourth year thereafter, which option will vest 25% annually, commencing on the
date of grant of the option with vesting occurring only on continuous service.
At each annual meeting of our directors, each non-employee director who is
elected to serve on either the audit committee or the compensation committee
will receive an option to purchase 2,500 shares of common stock, which option
shall be fully exercisable at the end of the one-year term of that office (with
vesting occurring only on continuous service). Directors may also be reimbursed
for certain expenses in connection with attendance at board and committee
meetings.
We have entered into consulting agreements with Messrs. Hunt and Dilworth.
The agreement with Mr. Dilworth expires on May 21, 2001. The agreement with Mr.
Hunt expires on December 8, 2001. The agreements may be terminated by either
party to the agreement at any time as long as 30 days written notice is given to
the other party to the agreement. As compensation for entering these agreements,
we granted each of Messrs. Hunt and Dilworth the option to purchase 35,000
shares of our common stock under our 1996 Plan. Mr. Hunt's options were granted
at an exercise price of $4.00 per share. Mr. Dilworth's options were granted at
an exercise price of $8.00 per share. Mr. Dilworth's options expire on the
earlier of the date his consulting agreement is terminated or May 21, 2003. Mr.
Hunt's options expire on the earlier of the date his consulting agreement is
terminated or December 8, 2003. The consulting agreements provide that we will
reimburse Messrs. Hunt and Dilworth for all reasonable and necessary
out-of-pocket travel and other expenses they incur while performing their duties
and state that Messrs. Hunt and Dilworth are independent contractors.
56
<PAGE> 59
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
accrued for services rendered to us in all capacities during the years ended
December 31, 1997, 1998 and 1999 by our Chief Executive Officer and the two
other most highly compensated executive officers whose salary and bonus exceeded
$100,000 in fiscal 1999 (collectively, the "Named Executive Officers") for
services rendered in all capacities to us during the year ended December 31,
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
-------------------------------------- ---------------------------------
NAME AND PRINCIPAL OTHER ANNUAL STOCK SECURITIES UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#)
- ------------------ ---- --------- -------- --------------- --------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Mollo.......................... 1999 $123,750 $1,923 -- $400,000 100,000
President, Chief Executive Officer 1998 116,346 -- -- 171,373 14,902
and Chairman of the Board 1997 116,657 -- -- -- --
Jeffrey S. Doss........................... 1999 120,366 1,731 -- 300,000 75,000
Executive Vice 1998 114,913 -- -- 171,373 14,902
President and Director 1997 100,000 -- -- -- --
Richard W. Winterich...................... 1999 185,711 3,557 -- 200,500 75,000
Vice President and 1998 -- -- 15,000 -- --
Chief Financial Officer 1997 -- -- -- -- --
</TABLE>
- ------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits which are available generally to all of our
salaried employees and certain perquisites and other personal benefits
received which do not exceed the lesser of $50,000 or 10% of any officer's
salary and bonus disclosed in this table.
OPTION GRANTS IN LAST FISCAL YEAR
Stock options were granted to the Named Executive Officers during the year
ended December 31, 1999. The following table summarizes the option grants.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
% OF TOTAL
NUMBER OPTIONS POTENTIAL REALIZABLE VALUE AT
OF GRANTED ASSUMED ANNUAL RATES OF
SECURITIES TO EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE MARKET OPTION TERM($)
OPTIONS IN FISCAL PRICE PRICE EXPIRATION -----------------------------
NAME GRANTED(#) YEAR(%) ($/SHARE) ($/SHARE) DATE 0% 5% 10%
---- ---------- ---------- --------- --------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles R. Mollo....... 100,000 16.47% $4.00 $4.00 12/01/04 $ -- $ 86,202 $185,640
Jeffrey S. Doss........ 75,000 12.35% 4.00 4.00 03/31/03 -- 64,652 139,230
Richard W. Winterich... 50,000 8.24% 4.00 4.00 4/12/04 -- 43,101 92,282
25,000 4.12% 0.02 4.00 4/12/09 99,500 162,389 258,874
</TABLE>
Both Messrs. Mollo and Doss have executed personal loan guarantees as
collateral for our revolving line of credit with Bank of America dated November
2, 1999. Each guaranteed a total of approximately $1,800,000. As affirmation and
compensation for the associated financial risk, we issued warrants to purchase
8,412 shares of our common stock to Mr. Mollo at a price of $4.00 per share and
warrants to purchase 7,010 shares of our common stock to Mr. Doss at a price of
$4.00 per share.
57
<PAGE> 60
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides summary information regarding the stock
options exercised during 1999 and the stock options held as of December 31, 1999
by the Named Executive Officers. No stock options were exercised by the Named
Executive Officers during 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1999 OPTIONS AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles R. Mollo....................... 37,704 106,568 $328,632 $1,016,421
Jeffrey S. Doss........................ 37,704 81,568 328,632 766,421
Richard W. Winterich................... -- 75,000 -- 849,500
</TABLE>
AMENDED AND RESTATED 1996 LONG TERM INCENTIVE PLAN
Our Amended and Restated 1996 Long Term Incentive Plan, or the 1996 Plan,
authorizes the granting of options intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, options that do not so qualify ("non-qualified stock options") and
restricted stock awards to our directors, key employees and advisors. The 1996
Plan is administered by the compensation committee, which is, and shall be,
comprised of at least two non-employee directors as may be appointed by the
Board (the "Committee"). The Committee generally has the authority to fix the
terms and number of options and restricted stock awards to be granted and to
determine the employees or other persons who will receive awards; provided that
non-employee directors receive non-qualified stock options under the 1996 Plan
automatically upon election as a director and upon each annual meeting of the
stockholders thereafter while he or she continues to serve as an independent
director. The aggregate number of shares of common stock for which options may
be granted or for which stock grants may be made under the 1996 Plan is
1,250,000. The 1996 Plan will terminate in 2008, unless sooner terminated by the
board.
Each option granted pursuant to the 1996 Plan is exercisable at any time
upon or after vesting and expires on the date determined by the compensation
committee. In no event will any option expire later than ten years from the date
of grant. In no event will any option granted to a person who, on the date of
grant of the option, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of us, expire later than
five years from the date of grant. With respect to a participant who is an
employee or advisor, each option expires within three months after the date the
participant ceases to be an employee or advisor. During that three month period,
those options may only be exercised if they were exercisable immediately prior
to the time the employment was terminated. If the employee's, advisor's or
non-employee director's employment is governed by an employment agreement and is
terminated for "cause," the option will automatically expire. The exercise price
of each option granted will be determined by the compensation committee, but
shall not be less than 100% of the fair market value of the common stock at the
time such option is granted. In the case of an incentive stock option granted to
a person who, on the date of the grant owns more than 10% of us or our
subsidiary, the exercise price shall not be less than 110% of the fair market
value of the common stock at the time such incentive stock option is granted.
Options are not transferable other than by will or the laws of descent or
distribution or to a beneficiary, as defined in the plan, in the event of the
participant's death. Options may not be pledged, mortgaged, hypothecated or
otherwise encumbered, and shall not be subject to the claims of creditors.
Options may be exercised during the lifetime of the optionee only by the
optionee or the optionee's authorized representative. A vesting schedule for the
options is indicated in each option agreement as determined by the compensation
committee.
Shares of common stock awarded under restricted stock grants are subject to
restrictions prohibiting their sale, assignment, transfer or encumbrance for a
period of time specified by
58
<PAGE> 61
the compensation committee and will revert to us if the participant's
relationship with us terminates during such period of restriction, unless the
compensation committee, by rule or regulation or in any award agreement,
provides otherwise.
As of December 31, 1999 we had outstanding options to purchase in the
aggregate 827,728 shares of common stock under the 1996 Plan, 143,284 of which
are vested and exercisable. We expect that options will continue to be granted
to eligible persons as part of our incentive-based compensation program.
FOUNDERS OPTIONS
Several key managers have received non-qualified options to purchase an
aggregate of 132,198 shares of common stock at a price per share of $3.52
outside the 1996 Plan. These options vested from August 23, 1996 to June 1,
1999.
EMPLOYMENT AGREEMENTS
We have entered into full-time employment agreements with Messrs. Mollo,
Doss, Winterich and Johnson. The agreements with Messrs. Mollo and Doss expire
on December 1, 2001. The agreement with Mr. Winterich expires on December 31,
2001. The agreement with Mr. Johnson expires April 1, 2003. When the agreements
have expired, they will be renewed on a year-to-year basis unless either party
to the agreement gives the other party notice of termination at least 90 days
prior to the end of the then current term, as defined in the agreement. The
employment agreements provide for increases in salary as determined by the board
of directors.
As of December 1, 1999 Mr. Mollo's base salary was $200,000. His salary
will automatically be increased $25,000 per year upon the completion of this
initial public offering. If we have positive net income for fiscal year 2000,
Mr. Mollo's salary must be increased by at least 7%, effective December 1, 2000.
Mr. Mollo is entitled to an annual cash bonus, for each fiscal year that the
agreement is in effect, of up to 50% of his then current base salary. Under the
terms of his employment agreement, we granted Mr. Mollo the option to purchase
100,000 shares of our common stock at $4.00 per share under our 1996 Plan. This
option expires on December 1, 2004 or one year following the termination of Mr.
Mollo's employment agreement.
As of December 1, 1999 Mr. Doss's base salary is $180,000. Mr. Doss is
entitled to an annual increase in salary of at least 7.0% which will take effect
each year on December 1. Mr. Doss is further entitled to an annual cash bonus
for each fiscal year that the agreement is in effect. Mr. Doss is entitled to
0.4% of actual margin contributions provided by all original equipment
manufacturer sales which consist of unique and chip on board sales (but not
standard product programs) for which Mr. Doss has had primary and direct
responsibility. We will also pay to Mr. Doss a cash bonus of either 15% of his
salary, as of the end of the fiscal year, if we attain at least 90.0% of our
budgeted gross profit margin for that particular fiscal year, or 25.0% of his
salary, as of the end of the fiscal year, if we attain 100.0% of our budgeted
margin for that particular fiscal year. Under the terms of his employment
agreement, we granted Mr. Doss the option to purchase 75,000 shares of our
common stock at $4.00 per share under our 1996 Plan. This option expires on the
earlier of March 31, 2003 or 180 days following the termination of Mr. Doss's
employment agreement; provided, however the option cannot expire prior to
September 22, 2000. Pursuant to Mr. Doss's employment agreement, we sold him
50,000 shares of our Series C preferred stock at a purchase price of $6.00 per
share and issued Mr. Doss a warrant to purchase 50,000 shares of our common
stock at an exercise price of $0.02 per share. In return, Mr. Doss provided us
with a promissory note and an agreement pledging his 50,000 shares of Series C
preferred stock and his warrant to purchase (and the underlying) 50,000 shares
of common stock to us.
59
<PAGE> 62
If we terminate our employment agreement with Mr. Mollo or Mr. Doss for any
reason other than just cause, as defined in the agreement, within two years of
experiencing a change in control, as defined in the agreement, we will, in the
case of Mr. Mollo, pay a lump-sum payment equal to his then current salary for
the remainder of the then current term of the agreement or, in the case of Mr.
Doss, continue to pay his then current salary for the remainder of the then
current term of his employment agreement plus one year. If Mr. Mollo or Mr. Doss
terminates his employment agreement with us for constructive termination, as
defined in the agreement, within two years of the time that we experience a
change in control, as defined in the agreement, we will, in the case of Mr.
Mollo, also pay him a lump-sum payment equal to his then current salary for the
remainder of the then current term of his employment agreement or, in the case
of Mr. Doss, continue to pay his then current salary for the remainder of the
then current term of his employment agreement plus one year.
We have agreed to consult with Mr. Doss regarding any change of our current
chief executive officer. If Mr. Doss does not approve of the new chief executive
officer, he is entitled to terminate his employment with us within thirty days
of the time the new chief executive officer takes office. Mr. Doss will retain
the compensation he has earned until that point and we will pay to Mr. Doss a
lump-sum equal to three months of his then current salary.
As of January 1, 1999 Mr. Winterich's base salary is $185,000. Mr.
Winterich is entitled to an annual calendar year cash bonus of 25% of his then
current salary. Under the terms of his employment agreement, we granted Mr.
Winterich the option to purchase 50,000 shares of our common stock at $4.00 per
share under our 1996 Plan. This option vests and becomes exercisable over a
period of three years from the date of grant and expires on April 12, 2004,
unless it expires earlier due to Mr. Winterich terminating his employment with
us. Mr. Winterich also has the option to purchase 25,000 additional shares of
our common stock at a price of $0.02 per share which will vest when we
consummate this offering, experience a change-in-control, have a strategic
partner or investor invest $10.0 million in us or on December 31, 2007,
whichever occurs first. This option expires on April 12, 2009, unless it expires
earlier due to Mr. Winterich terminating his employment with us.
As of April 1, 2000 Mr. Johnson's base salary is $220,000. Mr. Johnson is
entitled to an annual calendar year bonus of 40% of his then current salary.
Under the terms of his employment agreement, we granted Mr. Johnson the option
to purchase 110,000 shares of our common stock at $11.00 per share under our
1996 Plan. This option vests and becomes exercisable over a period of three
years beginning April 1, 2000 and expires April 1, 2005, unless it expires
earlier due to Mr. Johnson's termination of employment with us. If we terminate
our employment agreement with Mr. Johnson for any reason other than just cause,
as defined in the agreement, or if Mr. Johnson terminates the agreement with us
for constructive termination, as defined in the agreement, within two years of
experiencing a change in control, as defined in the agreement, we will pay a
lump-sum payment equal to his then current salary for the remainder of the then
current term of the agreement.
60
<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock and Series C preferred stock as of March 31, 2000,
and as adjusted to reflect the sale of common stock offered hereby, by:
- each person or entity known by us to beneficially own 5% or more of the
outstanding shares of common stock;
- each of our directors and the Named Executive Officers; and
- all of our executive officers and directors as a group.
Unless otherwise noted, the persons named below have sole voting and
investment power with respect to the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NUMBER OF SHARES OWNED AFTER OFFERING IF
BENEFICIALLY OWNED OVER-ALLOTMENT OPTION
PRIOR TO THE OFFERING(1) EXERCISED IN FULL(2)
------------------------- -----------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Charles R. Mollo(3)(4)........................... 1,171,198 13.24% 1,171,198 8.71%
Jeffrey S. Doss(3)(5)............................ 237,416 2.69% 237,416 1.77%
Jeffrey R. Harris(3)(6).......................... 892,601 10.09% 892,601 6.64%
Richard Winterich(3)(7).......................... 46,667 * 46,667 *
Robert P. Dilworth(3)(8)......................... 52,500 * 52,500 *
William O. Hunt(3)(9)............................ 75,539 * 75,539 *
Kenneth A. Steel, Jr. (3)(10).................... 126,186 1.43% 126,186 *
New Vistas Investment Corporation(11)............ 507,747 5.77% 507,747 3.79%
Janice L. Breeze-Mollo(12)....................... 906,242 10.27% 906,242 6.75%
Seligman Communications and Information
Fund, Inc.(13)................................. 678,307 7.46% 678,307 4.95%
Executive officers and directors as a group (nine
persons)....................................... 2,620,285 28.43% 2,620,285 18.96%
</TABLE>
- ------------
* Less than 1%
(1) "Beneficially" owned shares, as defined by the SEC, are those shares as to
which a person has voting or dispositive power, or both. "Beneficial"
ownership does not necessarily mean that the named person is entitled to
receive the dividends on, or the proceeds from the sale of, the shares.
(2) This calculation is the quotient of (a) the number of shares currently
beneficially owned by the named individual or group, plus the number of
shares, if any, for which options beneficially held by such person or group
are exercisable within 60 days or upon the closing of an initial public
offering, divided by (b) the total number of shares outstanding at March
31, 2000, plus the number of shares, if any, for which options or warrants
held by such person or group are exercisable within 60 days or upon the
closing of an initial public offering.
(3) The address for Messrs. Mollo, Doss, Harris, Winterich, Dilworth, Hunt and
Steel is 7955 East Redfield Road, Scottsdale, Arizona 85260.
(4) Includes 54,913 shares owned directly by Mr. Mollo; 116,047 shares owned by
Mollo Family LLC of which Mr. Mollo owns 10% and is a manager; 371,063
shares owned by New Vistas Investment Corporation of which Mr. Mollo owns
approximately 43%; 233,827 shares owned by New Horizons of which Mr. Mollo
owns 49%; 9,042 shares held at Delaware Trust FBO Charles R. Mollo; 107,986
shares held in the Charles R. Mollo Revocable Trust; 25,000 shares held in
the John R. Harris and Timothy D. Harris Irrevocable Trust of which Mr.
Mollo is trustee; 50,900 shares held in the Deanna L. and Kristen A.
Williams Irrevocable Trust of which Mr. Mollo is trustee; 22,424 shares
that may be received upon the conversion of 32,501 shares of Series C
preferred stock owned directly by Mr. Mollo; 98,175 shares that may be
received upon the conversion of 142,293 shares of Series C preferred stock
owned by New Vistas Investment Corporation; 6,250 shares that may be
purchased upon the exercise of warrants owned directly by Mr. Mollo; 16,823
shares that may be purchased upon the exercise of warrants owned by Mollo
Family LLC; 38,510 shares that may be purchased upon the exercise of
warrants owned by New Vistas Investment Corporation; and 20,238 shares that
may be purchased upon the exercise of options granted under the 1996 Plan.
Mr. Mollo is married to Ms. Breeze-Mollo, however, all shares owned by
61
<PAGE> 64
Ms. Breeze-Mollo are held as separate property and Mr. Mollo has no
beneficial ownership rights thereto, and disclaims beneficial ownership of
the shares owned by Ms. Breeze-Mollo.
(5) Includes 135,017 shares owned directly by Mr. Doss; 5,000 owned by Nolton
Doss International, Inc. of which Mr. Doss owns 50% and is a director;
34,498 shares that may be received upon the conversion of 50,000 shares of
Series C preferred stock owned directly by Mr. Doss; 16,269 shares that may
be purchased upon the exercise of warrants owned directly by Mr. Doss; and
46,632 that may be purchased upon the exercise of options granted under the
1996 Plan.
(6) Includes 20,403 shares owned directly by Mr. Harris; 60,579 shares owned by
Harris Family LLC of which Mr. Harris owns 10% and is a manager; 6,742
shares held at Delaware Trust FBO Jeffrey R. Harris; 371,063 shares owned
by New Vistas Investment Corporation of which Mr. Harris owns approximately
20% and is a director; 233,827 shares owned by New Horizons of which Mr.
Harris owns 26% and is a director; 11,499 shares that may be received upon
the conversion of 16,666 shares of Series C preferred stock owned directly
by Mr. Harris; 2,876 shares that may be received upon conversion of 4,168
of Series C preferred stock held at Delaware Trust FBO Jeffrey R. Harris;
98,175 shares that may be received upon the conversion of 142,293 shares of
Series C preferred stock owned by New Vistas Investment Corporation; 4,250
shares that may be purchased upon the exercise of warrants owned directly
by Mr. Harris; 9,677 shares that may be purchased upon the exercise of
warrants owned by Harris Family LLC; 38,510 shares that may be purchased
upon the exercise of warrants owned by New Vistas Investment Corporation;
and 35,000 shares that may be purchased upon the exercise of options
granted under the 1996 Plan.
(7) Includes 5,000 shares owned directly by Mr. Winterich; and 41,667 shares
that may be purchased upon the exercise of options granted under the 1996
Plan.
(8) Includes 52,500 shares that may be purchased upon the exercise of options
granted under the 1996 Plan.
(9) Includes 28,039 shares owned by B&G Partners Limited of which Mr. Hunt has
a 100% interest and 47,500 shares that may be purchased upon the exercise
of options granted under the 1996 Plan.
(10) Includes 13,034 shares owned directly by Mr. Steel; 39,625 shares owned by
K.A. Steel Chemicals, Inc. of which Mr. Steel owns approximately 33% and is
a director; 24,527 shares that may be purchased upon the exercise of
warrants owned directly by Mr. Steel; 1,500 shares that may be purchased
upon the exercise of warrants owned by K.A. Steel Chemicals, Inc.; and
47,500 shares that may be purchased upon the exercise of options granted
under the 1996 Plan.
(11) Includes 371,062 shares owned directly by New Vistas Investment
Corporation; 98,175 shares that may be received upon the conversion of
142,293 shares of Series C preferred stock owned directly by New Vistas
Investment Corporation; and 38,510 shares that may be purchased upon the
exercise of warrants owned directly by New Vistas Investment Corporation.
The address for New Vistas Investment Corporation is 5528 Eubank Boulevard,
N.E., Suite #3, Albuquerque, New Mexico 87111.
(12) Includes 2,620 shares owned directly by Ms. Breeze-Mollo; 30,966 shares
held by Breeze LLC; 6,468 shares held at Alex Brown FBO Janice L. Breeze;
20,160 shares held in the Janice L. Breeze Revocable Trust; 75,000 shares
held in the Christine E. Mollo and Charles R. Mollo III Irrevocable Trust
of which Ms. Breeze-Mollo is Trustee; 371,063 shares owned by New Vistas
Investment Corporation of which Ms. Breeze-Mollo owns approximately 18.5%;
233,828 shares owned by New Horizons of which Ms. Breeze-Mollo owns 25%;
3,450 shares that may be received upon the conversion of 5,000 shares of
Series C preferred stock owned directly by Ms. Breeze-Mollo; 98,175 shares
that may be received upon the conversion of 142,293 shares of Series C
preferred stock owned by New Vistas Investment Corporation; 3,750 shares
that may be purchased upon the exercise of warrants owned directly by Ms.
Breeze-Mollo; 7,557 shares that may be purchased upon the exercise of
warrants owned by Breeze LLC; 38,510 shares that may be purchased upon the
exercise of warrants owned by New Vistas Investment Corporation; and 14,695
shares that may be purchased upon the exercise of options granted under the
1996 Plan. Ms. Breeze-Mollo is married to Mr. Mollo, however, all shares
owned by Mr. Mollo are held as separate property and Ms. Breeze-Mollo has
no beneficial ownership rights thereto, and disclaims beneficial ownership
of the shares owned by Mr. Mollo. The address for Ms. Breeze-Mollo is 5528
Eubank Boulevard, N.E., Suite #3, Albuquerque, New Mexico 87111.
(13) Includes 344,974 shares that may be received upon the conversion of 499,999
shares of Series C preferred stock owned directly by Seligman
Communications and Information Fund, Inc.; and 333,333 that may be
purchased upon the exercise of warrants owned directly by Seligman
Communications and Information Fund, Inc. The address for Seligman
Communications and Information Fund, Inc. is 125 University Avenue, Palo
Alto, California 94301.
62
<PAGE> 65
CERTAIN TRANSACTIONS
The following is a description of transactions, for the last three years,
to which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any of our directors, executive officers or holders
of more than five percent of our capital stock had or will have a direct or
indirect material interest, other than compensation arrangements that are
otherwise required to be described under "Management."
From September 1996 through May 1997 we raised approximately $1.9 million
from our management and their affiliates (approximately $1.3 million of which
was in the form of common stock, at a purchase price of $7.73 per share, and
$565,000 of which was in the form of convertible subordinated debt (the
"Convertible Debentures")), and approximately $2.4 million from outside
investors ($846,458 of which was in the form of common stock, at a purchase
price of $7.73 per share, and approximately $1.6 million of which was in
Convertible Debentures). For a description of the Convertible Debentures, see
"Description of Capital Stock -- Convertible Debentures."
In November 1997 we completed a $10.0 million private placement, including
approximately $1.0 million of already outstanding preferred stock which was
converted to common stock at $8.00 per share and the sale of 1,124,500
newly-issued shares of common stock at $8.00 per share and 312,500 warrants to
purchase shares of common stock at $14.00 per share. Of these amounts,
management converted preferred stock of approximately $1.0 million and purchased
$16,000 of common stock, all at $8.00 per share.
In June 1998 we completed a private placement of approximately $8.5 million
and issued an aggregate of 742,500 shares of common stock at $11.50 per share.
Our management and their affiliates purchased an aggregate of 37,000 shares of
common stock ($425,000) in this private placement.
In December 1998 we offered to convert the principal of the Convertible
Debentures and accrued interest thereon to common stock at a price of $7.73 per
share. Of the approximately $2.1 million of principal outstanding, approximately
$2.0 million plus accrued interest of $62,448 was converted into 275,721 shares
of common stock. Our management and their affiliates converted $545,000 of
principal and $16,476 accrued interest into 72,730 shares of common stock.
In January 1999 we completed a private placement of approximately $5.0
million and issued an aggregate of 735,300 shares of Series C preferred stock at
$6.75 per share. Our management and their affiliates purchased an aggregate of
45,000 shares of Series C preferred stock ($303,750) in this private placement.
Pursuant to the terms of the Series C preferred stock, an additional 91,909
shares were issued to the investors in such private placement as a result of a
subsequent round of financing at the lower price of $6.00 per share and 5,625 of
such additional shares were issued to management and their affiliates. See
"Description of Capital Stock -- Series C Preferred Stock."
In March 1999 we raised $3.5 million in the form of 13% Bridge Promissory
Notes, of which $1,075,000 was from our management and their affiliates and the
balance from outside investors. Of the amount held by management and their
affiliates $550,000 was converted to 68,750 shares of common stock at a price of
$8.00 per share in June 1999. The offering also included the issuance of
warrants to purchase 525,000 shares of common stock at a price of $0.02 per
share, of which 146,250 were issued to our management and their affiliates. See
"Description of Capital Stock -- Registration Rights -- Private Placement of 13%
Bridge Promissory Notes and Warrants and Series C Preferred Stock." In February
2000, the outstanding balance of the Bridge Notes of approximately $1.2 million
and the accrued interest thereon of approximately $160,000 were extended to
March 31, 2001. Of the Bridge Notes extended, our management and their
affiliates held $525,000 with accrued interest thereon of approximately $69,000.
As part of the extension agreement, we issued warrants to purchase 10,000 shares
of common stock for each $100,000 of principal outstanding, including
63
<PAGE> 66
accrued interest. Our management and their affiliates received 118,736 of the
277,004 warrants issued.
In January 2000 we completed a private placement of approximately $7.4
million and issued an aggregate of 1,231,450 shares of Series C preferred stock
at $6.00 per share. For each share of Series C preferred stock purchased, an
investor received a warrant to purchase one share of common stock at a price of
$0.02 per share. Our management and their affiliates purchased an aggregate of
159,167 shares of Series C preferred stock ($955,006) in this private placement
and received warrants for the purchase of 159,167 shares of common stock at a
price of $0.02 per share. See "Description of Capital Stock -- Series C
Preferred Stock."
In April 1998 in connection with the Bank of America line of credit,
certain stockholders including Messrs. Mollo and Doss executed personal
guarantees to guarantee a total of approximately $1.8 million each, and certain
of our other stockholders agreed to indemnify such guarantors against amounts
paid under such guarantees up to certain agreed upon levels. As part of such
guarantees and indemnification arrangements, such persons were issued an
aggregate of 112,500 warrants to purchase common stock at a price of $11.50 per
share. Our management of the Company and their affiliates received an aggregate
of 86,621 of such warrants.
When the Bank of America line of credit was amended in November 1999,
certain stockholders including Messrs. Mollo and Doss executed personal
guarantees to guarantee $1.8 million each, and certain other stockholders
continued to indemnify such guarantors against amounts paid under such
guarantees up to certain agreed upon levels. As part of such guarantees and
indemnification arrangements, such persons were issued an aggregate of 56,250
warrants to purchase common stock at a price of $4.00 per share. Of such
warrants, Mr. Mollo was issued warrants to purchase 8,412 shares and Mr. Doss
was issued warrants to purchase 7,010 shares of common stock. Our management and
their affiliates received an aggregate of 51,111 of such warrants.
We have entered into an employment agreement with Messrs. Doss, Mollo,
Winterich and Johnson. See "Management -- Employment Agreements."
As provided for in Mr. Doss's employment agreement, we have entered into a
promissory note in the principal sum of $300,000 in December 1999 with Mr. Doss,
our Executive Vice President, to finance his purchase of 50,000 shares of our
Series C preferred stock at a purchase price of $6.00 per share and a warrant to
purchase 50,000 shares of our common stock at an exercise price of $0.02 per
share (which was included in the January 2000 offering). This note provides for
6.0% per annum interest and is due in full on December 1, 2001, however, Mr.
Doss may prepay at any time without any penalty or premium. The principal amount
outstanding as of December 31, 1999 is $300,000. In connection with the note,
Mr. Doss and the Company have also entered into a pledge agreement granting a
security interest in the preferred stock and the warrant we sold to Mr. Doss.
New Vistas Investment Corporation, an entity owned in part by Mr. Mollo,
Ms. Breeze-Mollo and Mr. Harris, provided administrative services to us, for
which we reimbursed the direct costs of providing such services. The services
provided were in support of Mr. Mollo, primarily in connection with our previous
private financings. No contractual agreement exists between the parties. Amounts
reimbursed for the years ended December 31, 1997, 1998 and 1999 were $32,000,
$52,000 and $42,000, respectively.
We have granted options to certain of our directors and executive officers.
We have also entered into an indemnification agreement with each of our
directors and executive officers. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to our directors,
executive officers and controlling persons pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC 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
64
<PAGE> 67
the payment by us of expenses incurred or paid by one of our directors,
executive officers or controlling persons 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, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
65
<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are a Delaware corporation and our affairs are governed by our
certificate of incorporation, as amended, our bylaws, as amended, and the
Delaware General Corporation Law (the "DGCL"). The following description of our
capital stock is qualified in all respects by the certificate of incorporation
and the bylaws, which have been filed as exhibits to the registration statement
to which this prospectus forms a part.
As of April 1, 2000, our authorized capital stock consisted of 90,000,000
shares of common stock, par value $0.01 per share, and 15,000,000 shares of
preferred stock, par value $0.01 per share.
COMMON STOCK
As of March 31, 2000 we had 6,698,119 shares of common stock outstanding
and approximately 495 holders of common stock. All issued and outstanding common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable. Holders of shares of common
stock are entitled to one vote per share on all matters submitted to a vote of
our stockholders. There is no right to cumulative voting for the election of
directors. Holders of shares of common stock are entitled to receive dividends,
if, as and when declared by the board of directors out of funds legally
available therefor, after payment of dividends required to be paid on any
outstanding shares of preferred stock. Upon our liquidation, holders of shares
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to the liquidation preferences of any
outstanding shares of preferred stock. Holders of shares of common stock have no
conversion, redemption or preemptive rights. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of preferred stock.
PREFERRED STOCK
The board of directors may, without further action of our common
stockholders, issue shares of preferred stock in one or more series and fix or
alter the rights and preferences thereof, including the voting rights,
redemption provisions (including sinking fund provisions), dividend rights,
dividend rates, liquidation preferences, conversion rights and any other rights,
preferences, privileges and restrictions of any wholly unissued series of
preferred stock. The board of directors may, without further action by our
common stockholders, issue shares of preferred stock which it has designated.
The rights of holders of common stock will be subject to, and may be adversely
affected by, the rights of holders of preferred stock. While the issuance of
preferred stock provides flexibility in connection with additional financing,
possible acquisitions and other corporate purposes, future issuances may have
the effect of delaying, deferring or preventing the change of control in us
without further action by the stockholders and may discourage bids for the
common stock at a premium over the market price. The board of directors may,
without stockholder approval, provide for the issuance of preferred stock that
could have voting, conversion or other rights superior to the rights of holders
of common stock.
We have no present plans to issue any new series of preferred stock.
SERIES C PREFERRED STOCK
As of March 31, 2000 we had 4,500,000 shares of Series C preferred stock
authorized for issuance and 2,447,808 shares of Series C preferred stock
outstanding and 200 holders of Series C preferred stock. All issued and
outstanding Series C preferred stock is, and all shares
66
<PAGE> 69
of Series C preferred stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
The Series C preferred stock is convertible into shares of common stock.
The rate of conversion is 1-to-0.68995 as of March 31, 2000. The initial
conversion rate was one for one, but was subject to change if certain events
occur. Generally, the conversion rate will be adjusted if we issue any non-cash
dividends on our securities, split our securities or otherwise effect a change
to the number of our outstanding securities. The conversion rate will also be
adjusted if we issue additional securities at a price that is less than the
price that the Series C preferred stockholders paid for their shares. Such
adjustments will be made according to certain formulas that are designed to
prevent dilution of the Series C preferred stock. The Series C preferred stock
can be converted at any time at the option of the holder, and will convert
automatically, immediately prior to the consummation of a firm commitment
underwritten public offering of our common stock pursuant to a registration
statement filed with the SEC having a per share price equal to or greater than
$12.00 per share and a total gross offering amount of not less than $15.0
million. No fractional shares will be issued upon conversion.
If our board of directors declares a cash dividend payable on our
outstanding shares of common stock, the board of directors must also declare a
dividend payable on each share of Series C preferred stock equal to the amount
of the dividend payable on the number of shares of common stock into which each
such share could then be converted. Holders of shares of Series C preferred
stock are entitled to vote on all matters submitted for a vote of the holders of
common stock. Holders will be entitled to one vote for each share of common
stock into which one share of Series C preferred stock could then be converted.
In the event of our liquidation or dissolution, the holders of Series C
preferred stock will be entitled to receive the amount they paid for their
stock, plus accrued and unpaid dividends out of our assets legally available for
such payments prior to the time other holders of our securities junior to the
Series C preferred stock will be entitled to any payments. We are restricted
from undertaking the following corporate actions without the consent of the
Series C preferred stockholders while any shares of Series C preferred stock
remain outstanding: (i) merging, selling all or substantially all of our assets
or liquidating unless the holders of Series C preferred stock receive at least
$15.00 per share; (ii) purchasing any common stock, except for purchases of
shares under contractual arrangements; (iii) authorizing or issuing any equity
securities senior to or on parity with the Series C preferred stock; (iv)
declaring or paying any cash dividends on the common stock; or (v) increasing or
decreasing the number of authorized shares of preferred stock or common stock.
SERIES D PREFERRED STOCK
As of March 31, 2000, we had 500,000 shares of Series D preferred stock
authorized for issuance, all of which shares were outstanding and held by one
investor. All issued and outstanding Series D preferred stock is, and all shares
of common stock underlying the Series D preferred stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
The Series D preferred stock is convertible into shares of common stock. On
March 1, 2002, each share of Series D preferred stock will convert automatically
into a number of shares of common stock determined by dividing $10.00 by the
offering price per share used in the last round of equity private placement
financing prior to March 1, 2002; provided, however, immediately prior to the
consummation of this offering, each share of Series D preferred stock will
convert automatically into the number of shares of common stock determined by
dividing $10.00 by 95% of the offering price per share of the common stock used
in this offering.
67
<PAGE> 70
If our board of directors declares a cash dividend payable on our
outstanding shares of common stock, the board of directors must also declare a
dividend payable on each share of Series D preferred stock equal to the same
dividend per share paid on each share of common stock (as adjusted for any
common stock dividends, splits or the like). Holders of shares of Series D
preferred stock are entitled to vote on all matters submitted for a vote of the
holders of common stock. Holders will be entitled to one vote for each share of
Series D preferred stock (subject to adjustment for any common stock dividends,
splits or the like). In the event of our liquidation or dissolution, the holders
of Series D preferred stock will be entitled to receive the amount they paid for
their stock, plus accrued and unpaid dividends out of our assets legally
available for such payments after the holders of Series C preferred stock have
received their preferential payments, but prior to the time other holders of our
securities will be entitled to any payments. We are prohibited from paying any
cash dividends on our common stock while any shares of Series D preferred stock
remain outstanding.
WARRANTS AND OPTIONS
Finova Warrants. In connection with a $1.6 million loan made by Finova on
June 24, 1997 to us (the "Finova Loan"), we issued a Stock Purchase Warrant to
Finova (the "First Finova Warrant") to purchase 85,849 shares of common stock,
at $0.02 per share, subject to the following adjustments: if the Finova Loan
remains outstanding on June 24, 1999, Finova would have the right to purchase
115,644 shares of common stock; if the Finova Loan remains outstanding on June
24, 2000, Finova would have the right to purchase 146,088 shares of common
stock; and if the Finova Loan remains outstanding on June 24, 2001, Finova would
have the right to purchase 177,161 shares of common stock. The First Finova
Warrant is exercisable at any time until July 31, 2002. Pursuant to the terms of
the First Finova Warrant and the Second Finova Warrant (defined below)
(collectively with the First Finova Warrant, the "Finova Warrants"), Finova is
entitled to receive notice of and be entitled to attend or to send a
representative to attend all meetings of our board of directors in a non-voting
observation capacity, receive copies of all notices, packages and documents
provided to members of our board of directors for each board meeting and receive
copies of all actions taken by written consent of our board of directors, until
such time as the Finova Loan has been paid in full. Additionally, both Finova
Warrants contain certain provisions that protect the holder against dilution by
adjustment of exercise price and the number of shares of common stock subject to
the Finova Warrants in certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers or consolidations. We
also granted to Finova an option to sell (the "Put") to us the Finova Warrants
for a period of 30 days immediately preceding the expiration of the Finova
Warrants at a purchase price equal to fair market value (as defined therein);
however, upon consummation of this offering and full payment of the Finova Loan,
the Put will terminate. Additionally, we have granted certain registration
rights to Finova in connection with the Finova Warrants. See "-- Registration
Rights" below. Effective March 25, 1998 we entered into the First Amendment to
the Loan Agreement and Loan Documents with Finova Capital Corporation whereby
the principal amount of the loan was increased by approximately $1.8 million to
a total of approximately $3.4 million. In connection with the additional loan,
we issued a Stock Purchase Warrant to Finova (the "Second Finova Warrant") which
provides that Finova may purchase 93,418 shares of common stock, subject to the
following adjustment: if the Finova Loan remains outstanding on June 24, 2000,
Finova would have the right to purchase 141,572 shares of common stock; if the
Finova Loan remains outstanding on June 24, 2001, Finova would have the right to
purchase 190,728 shares of common stock; and if the Finova Loan remains
outstanding on June 24, 2002, Finova would have the right to purchase 240,920
shares of common stock. This warrant is exercisable at any time until July 31,
2002 and the exercise price is $0.02 per share of common stock.
68
<PAGE> 71
Other Warrants. As of March 31, 2000, warrants to purchase a total of
2,083,776 shares of common stock were, issued and outstanding at exercise prices
ranging from $0.02 per share to $14.00 per share.
Options. As of March 31, 2000, options to purchase 974,923 shares of common
stock were issued and outstanding. The exercise prices of these options range
from $0.02 to $11.50 per share. See "Management -- Option Grants in Last Fiscal
Year," "-- Amended and Restated 1996 Long Term Incentive Plan," "-- Founders
Options" and "-- Employment Agreements" for a description of options granted by
us.
CONVERTIBLE DEBENTURES
In late 1996 and early 1997 we issued approximately $2.2 million in
aggregate principal amount of 12% Convertible Debentures to various investors
(the "Convertible Debentures"). In December 1998 approximately $2.1 million was
converted to common stock at a price of $7.73 per share. The remaining
Convertible Debentures ($95,000) require the Company to pay interest quarterly
at a rate of 12% per annum. Beginning on the second anniversary of the date of
issuance of each Convertible Debenture, we are required to pay 20 equal
quarterly installments of principal and accrued but unpaid interest in an amount
necessary to fully amortize the notes by the twentieth installment, when all
remaining principal and accrued interest will be due. Each of the Convertible
Debentures may be prepaid at our option at any time upon 30 days' notice to the
holder. Unless prepaid by us, each Convertible Debenture also can be redeemed at
the holder's option in whole or in part upon the closing of this offering (the
"IPO Redemption Option"). Such redemption price would be equal to 100% of the
principal amount of the Convertible Debentures to be redeemed, plus accrued
interest, if any, to the date of the closing of this offering; provided,
however, that the IPO Redemption Option will terminate at the close of business
on the date of the closing of this offering and will be lost if not exercised by
that time. The IPO Redemption Option may be exercised separately or in
conjunction with the conversion right described below.
Unless the Convertible Debenture is prepaid by us, 60% of the outstanding
principal balance of each Convertible Debenture is convertible, at the option of
the holder, into common stock on the date of the closing of this offering at the
rate of one share of common stock for each $7.73 of principal of each
Convertible Debenture (but just the 60% convertible portion thereof); provided,
however, that the right to convert each Convertible Debenture will terminate at
the close of business on the date of the closing of this offering and will be
lost if not exercised prior to that time.
BRIDGE PROMISSORY NOTES
In March 1999, we issued an aggregate of $3.5 million principal amount of
13% Bridge Promissory Notes. The Bridge Notes provided for interest of 13% per
annum and were due and payable on March 5, 2000. Holders of an aggregate of $2.3
principal amount of the Bridge Notes converted such Bridge Notes into shares of
common stock in June 1999. In February 2000, we entered into a loan extension
agreement with each holder of then outstanding Bridge Notes. This loan extension
agreement: (i) increased the interest rate from 13% to 14% per annum; (ii)
extended the maturity date to the earlier of (a) March 31, 2001, (b) thirty days
following the closing of our initial public offering of common stock or (c)
thirty days following the closing of a private offering of our equity securities
with aggregate subscriptions of at least $10 million; (iii) made prepayment
optional and without penalty; and (iv) allowed conversion of the outstanding
principal balance of and interest on the Bridge Notes to be converted into
shares of common stock within fifteen days following the closing of our initial
public offering of common stock, at a price equal to 95% of the offering price
in the initial public offering. Concurrent with the execution of the loan
extension agreement, we issued to each participating Bridge Noteholder a warrant
to purchase 10,000 shares of
69
<PAGE> 72
common stock for each $100,000 of principal outstanding. These warrants may be
exercised at any time on or prior to April 30, 2001 at an exercise price equal
to 95% of the offering price in the initial public offering. In addition, the
Company agreed that commencing on October 1, 2000, and for each calendar quarter
thereafter, if any Bridge Note is not paid off, then the holder will receive a
warrant to purchase 2,500 shares of common stock for each $100,000 of principal
outstanding, which warrant would have an exercise period of one year and an
exercise price of $0.02 per share.
REGISTRATION RIGHTS
Finova Warrants. The Finova Warrants contain a registration rights
provision that allows Finova to request that we register all or any part of the
shares of common stock issuable upon exercise of the Finova Warrants as
described above (the "Finova Shares") in certain circumstances. Specifically,
Finova can request that we register the Finova Shares if we propose to file a
registration statement on a form suitable for a secondary offering of shares. We
are required to notify Finova of our intention to file such a registration
statement at least thirty days prior to such filing. If Finova requests that we
register some or all of the Finova Shares, we must include the Finova Shares in
such registration statement at our expense; provided, however, that if the
offering being registered is underwritten and the representative of the
underwriters certifies in writing that the inclusion of the Finova Shares would
materially and adversely affect the sale of the securities to be sold by us in
the offering, then we will be required to include in the offering only the
number of Finova Shares that the underwriters determine in their sole discretion
will not jeopardize the success of the offering.
On April 5, 2000 Finova waived its rights to register shares pursuant to
such registration statement and therefore no Finova shares will be included in
this offering.
Miram International, Inc. On July 29, 1997 we entered into a registration
rights agreement with Miram International, Inc., or Miram. Pursuant to this
agreement, we are obligated to register 93,500 shares of common stock (the
"Miram Shares") held by Miram in certain circumstances.
Miram can request that we register the Miram Shares if we propose to file
certain types of registration statements at any time after we become a reporting
company under the Exchange Act. If such a request is made, we are required to
use our best efforts to cause any managing underwriter of such a proposed
underwritten offering to permit Miram to include the Miram Shares in the
offering. However, no such registration will be required if the managing
underwriter for the proposed offering determines that the inclusion of the Miram
Shares could have an adverse effect on the marketability or the price of the
securities otherwise included in the offer. If the contemplated registration
does not involve an underwritten public offering, such determination shall be
made by us in our reasonable discretion. If requested by the managing
underwriter, Miram has agreed to use its best efforts not to effect any public
sale or distribution of the Miram Shares within 10 days before or 90 days after
the effective date of an underwritten public offering in which any Miram Shares
are included. Expenses incurred in connection with the registration of the Miram
Shares generally will be borne by us. These registration rights will terminate
upon the earlier of the sale of all or substantially all our assets or our
merger with and into another business entity or December 31, 2000.
Cybex Computer Products Corporation. In connection with our strategic
partner agreement with Cybex, we, among other things, granted certain
registration rights to Cybex, and certain permitted assignees of Cybex
(collectively, the "Cybex Holders"). Commencing March 1, 2001, Cybex Holders
holding at least two-thirds of the shares of common stock issued or issuable
upon conversion of Cybex's 500,000 shares of series D preferred stock, may
require us to file a registration statement under the Securities Act with
respect to the resale of
70
<PAGE> 73
their shares. To demand such registration, Cybex Holders must request that the
registration statement register the resale of at least $5 million of common
stock, with such amount being determined based on the market price of our common
stock on the date of the Cybex Holders' request. We are not required to effect
more than one demand registration in total.
Additionally, Cybex Holders will have piggyback registration rights with
respect to the future registration of our shares of common stock under the
Securities Act. If we propose to register any shares of common stock under the
Securities Act (other than on Form S-8 or Form S-4, or a registration in which
the only common stock being registered is common stock issuable upon conversion
of debt securities which are also being registered or in an SEC Rule 145
transaction), the holders of shares having piggyback registration rights are
entitled to receive notice of such registration and are entitled to include
their shares in the registration.
At any time after we become eligible to file a registration statement on
Form S-3 under the Securities Act, Cybex Holders may require us to file one
registration statement per 12-month period on Form S-3 with respect to their
shares of common stock; provided, however, that the aggregate offering price for
any such registration must be at least $3 million.
These registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares of common stock to be included in the registration. We are generally
required to bear all of the expenses of all registrations described above,
except underwriting discounts and commissions. In addition, we have agreed to
indemnify Cybex Holders for losses they incur in connection with registrations
under the strategic partner agreement.
Private Placement of Common Stock and Warrants. In November 1997 we
completed a private placement of 1,250,000 shares of common stock and 312,500
warrants to purchase shares of common stock, to various members of our
management, other individuals and institutional investors. In June 1998 we
completed a private placement of 742,500 shares of common stock to various
members of our management, other individuals and institutional investors.
Pursuant to purchase agreements executed by the holders of these securities, if
we propose to register any of our common stock or other securities in connection
with the public offering of such securities solely for cash, other than an
initial public offering or certain other types of offerings, we shall promptly
give each holder written notice of such proposed filing. Upon the timely request
of each holder, we must, subject to certain exceptions, cause such securities to
be registered. If such offering is underwritten, we will not be required to
include any of these securities in the offering unless the holder accepts the
terms of the underwriting and then only in such quantity as the underwriters
determine in their sole discretion will not materially jeopardize or in any way
reduce the success of the offering. Expenses incurred in connection with the
registration of these securities will be borne by us. Assignment of these
registration rights is permitted in certain instances. Additionally, each holder
has agreed that it will not sell any of these securities until 120 days after
the earlier of the effective registration of these securities or the effective
date of a registration statement in which these securities could have been
included. These registration rights will terminate three years after we become a
public company.
Private Placement of 13% Bridge Promissory Notes and Warrants and Series C
Preferred Stock. In March 1999 we issued in a private placement approximately
$3.5 million of our 13% Bridge Promissory Notes together with warrants to
purchase 525,000 shares of our common stock (the "March Note Placement"). In
June 1999 holders of approximately $2.3 million of the 13% Bridge Promissory
Notes issued in connection with the March Note Placement converted their notes
and accrued interest thereon of approximately $96,000 to 296,342 shares of
common stock. In July 1999 we completed the private placement of approximately
$3.7 million of our 13% Bridge Promissory Notes together with warrants to
purchase
71
<PAGE> 74
449,200 shares of our common stock (the "July Note Placement"). Additionally, in
connection with the July Note Placement, holders of approximately $3.2 million
of such notes converted their notes into 394,063 shares of common stock. In
January 2000 we completed the private placement of 1,231,450 shares of our
Series C preferred stock and warrants to purchase 1,231,450 shares of our common
stock. Pursuant to the note and warrant purchase agreements executed in
connection with the March Note Placement, the Series C preferred stock purchase
agreements and the Series C preferred stock and warrant purchase agreements,
beginning January 1, 2001, the holders of at least 66 2/3% of the then
outstanding shares of common stock issuable under these warrants or upon the
conversion of the Series C preferred stock, as the case may be, may notify us
that they desire to have such shares registered for sale to the public. Promptly
following receipt of such notice and after notifying all other applicable
holders of their right to participate in such offering, we will prepare and
file, and use our best efforts to prosecute to effectiveness, an appropriate
registration statement with the SEC which includes such securities. We may delay
such registration for not longer than 180 days if our board of directors in good
faith reasonably believes that the filing would materially adversely affect
certain pending or proposed offerings or certain other actions. If less than
$5.0 million of the common stock issuable pursuant to the note and warrant
purchase agreements executed in connection with the March Note Placement or the
Series C preferred stock and warrant purchase agreements or less than $10.0
million of common stock issuable upon conversion of the Series C preferred stock
pursuant to the Series C preferred stock purchase agreements is to be sold in
such offering, we will not be obligated to register such securities. We are
obligated to make such a filing with regard to the common stock issuable
pursuant to the note and warrant purchase agreements executed in connection with
the March Note Placement or the Series C preferred stock and warrant purchase
agreements only once, and are obligated to make such a filing with regard to the
common stock issuable upon conversion of the Series C preferred stock pursuant
to the Series C preferred stock purchase agreements only one time in any twelve
month period and no more than three times in the aggregate, unless such
registration statement is not declared effective.
Even if the holders do not exercise these demand registration rights, once
we are eligible to effect a registration of our common stock on Form S-3, the
holders of the shares of common stock issuable under the warrants sold pursuant
to the March Note Placement and the July Note Placement and the shares of common
stock issuable upon conversion of the Series C preferred stock will have the
right to request us to register such securities on Form S-3 as long as the
aggregate proposed offering price of such securities is not less than $3.0
million. We are obligated to honor such a request only once during a 12 month
period. If such an offering is underwritten, the holders' securities will not be
included unless the holders accept the terms of the underwriting agreement. We
may delay such an S-3 offering for no longer than 180 days if our board of
directors in good faith reasonably believes that the filing would materially
adversely affect certain pending or proposed offerings or other certain actions.
Finally, if we propose to register any of our securities in connection with
the public offering of such securities solely for cash, other than an initial
public offering or certain other types of offerings, we shall promptly give each
holder written notice of such proposed filing. Upon the timely request of each
holder, we must, subject to certain exceptions, cause such securities to be
registered.
Expenses incurred in connection with the registration of these securities
will be borne by us and assignment of these registration rights is permitted in
certain instances. Additionally, each holder has agreed that if requested by us
or the underwriters, it will not sell any of these securities until 180 days
after the effective date of an underwritten public offering of any our shares of
common stock without our prior written approval or the approval of the
72
<PAGE> 75
underwriters. If the offering is an underwritten initial public offering, such a
request will not be required and the holders of the warrants or shares of common
stock have agreed to execute and deliver a lock-up letter to the underwriter if
requested to do so. These registration rights will terminate at the earlier of
(a) two years after we become a public company in the case of common stock
issuable under the warrants pursuant to the note and warrant purchase agreements
executed in connection with the March Note Placement and the July Note Placement
and four years after we become a public company in the case of common stock
issuable under the warrants or upon conversion of the Series C preferred stock
pursuant to the Series C preferred stock purchase agreements and the Series C
preferred stock and warrant purchase agreements, as the case may be, or (b) such
time as the holder is able to sell all of such holder's securities issued
pursuant to the note and warrant purchase agreements executed in connection with
the March Note Placement and the July Note Placement and the Series C preferred
stock purchase agreements in a single three-month period in compliance with Rule
144 of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the DGCL. In general,
Section 203 of the DGCL prohibits a publicly-held Delaware corporation 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. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. This provision could
delay, discourage or prohibit transactions not approved in advance by the board
of directors, such as takeover attempts that might result in a premium over the
market price of the common stock.
Our certification of incorporation and bylaws provide that any action
required or permitted to be taken by our stockholders may be taken only at a
duly called annual or special meeting of stockholders, and that special meetings
of stockholders may be called only by our Chairman of the Board, the President
or the board of directors. Our certificate of incorporation does not allow for
action of the stockholders to be taken by written consent. These provisions
could have the effect of delaying until the next stockholders' meeting
stockholder actions which are favored by the holders of a majority of our
outstanding voting securities. Our certificate of incorporation also does not
allow for cumulative voting for directors or for any other purpose. Under
cumulative voting, a minority stockholder holding a sufficient percentage of a
class of shares might be able to ensure the election of one or more directors.
These and other provisions contained in our certificate of incorporation and
bylaws could delay or discourage certain types of transactions involving an
actual or potential change in control of us or our management (including
transactions in which stockholders might otherwise receive a premium for their
shares over the then current prices) and may limit the ability of stockholders
to remove then-current management or approve transactions that stockholders may
deem to be in their best interests and, therefore, could adversely affect the
price of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC.
73
<PAGE> 76
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market after
this offering could cause the market price of our common stock to decline.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of contractual and legal restrictions on
resale, sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 12,768,745*
shares of common stock. Of these shares, the 4,000,000 shares sold in this
offering (and any shares issued upon exercise of the underwriters'
over-allotment option) will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of ours as that term is defined
in Rule 144 under the Securities Act. Affiliates generally include officers,
directors or 10% stockholders. Shares eligible to be sold by affiliates pursuant
to Rule 144 are subject to volume restrictions as described below.
The remaining 8,768,745* shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 under the Securities Act, which
are summarized below. Sales of these shares in the public market, or the
availability of such shares for sale, could cause the market price of our common
stock to decline.
Substantially all of our stockholders have entered into lock-up agreements
generally providing that they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock owned by them
for a period of 180 days after the effective date of the registration statement
filed pursuant to this offering. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be
salable until such agreements expire or are waived. Taking into account the
lock-up agreements, the following shares will be eligible for sale in the public
market at the following times:
- Beginning on the effective date of the registration statement filed
pursuant to this offering, only the shares sold in the offering will be
immediately available for sale in the public market;
- Beginning 180 days after the effective date, approximately 6,936,239
shares will be eligible for sale pursuant to Rules 701, 144 and 144(k),
of which all but 5,907,827 shares are held by affiliates;
- An additional 1,832,506* shares will be eligible for sale pursuant to
Rule 144 on March 31, 2001.
74
<PAGE> 77
RULE 144
Under Rule 144, beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year, which includes the holding period of any prior owner other than
an affiliate, would generally be entitled to sell within any three-month period
a number of shares that does not exceed the greater of:
- 1% of the outstanding shares of our common stock then outstanding, which
will equal approximately 127,687 shares immediately after this offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Mobility.
RULE 144(k)
Under Rule 144(k), a person who was not an affiliate of Mobility at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, which includes the holding
period of any prior owner except an affiliate, is entitled to sell these shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
RULE 701
In general, under Rule 701, any of our employees, consultants or advisors,
other than affiliates, who purchases or receives shares from us in connection
with a compensatory stock purchase plan or option plan or other written
agreement will be eligible to resell these shares beginning 90 days after the
effective date of the registration statement of which this prospectus is a part,
subject only to the manner of sale provisions of Rule 144, and by affiliates
under Rule 144 without compliance with its holding period requirements.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 6,241,141 shares of common
stock or securities convertible into common stock will be entitled to
registration rights with respect to these shares under the Securities Act. When
these shares are registered under the Securities Act they will be freely
tradable unless held by affiliates.
STOCK OPTIONS
In addition, we intend to file a registration statement under the
Securities Act as promptly as possible upon the completion of this offering to
register 2,500,000 shares of common stock issued or to be issued pursuant to our
employee benefit plans or upon exercise of non-plan options. As a result, any
options or rights exercised under the 1996 Plan after the effectiveness of the
registration statement will be available for sale in the public market 180 days
after the effective date of this offering upon the expiration of lock-up
agreements. However, such shares held by affiliates will still be subject to the
volume limitation, manner of sale, notice and public information requirements of
Rule 144 unless otherwise resalable under Rule 701.
75
<PAGE> 78
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Deutsche Bank
Securities Inc., Banc of America Securities LLC and J.C. Bradford & Co., have
severally agreed to purchase from us the following respective numbers of shares
of common stock at a public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Deutsche Bank Securities Inc. .............................. 2,200,000
Banc of America Securities LLC.............................. 1,200,000
J.C. Bradford & Co.......................................... 600,000
---------
Total............................................. 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase the common stock is subject to the terms and conditions
set forth in the underwriting agreement. The underwriting agreement requires the
underwriters to purchase all of the shares of the common stock offered by this
prospectus, if any are purchased. The shares of common stock offered by the
underwriters pursuant to this prospectus are subject to prior sale, when, as and
if delivered to and accepted by the underwriters, and subject to the
underwriters' right to reject any order in whole or in part.
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public offering
price of $14.00 per share and to certain dealers at a price that represents a
concession not in excess of $0.98 per share. Any such securities dealers may
resell any shares purchased from the underwriters to certain other brokers or
dealers at a discount of up to $0.10 per share from the public offering price.
The underwriters may change the public offering price after the common stock is
released for sale to the public.
The underwriters may sell more shares than the total number set forth in
the table above. To cover these sales, we have granted the underwriters an
option to purchase up to an aggregate of 600,000 additional shares of common
stock at the initial public offering price, less the underwriting discounts and
commissions. The underwriters may exercise this option at any time within 30
days after the date of this prospectus only to cover these sales. To the extent
the underwriters exercise this option, each of the underwriters will purchase
shares in approximately the same proportion as the number of shares of common
stock to be purchased by it shown in the above table bears to 4,000,000 and we
will be obligated, pursuant to the option, to sell those shares to the
underwriters. If purchased, the underwriters will offer the additional shares on
the same terms as those on which the 4,000,000 shares are being offered. If the
underwriters exercise their over-allotment option in full, the total public
offering price will be $64,400,000, the total underwriting discount will be
$4,508,000 and the total proceeds to us will be $59,892,000.
The following table shows the per share and total offering expenses and
underwriting discounts and commissions we will pay. This information is
presented assuming either no exercise or full exercise by the underwriters of
the over-allotment option.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions to be paid by us..... $0.98 $0.98 $3,920,000 $4,508,000
Expenses payable by us............. $0.31 $0.27 $1,222,705 $1,222,705
</TABLE>
76
<PAGE> 79
We have engaged J.C. Bradford & Co. as our exclusive financial advisor to
assist us in connection with possible acquisitions. Fees payable under this
engagement are to be determined according to the structure of the transaction.
J.C. Bradford acted as our financial advisor in the Cybex transaction, for which
we paid them a fee of $250,000, and also reimbursed them for their expenses.
Bank of America, N.A., an affiliate of Banc of America Securities LLC, is
our primary lender. We intend to use a portion of the proceeds from this
offering to repay certain amounts outstanding under our loans from Bank of
America, N.A.
We have agreed to indemnify the underwriters with respect to certain
liabilities, including liabilities under the Securities Act.
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the common stock. Specifically, the underwriters may over-allot shares of our
common stock in connection with this offering, thereby creating a short position
in the underwriters' account. A short position results when an underwriter sells
more shares of common stock than such underwriter is committed to purchase.
Additionally, to cover over-allotments or to stabilize the market price of the
common stock, the underwriters may bid for, and purchase, shares of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities, and, if they
do, they may discontinue doing so at any time. The underwriters also may reclaim
selling concessions allowed to an underwriter or dealer, if the underwriters
repurchase shares distributed by such underwriter or dealer. These stabilizing
and other transactions may cause the price of our common stock to be higher than
it otherwise would be in the absence of such transactions. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
We and our officers and directors and certain of our stockholders have
agreed not to offer, sell or make any other disposition of any shares of our
common stock or other securities convertible into or exchangeable or exercisable
for shares of our common stock or derivatives of our common stock for a period
of 180 days after the effective date of the registration statement filed
pursuant to this offering, directly or indirectly, without the prior written
consent of Deutsche Bank Securities Inc.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1,222,705.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 200,000 shares for our employees, directors,
relatives of our employees and directors, and vendors and customers. The number
of shares of common stock available for sale to the general public will be
reduced to the extent these reserved shares are purchased. Any reserved shares
that are not purchased will be offered by the underwriters to the general public
on the same basis as the other shares offered by this prospectus. These reserved
shares will not be subject to any lock-up period.
We have filed an application for our common stock to be quoted on the
Nasdaq National Market under the symbol "MOBE".
77
<PAGE> 80
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock was
determined by negotiation among us and the representatives of the underwriters.
Among the factors considered in determining the public offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
which we and the representatives of the underwriters believe to be
comparable to us; and
- estimates of our business potential.
78
<PAGE> 81
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the common stock offered hereby will be passed upon for
Mobility by Jackson Walker L.L.P., Dallas, Texas. Richard F. Dahlson, a partner
of Jackson Walker, is Secretary of Mobility. Willkie Farr & Gallagher, New York,
New York, is acting as counsel for the underwriters in connection with selected
legal maters related to the shares of common stock offered by this prospectus.
As of the date of this prospectus, Mr. Dahlson owns 164,452 shares of common
stock, warrants to purchase an additional 4,139 shares of common stock and
21,666 shares of Series C preferred stock, which will convert into 14,948 shares
of our common stock upon completion of this offering.
EXPERTS
The consolidated financial statements of Mobility Electronics, Inc. and
subsidiaries as of December 31, 1998 and 1999 and for each of the years in the
three-year period ended December 31, 1999, have been included herein and in the
registration statement filed in connection with this offering in reliance upon
the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock in this offering. This prospectus, which constitutes
a part of the registration statement, does not contain all of the information
set forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Mobility and the common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room. Our SEC filings are also available to the public from the
SEC's web site at www.sec.gov.
Upon completion of this offering, Mobility will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference room and the web site of the SEC referred to above.
79
<PAGE> 82
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of December 31,
1999 and March 31, 2000 (unaudited).................... F-2
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 (unaudited) and 2000
(unaudited)............................................ F-3
Condensed Consolidated Statement of Stockholders' Equity
for the three months ended March 31, 2000
(unaudited)............................................ F-4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 (unaudited) and 2000
(unaudited)............................................ F-5
Notes to Condensed Consolidated Financial Statements...... F-6
Independent Auditors' Report................................ F-9
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and
1999................................................... F-10
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-11
Consolidated Statements of Stockholders' Equity
(Deficiency) and Comprehensive Income (Loss) for the
years ended December 31, 1997, 1998 and 1999........... F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-13
Notes to Consolidated Financial Statements................ F-14
</TABLE>
F-1
<PAGE> 83
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 4,792,313 6,317,537
Accounts receivable, net.................................. 2,992,014 4,369,572
Inventories............................................... 1,554,016 2,021,360
Prepaid expenses and other current assets................. 682,728 1,034,403
----------- -----------
Total current assets.............................. 10,021,071 13,742,872
----------- -----------
Property and equipment, net................................. 1,916,891 1,887,159
Other assets, net........................................... 2,961,375 2,449,079
----------- -----------
$14,899,337 18,079,110
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit........................................... $ -- 1,866,074
Accounts payable.......................................... 2,298,946 3,523,205
Accrued expenses and other current liabilities............ 1,109,771 1,224,135
Notes payable............................................. -- 2,685,042
Current installments of long-term debt.................... 993,138 123,981
Current installments of capital lease obligations......... 136,326 90,491
----------- -----------
Total current liabilities......................... 4,538,181 9,512,928
----------- -----------
Lines of credit............................................. 2,728,538 --
Long-term debt, less current installments................... 5,285,750 3,406,000
Capital lease obligations, less current installments........ 36,636 23,647
----------- -----------
Total liabilities................................. 12,589,105 12,942,575
----------- -----------
Stockholders' equity:
Convertible preferred stock -- Series C, $.01 par value;
authorized 15,000,000 shares; 2,399,102 and 2,447,808
shares issued and outstanding at December 31, 1999 and
March 31, 2000 (unaudited), respectively............... 23,991 29,478
Common stock, $.01 par value; authorized 90,000,000
shares; 5,978,679 and 6,698,119 shares issued and
outstanding at December 31, 1999 and March 31, 2000
(unaudited), respectively.............................. 59,787 66,981
Additional paid-in capital................................ 51,719,778 57,129,997
Accumulated deficit....................................... (46,659,488) (49,541,832)
Stock subscription and deferred compensation.............. (2,833,836) (2,548,089)
----------- -----------
Total stockholders' equity........................ 2,310,232 5,136,535
----------- -----------
$14,899,337 18,079,110
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE> 84
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 2000
----------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $ 3,227,784 5,002,005
Cost of sales............................................... 2,794,875 3,607,286
----------- ----------
Gross profit........................................... 432,909 1,394,719
----------- ----------
Operating expenses:
General and administrative................................ 829,097 1,255,380
Research and development.................................. 1,072,484 950,657
Marketing and sales....................................... 1,554,167 1,144,301
----------- ----------
Total operating expenses.......................... 3,455,748 3,350,338
----------- ----------
Loss from operations.............................. (3,022,839) (1,955,619)
Other income (expense):
Interest expense.......................................... (642,195) (986,734)
Interest income........................................... 14,633 57,799
Other, net................................................ 472 2,210
----------- ----------
Loss before provision for income taxes............ (3,649,929) (2,882,344)
Provision for income taxes.................................. -- --
----------- ----------
Net loss.......................................... (3,649,929) (2,882,344)
Beneficial conversion costs of preferred stock.............. -- (48,663)
----------- ----------
Net loss attributable to common stockholders................ $(3,649,929) (2,931,007)
=========== ==========
Pro forma as converted, net loss per share:
Basic..................................................... $ (0.80) (0.46)
=========== ==========
Diluted................................................... $ (0.75) (0.43)
=========== ==========
Weighted average common shares outstanding:
Basic..................................................... 4,566,892 6,324,220
=========== ==========
Diluted................................................... 4,897,826 6,792,824
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE> 85
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STOCK
SUBSCRIPTIONS
COMMON STOCK ADDITIONAL RECEIVABLE NET
PREFERRED ------------------- PAID-IN ACCUMULATED AND DEFERRED STOCKHOLDERS'
STOCK SHARES AMOUNT CAPITAL DEFICIT COMPENSATION EQUITY
--------- --------- ------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999....... $23,991 5,978,679 $59,787 51,719,778 (46,659,488) (2,833,836) 2,310,232
Issuance of common stock for
warrants exercised................ -- 719,440 7,194 202,304 -- -- 209,498
Issuance of Series C preferred stock
for cash.......................... 487 -- -- 268,596 -- -- 269,083
Issuance of Series D preferred stock
for cash.......................... 5,000 -- -- 4,726,276 -- -- 4,731,276
Issuance of warrants................ -- -- -- 213,043 -- -- 213,043
Amortization of deferred
compensation...................... -- -- -- -- -- 285,747 285,747
Net loss............................ -- -- -- -- (2,882,344) -- (2,882,344)
------- --------- ------- ---------- ----------- ---------- ----------
Balances at March 31, 2000.......... $29,478 6,698,119 $66,981 57,129,997 (49,541,832) (2,548,089) 5,136,535
======= ========= ======= ========== =========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE> 86
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,649,929) (2,882,344)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for accounts receivable...................... 30,000 30,000
Provision for obsolete inventory....................... 15,000 5,000
Depreciation and amortization.......................... 163,711 179,354
Amortization on deferred loan costs.................... 354,815 710,081
Amortization of deferred compensation.................. -- 307,927
Changes in operating assets and liabilities:
Accounts receivable.................................. (542,014) (514,929)
Inventories.......................................... 1,182,347 (472,345)
Prepaid expenses and other assets.................... 372,115 (388,328)
Accounts payable..................................... (1,060,766) 331,630
Accrued expenses and other current liabilities....... (62,398) 274,407
----------- -----------
Net cash used in operating activities............. (3,197,119) (2,419,547)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (411,027) (119,891)
----------- -----------
Net cash used in investing activities............. (411,027) (119,891)
----------- -----------
Cash flows from financing activities:
Cash received from issuance of note payable............... 3,500,000 --
Repayment of lines of credit.............................. (420,000) (862,465)
Repayment of note payable................................. -- (166,667)
Repayment of long-term debt and capital lease
obligations............................................ (55,762) (116,063)
Net proceeds from issuance of preferred stock............. 1,052,518 5,000,359
Proceeds from exercise of warrants........................ 173,878 209,498
----------- -----------
Net cash provided by financing activities......... 4,250,634 4,064,662
----------- -----------
Net increase in cash and cash equivalents......... 642,488 1,525,224
Cash and cash equivalents, beginning of period.............. 2,432,703 4,792,313
----------- -----------
Cash and cash equivalents, end of period.................... $ 3,075,191 6,317,537
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE> 87
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Mobility Electronics, Inc. (Mobility or the Company) formerly known as
Electronics Accessory Specialists International, Inc. and its wholly owned
subsidiary, Mobility Electronics, L.L.C., including its three operating
subsidiaries, up to October 1999, being the date of the sale of the subsidiary.
All significant intercompany balances and transactions have been eliminated.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles, pursuant to rules and regulations of
the Securities and Exchange Commission. In the opinion of management, the
accompanying condensed consolidated financial statements include all adjustments
that are necessary for a fair presentation of the results for the interim
periods presented. Certain information and footnote disclosures have been
condensed or omitted pursuant to such rules and regulations. These condensed
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's audited consolidated financial statements as of and
for the year ended December 31, 1999. Results of operations in interim periods
are not necessarily indicative of results to be expected for a full year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Net Loss Per Common Share
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted loss per share reflects the potential dilution that could occur
if securities or contracts to issue common stock were exercised or converted to
common stock or resulted in the issuance of common stock that then shared in the
earnings or loss of the Company. Nominal issuances of stock options and warrants
for all periods have been included in the calculations of diluted net loss per
common share in accordance with Staff Accounting Bulletin No. 98.
(b) Unaudited Interim Financial Information
The unaudited interim financial statements as of and for the three months
ended March 31, 1999 and 2000, reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly present the financial position, results of operations, and cash flows as
of and for the periods presented. The results of the interim periods presented
are not necessarily indicative of results to be expected for the full year.
(3) STOCKHOLDERS' DEFICIENCY
(a) Preferred Stock
On March 6, 2000, the Company signed a Strategic Partner Agreement with
Cybex Computer Products Corporation (Cybex). The Company and Cybex have agreed
to license certain technology to each other and the Company has agreed to sell
certain of its products to Cybex on a private label basis. In conjunction with
this agreement, the Company sold Cybex 500,000 shares of $0.01 par value Series
D preferred stock for $5,000,000, or $10.00 per share. The Series D preferred
stockholders have voting rights consistent with common stockholders and have
liquidation preference over common stockholders but subordinate to Series C
F-6
<PAGE> 88
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
preferred stockholders. The Series D preferred stock is convertible into shares
of common stock. On March 1, 2002, each share of Series D preferred stock will
convert automatically into a number of shares of common stock determined by
dividing $10.00 by the offering price per share used in the last round of equity
private placement financing prior to March 1, 2002; provided, however,
immediately prior to the consummation of this offering, each share of Series D
preferred stock will convert automatically into the number of shares of common
stock determined by dividing $10.00 by 95% of the offering price per share of
the common stock used in this offering. In the event of liquidation or
dissolution, the holders of Series D preferred stock will be entitled to receive
the amount they paid for their stock, plus accrued and unpaid dividends out of
assets legally available for such payments after the holders of Series C
preferred stock have received their preferential payments, but prior to the time
other holders of our securities will be entitled to any payments. The Company is
prohibited from paying any cash dividends on common stock while any shares of
Series D preferred stock remain outstanding without the consent of the Series D
stockholders.
During January 2000, the Company completed a Private Placement and issued
48,706 shares of Series C preferred stock at $6.00 per share for total gross
proceeds of $292,240. In conjunction with this Private Placement, the Company
issued a warrant for each share of Series C preferred stock to purchase two
shares of common stock. The total warrants issued of 97,412 are exercisable at
$0.02 per common stock share and expire October 1, 2002.
At the date of issuance of the Series C shares, a non-cash beneficial
conversion adjustment of $48,663, which represents a 17% discount to the fair
value of the common stock at the date of issuance, has been recorded in the 2000
consolidated financial statements as an increase and decrease to additional
paid-in capital.
(b) Common Stock
On March 10, 2000, the Company's Board of Directors authorized and on March
31, 2000 the Company's stockholders approved a 1-for-2 reverse stock split, and
a post-split adjustment of the number of authorized shares of common stock to
90,000,000 shares. All share information included in the accompanying condensed
consolidated financial statements has been retroactively adjusted to reflect
this reverse split and post-split adjustment.
(4) LONG-TERM DEBT
On February 29, 2000, the Company amended the certain Bridge Promissory
Notes to extend the maturity date of $1,225,000 of the Existing Bridge Notes and
related accrued interest of approximately $160,000 from March 31, 2000 to the
earlier of an initial public offering (IPO) or other equity infusion of
$10,000,000 or greater, or March 31, 2001. In addition, the annual interest rate
was increased to 14%. In conjunction with the extension of the maturity date,
the Company issued warrants to purchase 138,502 shares of common stock valued at
$213,043. The warrants are exercisable at a purchase price equal to the offering
price used in the last round of equity private placement financing prior to the
note maturity date of March 31, 2001, or if the Company has completed an initial
public offering of common stock prior to the note maturity date, then the
purchase price shall be ninety-five percent of the offering price of the initial
public offering. However, if the outstanding principal balance due under these
Bridge Notes are not paid by September 30, 2000, 2,500 warrants for every
$100,000 of extended and outstanding principal due shall be awarded per quarter
until the
F-7
<PAGE> 89
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
principal balance is paid. These warrants are exercisable for common stock at an
exercise price of $0.02.
(5) LINES OF CREDIT
On March 13, 2000, the Company entered into agreements to extend the
maturity date of the lines of credit and promissory note agreements from March
31, 2000 to March 31, 2001. As part of the extension agreement, the interest
rate on the $750,000 line of credit was increased from the bank's corporate base
rate plus 2.5% to the bank's corporate base rate plus 3.5%.
(6) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Four customers accounted for 16%, 13%, 12% and 12% (unaudited) of net sales
for the three months ended March 31, 1999. Three customers accounted for 29%,
22% and 11% (unaudited) of net sales for the three months ended March 31, 2000.
(7) CONTINGENCIES AND LITIGATION
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, based on consultation
with legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity. Accordingly, the accompanying condensed consolidated
financial statements do not include a provision for losses, if any, that might
result from the ultimate disposition of these matters.
(8) NET LOSS PER SHARE
The computation of basic and diluted pro forma as converted net loss per
share follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1999 2000
----------- ----------
<S> <C> <C>
Net loss.................................................. $(3,649,929) (2,882,344)
Beneficial conversion costs of preferred stock............ -- (48,663)
----------- ----------
Net loss attributable to common stockholders.............. $(3,649,929) (2,931,007)
=========== ==========
Weighted average common shares outstanding -- basic....... 4,566,892 6,324,220
=========== ==========
Pro forma as converted -- basic loss per share............ $ (0.80) (0.46)
=========== ==========
Weighted average common shares outstanding -- basic....... 4,566,892 6,324,220
Effect of dilutive securities............................. 330,934 468,604
----------- ----------
Weighted average common shares outstanding -- diluted..... 4,897,826 6,792,824
=========== ==========
Pro forma as converted -- diluted loss per share.......... $ (0.75) (0.43)
=========== ==========
</TABLE>
The dilutive securities used in the diluted weighted average common shares
outstanding represents issuances of options and warrants at a nominal value.
F-8
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mobility Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Mobility
Electronics, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficiency)
and comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mobility
Electronics, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Phoenix, Arizona
March 3, 2000, except for the
first, fourth and fifth paragraphs of Note 20,
which are as of March 6, 2000, March 13, 2000
and March 10, 2000, respectively
F-9
<PAGE> 91
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,432,703 4,792,313
Accounts receivable, net.................................. 2,796,787 2,992,014
Inventories............................................... 3,358,025 1,554,016
Prepaid expenses and other current assets................. 356,426 682,728
----------- -----------
Total current assets.............................. 8,943,941 10,021,071
----------- -----------
Property and equipment, net................................. 1,925,548 1,916,891
Other assets, net........................................... 1,865,230 2,961,375
----------- -----------
$12,734,719 14,899,337
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Lines of credit........................................... $ 5,130,855 --
Accounts payable.......................................... 5,557,303 2,298,946
Accrued expenses and other current liabilities............ 1,547,167 1,109,771
Current installments of long-term debt.................... 15,250 993,138
Current installments of capital lease obligations......... 204,314 136,326
----------- -----------
Total current liabilities......................... 12,454,889 4,538,181
----------- -----------
Lines of credit............................................. -- 2,728,538
Long-term debt, less current installments................... 3,587,221 5,285,750
Capital lease obligations, less current installments........ 188,972 36,636
----------- -----------
Total liabilities................................. 16,231,082 12,589,105
----------- -----------
Commitments, contingencies, and subsequent events (notes 7,
8, 12, 13, 14, 15, 17, 18, 19 and 20)
Stockholders' equity (deficiency):
Convertible preferred stock -- Series C, $.01 par value;
authorized 15,000,000 shares; 558,400 and 2,399,102
issued and outstanding at
December 31, 1998 and 1999, respectively............... 5,584 23,991
Common stock, $.01 par value; authorized 90,000,000
shares; 4,563,806 and 5,978,679 shares issued and
outstanding at December 31, 1998 and 1999,
respectively........................................... 45,638 59,787
Additional paid-in capital................................ 26,664,791 51,719,778
Accumulated deficit....................................... (30,202,415) (46,659,488)
Stock subscription and deferred compensation.............. -- (2,833,836)
Accumulated other comprehensive income (loss) -- foreign
currency translation adjustment........................ (9,961) --
----------- -----------
Total stockholders' equity (deficiency)........... (3,496,363) 2,310,232
----------- -----------
$12,734,719 14,899,337
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 92
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.......................................... $12,743,984 21,072,057 13,952,010
Cost of sales...................................... 13,335,273 23,529,822 11,750,705
----------- ----------- -----------
Gross profit (loss)........................... (591,289) (2,457,765) 2,201,305
----------- ----------- -----------
Operating expenses:
General and administrative....................... 1,907,051 4,445,731 3,651,173
Research and development......................... 1,985,750 4,361,365 3,377,215
Marketing and sales.............................. 2,625,560 5,130,955 5,207,503
Purchased research and development............... 965,081 -- --
----------- ----------- -----------
Total operating expenses................. 7,483,442 13,938,051 12,235,891
----------- ----------- -----------
Loss from operations..................... (8,074,731) (16,395,816) (10,034,586)
Other income (expense):
Interest expense................................. (711,245) (1,756,534) (6,396,567)
Interest income.................................. 34,977 118,439 100,136
Other, net....................................... (24,171) 1,053 (126,056)
----------- ----------- -----------
Loss before provision for income taxes... (8,775,170) (18,032,858) (16,457,073)
Provision for income taxes......................... -- -- --
----------- ----------- -----------
Net loss................................. (8,775,170) (18,032,858) (16,457,073)
Dividends declared on Series B preferred stock..... (317,365) -- --
Beneficial conversion costs of preferred stock..... -- -- (1,449,541)
----------- ----------- -----------
Net loss attributable to common stockholders....... $(9,092,535) (18,032,858) (17,906,614)
=========== =========== ===========
Proforma as converted net loss per share:
Basic............................................ $ (3.45) (4.36) (3.59)
=========== =========== ===========
Diluted.......................................... $ (3.43) (4.20) (3.14)
=========== =========== ===========
Weighted average common shares outstanding:
Basic............................................ 2,638,577 4,135,575 4,994,283
=========== =========== ===========
Diluted.......................................... 2,650,474 4,293,045 5,706,583
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 93
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) AND COMPREHENSIVE
INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
STOCK FOREIGN
COMMON STOCK ADDITIONAL SUBSCRIPTIONS CURRENCY
PREFERRED ------------------- PAID-IN ACCUMULATED AND DEFERRED TRANSLATION
STOCK SHARES AMOUNT CAPITAL DEFICIT COMPENSATION ADJUSTMENT
--------- --------- ------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996...... $ 42 2,293,764 $22,938 4,554,380 (2,928,277) (503,592) (5,145)
Conversion of preferred stock to
common stock as part of private
placement........................ (21) 125,500 1,255 (1,234) -- -- --
Redemption of preferred stock for
cash............................. (21) -- -- (995,479) -- -- --
Receipt of stock subscription
receivable....................... -- -- -- -- -- 503,592 --
Reclassification of par value of
common stock issued.............. -- 69,059 690 (690) -- -- --
Issuance of common stock through
private placement................ -- 1,124,500 11,245 7,849,958 -- -- --
Issuance of common stock for asset
purchase......................... -- 55,000 550 424,450 -- -- --
Issuance of common stock for
cash............................. -- 58,366 584 450,496 -- -- --
Issuance of warrants............... -- -- -- 669,308 -- -- --
Preferred stock dividends
declared......................... -- -- -- -- (317,365) -- --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- -- -- -- -- -- 1,050
Net loss......................... -- -- -- -- (8,775,170) -- --
Total comprehensive loss...
------- --------- ------- ---------- ----------- ---------- --------
Balances at December 31, 1997...... -- 3,726,189 37,262 12,951,189 (12,020,812) -- (4,095)
Conversion of convertible
debentures to common stock....... -- 275,721 2,757 2,125,813 -- -- --
Issuance of common stock through
private placement................ -- 742,500 7,425 7,456,950 -- -- --
Issuance of preferred stock through
private placement................ 5,584 -- -- 3,348,358 -- -- --
Issuance of warrants............... -- -- -- 1,443,438 -- -- --
Repurchase of common stock......... -- -- -- -- -- -- --
Retirement of treasury stock....... -- (180,604) (1,806) (660,957) (148,745) -- --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- -- -- -- -- -- (5,866)
Net loss......................... -- -- -- -- (18,032,858) -- --
Total comprehensive loss...
------- --------- ------- ---------- ----------- ---------- --------
Balances at December 31, 1998...... 5,584 4,563,806 45,638 26,664,791 (30,202,415) -- (9,961)
Conversion of convertible
debentures to common stock....... -- 690,405 6,904 5,400,549 -- -- --
Warrants exercised................. -- 681,093 6,811 183,056 -- -- --
Issuance of warrants............... -- -- -- 5,633,957 -- -- --
Issuance of preferred stock through
private placements............... 14,573 -- -- 8,070,226 -- -- --
Issuance of preferred stock for
cash............................. 1,667 -- -- 930,833 -- -- --
Issuance of preferred stock to VLSI
(note 10)........................ 1,667 -- -- 998,333 -- -- --
Issuance of common stock in
settlement agreement............. -- 38,500 385 307,615 -- -- --
Stock options granted.............. -- -- -- 3,179,943 -- -- --
Issuance of common stock to
consultant....................... -- 4,875 49 50,975 -- -- --
Preferred stock subscribed......... 500 -- -- 299,500 -- (300,000) --
Deferred compensation.............. -- -- -- -- -- (2,533,836) --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- -- -- -- -- -- 9,961
Net loss......................... -- -- -- -- (16,457,073) -- --
Total comprehensive loss...
------- --------- ------- ---------- ----------- ---------- --------
Balances at December 31, 1999...... $23,991 5,978,679 $59,787 51,719,778 (46,659,488) (2,833,836) --
======= ========= ======= ========== =========== ========== ========
<CAPTION>
NET
STOCKHOLDERS'
TREASURY EQUITY
STOCK (DEFICIENCY)
--------- -------------
<S> <C> <C>
Balances at December 31, 1996...... (533,158) 607,188
Conversion of preferred stock to
common stock as part of private
placement........................ -- --
Redemption of preferred stock for
cash............................. -- (995,500)
Receipt of stock subscription
receivable....................... -- 503,592
Reclassification of par value of
common stock issued.............. -- --
Issuance of common stock through
private placement................ -- 7,861,203
Issuance of common stock for asset
purchase......................... -- 425,000
Issuance of common stock for
cash............................. -- 451,080
Issuance of warrants............... -- 669,308
Preferred stock dividends
declared......................... -- (317,365)
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- 1,050
Net loss......................... -- (8,775,170)
-----------
Total comprehensive loss... (8,774,120)
--------- -----------
Balances at December 31, 1997...... (533,158) 430,386
Conversion of convertible
debentures to common stock....... -- 2,128,570
Issuance of common stock through
private placement................ -- 7,464,375
Issuance of preferred stock through
private placement................ -- 3,353,942
Issuance of warrants............... -- 1,443,438
Repurchase of common stock......... (278,350) (278,350)
Retirement of treasury stock....... 811,508 --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- (5,866)
Net loss......................... -- (18,032,858)
-----------
Total comprehensive loss... (18,038,724)
--------- -----------
Balances at December 31, 1998...... -- (3,496,363)
Conversion of convertible
debentures to common stock....... -- 5,407,453
Warrants exercised................. -- 189,867
Issuance of warrants............... -- 5,633,957
Issuance of preferred stock through
private placements............... -- 8,084,799
Issuance of preferred stock for
cash............................. -- 932,500
Issuance of preferred stock to VLSI
(note 10)........................ -- 1,000,000
Issuance of common stock in
settlement agreement............. -- 308,000
Stock options granted.............. -- 3,179,943
Issuance of common stock to
consultant....................... -- 51,024
Preferred stock subscribed......... -- --
Deferred compensation.............. -- (2,533,836)
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- 9,961
Net loss......................... -- (16,457,073)
-----------
Total comprehensive loss... (16,447,112)
--------- -----------
Balances at December 31, 1999...... -- 2,310,232
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 94
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(8,775,170) (18,032,858) (16,457,073)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provisions for accounts receivable....................... 164,230 997,217 955,370
Provision for obsolete inventory......................... 837,635 4,469,481 1,733,463
Depreciation and amortization............................ 695,952 965,086 982,156
Amortization on deferred loan costs...................... 79,762 633,398 4,839,918
Loss on sale of assets................................... 28,537 -- --
Loss on sale of subsidiary............................... -- -- 133,972
Amortization of deferred compensation.................... 5,000 22,000 333,442
Purchased research and development....................... 965,081 -- --
Expense for stock granted to consultant.................. -- -- 51,024
Changes in operating assets and liabilities, net of
acquisition:
Accounts receivable.................................... (1,960,503) (1,145,534) (1,150,597)
Inventories............................................ (3,846,587) (3,128,926) 70,546
Prepaid expenses and other assets...................... 59,612 (518,463) 202,260
Accounts payable....................................... 2,518,295 1,936,508 (2,851,563)
Accrued expenses and other current liabilities......... 333,970 866,136 (341,656)
----------- ----------- -----------
Net cash used in operating activities................ (8,894,186) (12,935,955) (11,498,738)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment......................... (971,636) (902,951) (724,268)
Proceeds from sale of property and equipment............... 169,597 -- --
Purchase of patent......................................... (3,380) -- --
----------- ----------- -----------
Net cash used in investing activities................ (805,419) (902,951) (724,268)
----------- ----------- -----------
Cash flows from financing activities:
Cash received from lines of credit......................... 2,922,609 2,208,246 --
Repayment of lines of credit............................... (1,200,225) -- (2,402,317)
Borrowings under long-term debt............................ 2,635,000 1,750,000 8,202,500
Repayment of long-term debt and capital lease
obligations.............................................. (86,664) (436,677) (318,907)
Cash paid to acquire long-term debt........................ (128,287) -- --
Expenses related to conversion of debt into common stock... -- -- (115,787)
Net proceeds from issuance of preferred stock.............. -- 3,353,942 9,017,299
Cash paid to redeem preferred stock........................ (995,500) -- --
Proceeds from sale of common stock......................... 8,223,583 7,464,375 --
Proceeds for exercise of warrants.......................... -- -- 189,867
Cash paid for treasury stock............................... -- (278,350) --
Collection of stock subscription receivable................ 503,592 -- --
Dividends paid............................................. (249,635) -- --
----------- ----------- -----------
Net cash provided by financing activities............ 11,624,473 14,061,536 14,572,655
----------- ----------- -----------
Effects of exchange rates on cash and cash equivalents...... 1,050 (5,866) 9,961
----------- ----------- -----------
Net increase in cash and cash equivalents............ 1,925,918 216,764 2,359,610
Cash and cash equivalents, beginning of year................ 290,021 2,215,939 2,432,703
----------- ----------- -----------
Cash and cash equivalents, end of year...................... $ 2,215,939 2,432,703 4,792,313
=========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ 601,054 1,230,890 1,223,722
=========== =========== ===========
Supplemental schedule of noncash investing and financing
activities:
Acquisition of property and equipment and assumption of
capital lease obligations................................ $ 374,461 216,215 --
=========== =========== ===========
Warrants issued in connection with the execution of
long-term debt........................................... $ 664,308 1,421,438 8,709,644
=========== =========== ===========
Conversion of 2,101 shares of Series B preferred stock into
125,500 shares of common stock........................... $ 2,489 -- --
=========== =========== ===========
Conversion of preferred dividends and interest on Series B
preferred stock to 11,088 shares of common stock......... $ 88,700 -- --
=========== =========== ===========
Issuance of stock subscribed for 69,059 shares of common
stock.................................................... $ 1,381 -- --
=========== =========== ===========
Stock issued in conjunction with acquisition............... $ 425,000 -- --
=========== =========== ===========
Conversion of debentures and accrued interest to 275,721
shares of common stock................................... $ -- 2,128,570 --
=========== =========== ===========
Conversion of bridge loans to 690,405 shares of common
stock.................................................... $ -- -- 5,523,240
=========== =========== ===========
Retirement of treasury stock............................... $ -- 811,508 --
=========== =========== ===========
Issuance of 166,666 shares of Series C preferred stock for
settlement of accounts payable and inventory purchases... $ -- -- 1,000,000
=========== =========== ===========
Issuance of 38,500 shares of common stock as settlement for
contingent purchase price................................ $ -- -- 308,000
=========== =========== ===========
Options issued for services................................ $ -- -- 3,179,943
=========== =========== ===========
Stock subscription receivable.............................. $ -- -- 300,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 95
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(1) NATURE OF BUSINESS
Mobility Electronics, Inc. (Mobility or the Company) formerly known as
Electronics Accessory Specialists International, Inc. was formed on May 4, 1995.
Mobility was originally formed as a limited liability corporation, however, in
August 1996 the Company became a C Corporation incorporated in the State of
Delaware.
Mobility designs, develops and markets connectivity and remote PCI bus
technology and products for the computer industry and a broad range of related
embedded processor applications. In addition, Mobility also manufactures and/or
distributes in-car and in/out DC power adapters, portable computer docking
stations, port replicators, and monitor stands. Mobility distributes products in
the U.S., Canada and Europe.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change include
valuation of accounts receivable and inventories, impairment of intangible
assets and valuation of deferred tax assets. Management believes that such
estimates have been appropriately established in accordance with generally
accepted accounting principles.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Mobility and
its wholly owned subsidiary, Mobility Electronics L.L.C. including its three
operating subsidiaries, up to October 1999, being the date of the sale of this
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Cash and Cash Equivalents
All short-term investments purchased with an original maturity of three
months or less are considered to be cash equivalents. Cash and cash equivalents
include cash on hand and amounts on deposit with financial institutions.
(d) Inventories
Inventories consist of component parts purchased partially and fully
assembled for computer accessory items. The Company has all normal risks and
rewards of its inventory held by contract manufacturers. Inventories are stated
at the lower of cost (first-in, first-out method) or market. Finished goods and
work-in-process inventories include material, labor and overhead costs. Overhead
costs are allocated to inventory manufactured in-house based upon direct labor.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment held under capital
leases is stated at the present value of future minimum lease payments.
Depreciation on furniture, fixtures and equipment is provided using the
straight-line method over the estimated useful lives of
F-14
<PAGE> 96
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the assets ranging from two to seven years. Tooling is capitalized at cost and
is depreciated over a two-year period. Equipment held under capital leases and
leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets.
(f) Deferred Loan Costs
Deferred loan costs are amortized over the term of the related debt.
(g) Licensing Fees and Noncompete Agreement
The cost of licensing fees and a noncompete agreement are included in other
assets and amortized on a straight-line basis over their estimated economic
lives of two to five years.
(h) Goodwill
Goodwill, which is included in other assets, represents the excess of
purchase price over fair value of net assets acquired, is amortized on a
straight-line basis over five years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
(i) Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(j) Revenue Recognition
Revenue from product sales is recognized upon shipment and transfer of
ownership from the Company or contract manufacturer to the customer. Provisions
for returns and credits are provided for in the same period the related sales
are recorded.
(k) Warranty Reserve
The Company provides limited warranties on certain of its products for
periods generally not exceeding three years. The Company accrues warranty costs
for potential product liability and warranty claims based on the Company's claim
experience. The Company's warranty accrual was $50,000, $174,071 and $294,071 as
of December 31, 1997, 1998 and 1999, respectively.
(l) Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying
F-15
<PAGE> 97
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(m) Net Loss Per Common Share
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted loss per share reflects the potential dilution that could occur
if securities or contracts to issue common stock were exercised or converted to
common stock or resulted in the issuance of common stock that then shared in the
earnings or loss of the Company. Nominal issuances of stock options and warrants
for all periods have been included in the calculations of diluted net loss per
common share in accordance with Staff Accounting Bulletin No. 98.
(n) Employee Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options and to adopt the
"disclosure only" alternative treatment under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123
requires the use of fair value option valuation models that were not developed
for use in valuing employee stock options. Under SFAS No. 123, deferred
compensation is recorded for the excess of the fair value of the stock on the
date of the option grant, over the exercise price of the option. The deferred
compensation is amortized over the vesting period of the option.
(o) Fair Value of Financial Instruments
The fair value of accounts receivable, accounts payable, and accrued
expenses approximates the carrying value due to the short-term nature of these
instruments. Management has estimated that the fair values of the line of credit
and notes payable approximate the current balances outstanding, based on
currently available rates for debt with similar terms.
(p) Research and Development
The cost of research and development is charged to expense as incurred.
(q) Foreign Currency Translation
The financial statements of the Company's foreign subsidiary are measured
using the local currency as the functional currency. Assets and liabilities of
this subsidiary are translated at exchange rates as of the balance sheet date.
Revenues and expenses are translated at average rates of exchange in effect
during the year. The resulting cumulative translation adjustments have been
recorded as comprehensive income (loss), a separate component of stockholders'
equity. Foreign currency transaction gains and losses are included in
consolidated net loss for the years ended December 31, 1997, 1998 and 1999.
These foreign currency transaction gains and losses were not considered material
and thus, are not separately disclosed on the face of the accompanying
consolidated statements of operations.
F-16
<PAGE> 98
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(r) Segment Reporting
The Company has only one operating business segment, the sale of peripheral
computer equipment.
(s) Comprehensive Loss
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No.
130) which became effective for the Company January 1, 1998. SFAS No. 130
established standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
adopted the provisions of SFAS No. 130 in 1998. Financial statements presented
for earlier periods have been reclassified in accordance with the requirements
of SFAS No. 130.
(t) Reclassification
Certain amounts included in the 1997 and 1998 consolidated financial
statements have been reclassified to conform to the 1999 financial statement
presentation.
(3) ACQUISITION AND SALE
(a) Acquisition
On July 29, 1997, the Company acquired certain assets and assumed certain
liabilities of Miram International, Inc. (Miram), a manufacturer of docking
stations, in exchange for 55,000 shares of common stock valued at $425,000, with
further consideration payable in future periods, contingent upon product sales
revenue during these periods. The transaction was accounted for in accordance
with the purchase method of accounting. During May 1999, the Company issued an
additional 38,500 shares of common stock valued at $308,000 to settle and
eliminate any contingent future consideration. This amount has been recorded as
a component of general and administrative expense for 1999 and no additional
payments to the seller will be required.
(b) Sale of Mobility Electronics LLC
On October 1, 1999, the Company sold its European subsidiary (Mobility
Electronics LLC, which maintained offices in the United Kingdom and France, and
offices and a warehouse/ distribution center in Germany through its three
operating subsidiaries, Mobility Electronics (U.K.), Mobility Electronics GMBH
and Mobility Electronics SARL). The stated value of net assets of approximately
$134,000 was sold for nominal consideration resulting in a loss on sale of the
subsidiary of approximately $134,000, which is recorded as a component of other
loss for 1999.
F-17
<PAGE> 99
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Raw materials............................................... $5,564,935 2,381,921
Work-in-process............................................. 175,185 16,344
Finished goods.............................................. 3,111,530 1,105,750
---------- ---------
8,851,650 3,504,015
Less reserve for obsolete inventories....................... 5,493,625 1,950,000
---------- ---------
$3,358,025 1,554,015
========== =========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Furniture and fixtures...................................... $ 173,631 135,480
Store, warehouse and related equipment...................... 383,121 364,382
Computer equipment.......................................... 687,418 672,102
Capital lease assets........................................ 590,676 581,641
Tooling..................................................... 1,563,396 2,209,813
Leasehold improvements...................................... 63,239 63,239
---------- ---------
3,461,481 4,026,657
Less accumulated depreciation and amortization.............. 1,535,933 2,109,766
---------- ---------
Property and equipment, net....................... $1,925,548 1,916,891
========== =========
</TABLE>
Capital lease assets consist of computers and furniture and fixtures.
(6) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Deferred loan costs......................................... $2,275,344 5,162,389
Deferred compensation expense............................... -- 404,943
Goodwill.................................................... 200,000 200,000
Patents and trademarks...................................... 68,321 126,871
Restricted cash............................................. -- 225,000
Other....................................................... 103,309 92,238
---------- ---------
2,646,974 6,211,441
Less accumulated amortization............................... 781,744 3,250,066
---------- ---------
Net other assets.................................. $1,865,230 2,961,375
========== =========
</TABLE>
F-18
<PAGE> 100
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LINES OF CREDIT
On May 6, 1998, the Company entered into a $1,500,000 line of credit with a
bank. The line bears interest at the bank's corporate base rate plus 1.5% (9.25%
at December 31, 1998), payable monthly, with final payment of interest and
principal on May 6, 1999. The line of credit is secured by the Company's
accounts receivable, inventory, and property and equipment. At December 31,
1998, $792,801 was outstanding under this line of credit. On May 6, 1999, the
Company extended the maturity date of this line of credit to August 1999. In
August 1999, the maturity date was further extended to October 30, 1999 and the
amount available under the line was reduced from $1,500,000 to $750,000. On
October 31, 1999, the maturity date was extended to March 31, 2000 and the
interest rate payable on the line increased to the bank's corporate base rate
plus 2.5%. On March 13, 2000, the bank agreed to extend the maturity date of
this line of credit to March 31, 2001 and increased the interest rate payable on
the line to the bank's corporate base rate plus 3.5% (12% at December 31, 1999).
At December 31, 1999, $466,082 was outstanding under this line of credit.
On July 21, 1998, the Company entered into a line of credit with the same
bank under which the Company may borrow up to the lesser of $4,500,000 or the
sum of 80% of the aggregate amounts of accounts receivable, 60% of the aggregate
amount of finished goods inventory and 40% of the aggregate amount of raw
materials inventory. The interest rate on amounts borrowed under the line of
credit is the bank's corporate base rate plus 1.5% (9.25% at December 31, 1998)
per annum, payable monthly. The line is secured by the Company's accounts
receivable, inventory, and property and equipment. At December 31, 1998,
$4,338,054 was outstanding under this line of credit. This line of credit is
guaranteed by certain stockholders of the Company. The line matured August 31,
1999.
On November 2, 1999, the Company approved the amended and restated business
loan agreement. Pursuant to the terms of this agreement, the outstanding
principal balance of the previously described $4,500,000 note was reduced to
$2,852,054 and then replaced by a revolving line of credit promissory note in
the face amount of $3,000,000. The interest rate on amounts borrowed under this
promissory note is 2.5% plus the bank's corporate base rate per annum (11% at
December 31, 1999), payable monthly and remaining principal and interest due
March 31, 2000. On March 13, 2000, the Company extended the maturity date of
this line of credit to March 31, 2001. At December 31, 1999, $2,262,456 was
outstanding under this line of credit.
The Company's loan agreements contain restrictive debt covenants some of
which include restrictions on officers' salaries, prohibition on payment of
dividends, purchase of fixed assets and maintenance of financial ratios. The
Company was in violation of certain restrictive debt covenants with respect to
the lines of credit and business loan agreements (note 8) as of December 31,
1998 and through 1999 which have been subsequently waived.
F-19
<PAGE> 101
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LONG-TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Notes payable............................................... $3,507,471 4,424,138
Convertible debentures...................................... 95,000 79,750
Bridge notes................................................ -- 1,775,000
---------- ---------
3,602,471 6,278,888
Less current installments................................... 15,250 993,138
---------- ---------
Long-term debt, excluding current installments.............. $3,587,221 5,285,750
========== =========
</TABLE>
During 1996 and 1997, the Company had issued $2,161,122 in aggregate
principal amount of Convertible Debentures (the "Debentures"), of which 60% of
the outstanding balance is convertible at the option of the holder into common
stock on or before the closing date of an Initial Public Offering of the
Company. The conversion price is equal to $7.73 per share. At December 31, 1997,
none of the Debentures had been converted. The annual interest rate on the
debentures is 12%. In December 1998, the Company amended the conversion term of
the debentures to allow the holders of the debentures to convert 100% (versus
60%) of the debentures to common stock. As a result, $2,066,122 of the
Debentures and related accrued interest of $62,448 were converted into 275,721
shares of common stock at a conversion price of approximately $7.73 during 1998.
The December 31, 1998 principal balance totaling $95,000 on the remaining
Debentures are due in quarterly installments of $3,813 plus interest, with any
unpaid principal and interest due at maturity dates ranging from October 2003 to
May 2004. At December 31, 1998 and 1999, $95,000 and $79,750 was outstanding
under these debentures, respectively.
On June 24, 1997, the Company signed a five-year promissory note with a
financial institution for $1,600,000. The interest rate is 13.5% per annum,
payable monthly with final payment due June 23, 2002. The note is secured by the
Company's inventory, property and equipment, and intangible assets. At December
31, 1998 and 1999, $1,600,000 was outstanding under this promissory note.
On March 25, 1998, the Company signed a promissory note with a financial
institution for $1,750,000. The interest rate is 13.5% per annum, payable
monthly, with final payment due June 23, 2002. The note is secured by the
Company's inventory, property and equipment, and intangible assets. At December
31, 1998 and 1999, $1,750,000 was outstanding under this promissory note.
In July 1997, the Company acquired certain assets by executing a $400,000
promissory note payable. The note accrues interest at 8% annually with quarterly
payments of $54,604 including interest that began on October 1, 1997 and
continue through July 1, 1999. The note is secured by a patent application and
other related patents. On May 21, 1999, the Company entered into a Settlement
Agreement, which extended the repayment date with principal and accrued interest
due and payable in equal installments on January 31, April 30 and July 31, 2000.
At December 31, 1998 and 1999, $157,471 was outstanding under this promissory
note.
On November 2, 1999, the Company signed new promissory notes with a bank
with face values of $1,500,000, $150,000 and $75,000 with interest rate on
amounts borrowed under these promissory notes ranging from 2.5% to 3.5% plus the
bank's corporate base rate per annum. The $1,500,000 promissory note is payable
in monthly payments of principal of
F-20
<PAGE> 102
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$83,333 and accrued interest, with $500,000 due at signing and any unpaid
principal and interest due March 31, 2000. On March 13, 2000, the bank agreed to
extend the maturity date of these promissory notes to March 31, 2001. At
December 31, 1999, $916,667 was outstanding under this promissory note. The
$150,000 and $75,000 promissory notes, which are secured by certificate of
deposits, are payable in monthly interest payments, with unpaid principal and
interest due September 15, 2000. At December 31, 1999, $150,000 and $75,000 were
available under these promissory notes.
During March 1999, the Company issued $3.5 million of 13% Bridge Promissory
Notes (the "Existing Bridge Notes") with interest at a rate of 13% per annum and
due and payable March 5, 2000. For each $100,000 of Existing Bridge Notes
subscribed, each subscriber received a warrant to purchase 15,000 shares of
Common Stock at an exercise price of $0.02 per share. This resulted in the
issuance of warrants to purchase 525,000 shares of common stock valued at
$4,200,000. The warrants are exercisable at any time after July 1, 1999 but on
or prior to March 5, 2002, and have certain registration rights. In May 1999,
the Company provided holders of the Existing Bridge Notes the right to convert
the principal and interest of such notes to common stock at a price of $8.00 per
share, provided such conversion was made by June 30, 1999. As of December 31,
1999, $2,275,000 of the Existing Bridge Notes and $95,740 of related accrued
interest was converted into 296,342 shares of common stock. At December 31,
1999, $1,225,000 was outstanding under these Existing Bridge Notes. On February
29, 2000, the Company extended the maturity date of the Existing Bridge Notes
and related accrued interest of approximately $160,000 to March 31, 2001 and
increased the interest rate to 14% per annum (note 20). In conjunction with the
extension of the maturity date, the Company issued warrants to purchase 138,502
shares of common stock. The warrants are exercisable at a purchase price equal
to the offering price used in the last round of equity private placement
financing prior to the note maturity date or if the Company has completed an
initial public offering of common stock prior to the note maturity date, then
the purchase price shall be ninety-five percent of the offering price of the
initial public offering.
During May 1999, the Company held a Private Placement to sell up to
$5,000,000 of 13% Bridge Notes. The Bridge Notes pay interest at the rate of 13%
per annum and are due and payable on July 31, 2000. Bridge Notes of $3,702,500
were issued during 1999. In conjunction with this issuance, the Company issued
449,200 warrants valued at $3,593,600 to purchasers of Bridge Notes based on the
principal amounts of notes subscribed. The warrants have an exercise price of
$0.02 per share and may be exercised on or after September 1, 1999, but on or
prior to May 31, 2002. In May 1999, the Company provided holders of the Existing
Bridge Notes the right to convert the principal and interest of such notes to
common stock at a price of $8.00 per share, provided such conversion was made by
June 30, 1999. During 1999, $3,036,713 was converted into 394,063 shares of
common stock, net of issuance costs of $115,787. At December 31, 1999, $550,000
was outstanding under these Bridge Notes.
F-21
<PAGE> 103
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $ 993,138
2001........................................................ 1,894,000
2002........................................................ 3,369,000
2003........................................................ 19,000
2004........................................................ 3,750
----------
$6,278,888
==========
</TABLE>
(9) CAPITAL LEASE OBLIGATIONS
The Company is obligated under various capital leases primarily for
computer equipment and office furniture that expire at various dates through
2001. These leases meet the various criteria of capital leases and are,
therefore, classified as capital lease obligations. Capital lease obligations
reflect the present value of future rental payments, discounted at the interest
rate implicit in each of the leases. A summary of the future minimum lease
payments required under the capital leases after December 31, 1999 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $157,366
2001........................................................ 39,503
--------
Total minimum capital lease payments...................... 196,869
Less amount representing interest (17.7% to 37.3%).......... 23,907
--------
Capital lease obligations................................. 172,962
Less current installments of capital lease obligations...... 136,326
--------
Capital lease obligations, less current installments...... $ 36,636
========
</TABLE>
The leased furniture and equipment has been included in property and
equipment at a total cost of $590,676 and $581,641 at December 31, 1998 and
1999, respectively.
(10) STOCKHOLDERS' EQUITY (DEFICIENCY)
In January 2000, the Board of Directors authorized the Company's
certificate of incorporation to increase the number of authorized shares of
common stock to 100,000,000 and increased the authorized shares of preferred
stock to 15,000,000 shares and in August 1997 the Board of Directors approved a
44-for-1 stock split. Additionally, in March 2000, the Company's Board of
Directors authorized and the Company's stockholders approved a 1-for-2 reverse
stock split and a post split adjustment of the number of authorized shares of
common stock to 90,000,000 shares. All share information included in the
accompanying consolidated financial statements has been retroactively adjusted
to reflect these amendments.
(a) Convertible Preferred Stock
As part of the Company's financing activities in 1997, 8% cumulative Series
B preferred stockholders were offered the opportunity to convert their Series B
shares into common stock or to redeem their Series B shares. The preferred stock
was converted into common stock at $8.00 per common share. During 1997, 2,101
shares of Series B preferred shares were
F-22
<PAGE> 104
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
converted into 125,500 shares of common stock with a face value of $1,004,000.
The remaining 2,085 Series B preferred shares were redeemed for $995,500 in
cash.
In addition, all dividends in arrears plus interest were paid on
outstanding Series B preferred shares prior to conversion or redemption. During
1997, Series B preferred stockholders used $88,700 of the dividends and interest
to purchase 11,088 shares of common stock. The remaining $249,635 (228,665
Series B and 20,970 Series A) was paid to preferred stockholders in cash.
During 1998, the Company issued 558,400 shares of Series C Preferred Stock
for $3,353,942, net of legal and issuance costs of $415,208 through a Private
Placement. During 1999, the remaining 176,900 shares relating to this Private
Placement were issued for $1,057,888, net of issuance costs of $136,241. An
additional 91,909 shares were issued as a result of repricing the Private
Placement from $6.75 per share to $6.00 per share and 5,804 shares were issued
as payment for broker commissions.
During 1999, the Company issued 1,182,744 shares of Series C Preferred
Stock at $6.00 per share for $7,026,911 million, net of legal and Private
Placement fees of $69,553, in conjunction with a Private Placement. In addition,
the Company issued a warrant for each share of Series C preferred stock to
purchase one share of common stock. In addition, the Company issued warrants to
purchase 72,584 shares of common stock as settlement of certain private
placement fees. The total warrants issued of 1,243,888 and 11,440 are
exercisable at $0.02 and $9.60, respectively, per common stock share and expire
December 2004.
At the date of issuance of the Series C shares, a non-cash beneficial
conversion adjustment of $1,449,541, which represents a 17% discount to the fair
value of the common stock at the date of issuance, has been recorded in the 1999
consolidated financial statements as an increase and decrease to additional
paid-in capital.
In April 1999, the Company entered into an agreement with Seligman
Communications and Information Fund, Inc. (Seligman) under which the Company
issued 166,666 shares of Series C preferred stock at $6.00 per share in exchange
for a $1,000,000 investment in the Company for a total of $1,000,000.
In April 1999, the Company entered into an agreement with VLSI Technology,
Inc. (VLSI) under which the Company issued 166,666 shares of Series C preferred
stock at $6.00 per share in exchange for the settlement of liabilities of
$406,000 with the Company and a prepayment for inventory purchases of $594,000,
net of issuance costs of $67,500. The prepayment of inventory is reflected in
other current assets at December 31, 1999.
The Company may not pay any cash dividends on its common stock while any
shares of Series C preferred stock remain outstanding without the consent of the
Series C preferred stockholders. Further, in the event of the liquidation or
dissolution of the Company, the holders of Series C preferred stock will be
entitled to receive the amount they paid for their stock, plus accrued and
unpaid dividends out of the Company's assets legally available for such payments
prior to the time other holders of our securities junior to the Series C
preferred stock will be entitled to any payments.
(b) Common Stock
In July 1997, the Company acquired certain assets from an unrelated party
by issuing 55,000 shares of common stock valued at $7.73 per share for a total
of $425,000. During May
F-23
<PAGE> 105
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999, the Company issued an additional 38,500 shares of common stock valued at
$6.00 per share for a total of $231,000 to settle the purchase price (note 3).
During 1997, the Company issued 58,366 shares of common stock for $451,080
cash ($7.73 per share).
F-24
<PAGE> 106
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the Company held a Private Placement and issued 1,250,000
shares of common stock for $10,000,000. The common shares were recorded as
follows: 1,124,500 shares were issued for $7,861,203 (which included the $88,700
of converted dividends and interest), net of legal and Private Placement fees of
$1,134,797; and 125,500 shares, valued at $1,004,000, were issued for converted
Series B preferred stock.
During 1998, the Company held a Private Placement and issued 742,500 shares
of common stock for $7,464,375, net of legal and Private Placement fees of
$1,074,377.
During 1998, $2,066,122 of the Convertible Debentures and accrued interest
of $62,448 totaling $2,128,570 were converted into 275,721 common shares at a
conversion price of approximately $7.73.
During 1999, the Company issued 4,875 shares of common stock valued at
$51,188 for services performed by a third party consultant which was recorded as
compensation expense in 1999.
(c) Treasury Stock
During 1996, the Company entered into a non-cash transaction and reacquired
154,154 shares of common stock valued at $533,158 in exchange for a
distributor's outstanding trade receivable due to Mobility. During 1998, this
treasury stock was retired.
During 1998, the Company repurchased and retired 26,450 shares of common
stock valued at $278,350 for cash.
(d) Stock Subscription and Deferred Compensation
In December 1999, the Company entered into a promissory note in the
principal sum of $300,000 with an executive of the Company to finance his
purchase of 50,000 shares of Series C preferred stock at a composite purchase
price of $6.00 for one share of preferred stock and one warrant for the purchase
of 50,000 shares of common stock at an exercise price of $0.02.
In April 1999, 75,000 incentive stock options to purchase common stock at a
weighted average exercise price of $2.68 were issued to an officer. The Company
recorded $400,000 of deferred compensation, which represents the intrinsic value
of these stock options, related to the issuance of the options which are charged
to compensation expense over the vesting period through March 2002. The
unamortized portion has been recorded as a deduction from stockholders' equity.
During 1999, 441,250 incentive stock options to purchase common stock at a
weighted average exercise price of $4.00 were issued to employees. The Company
recorded $2,375,000 of deferred compensation expense, which represents the
intrinsic value of these stock options, related to the issuance of the options
which are charged to expense over the vesting period through periods ranging
from December 2000 to December 2004. The unamortized portion has been recorded
as a deduction from stockholders' equity.
(11) INCENTIVE STOCK OPTION PLAN AND WARRANTS
In 1995, the Board granted stock options to employees to purchase 132,198
shares of common stock. Later in 1996, the Company adopted an Incentive Stock
Option Plan (the Plan) pursuant to the Internal Revenue Code. Common stock
reserved for grants to key employees of the Company under the Plan total 132,000
shares. The aggregate number of shares of
F-24
<PAGE> 107
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock for which options may be granted or for which stock grants may be
made under the plan is 1,250,000. Options become exercisable over varying
periods up to five years and expire at the earlier of termination of employment
or up to seven years after the date of grant. The options under both the Plan
and pursuant to Board approval were granted at the fair market value of the
Company's stock at the date of grant as determined by the Company's Board of
Directors.
At December 31, 1998 and 1999, there were 903,984 and 422,272 shares,
respectively, available for grant under the Plan and pursuant to Board approval.
The per share weighted average fair value of stock options granted under the
Plan for the years ended December 31, 1997, 1998 and 1999 was $7.76, $8.12 and
$5.22, respectively, based on the date of grant using the minimum value method
with the following weighted average assumptions: expected dividend yield 0%,
risk free interest rate of 5.1% and an expected life of 5 years.
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of options was $0.02 -- $11.50 and 5 years,
respectively.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER PER SHARE
-------- ----------------
<S> <C> <C>
Outstanding, December 31, 1997........................... 187,438 $ 4.76
Granted................................................ 324,756 11.50
Canceled............................................... (33,980) 5.78
Exercised.............................................. -- --
-------- ------
Outstanding, December 31, 1998........................... 478,214 9.26
Granted................................................ 735,239 5.26
Canceled............................................... (253,527) 10.94
Exercised.............................................. -- --
-------- ------
Outstanding, December 31, 1999........................... 959,926 $ 5.74
======== ======
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.02 25,000 1.2 $ 0.02 -- $ 0.02
$3.52 132,198 0.6 $ 2.96 132,198 $ 3.52
$4.00 527,202 5.3 $ 4.00 1,400 $ 4.00
$7.72-$8.00 91,438 3.9 $ 7.96 29,518 $ 7.88
$11.50 184,088 4.1 $11.50 112,366 $11.50
------- --- ------ ------- ------
$0.02-$11.50 959,926 4.5 $ 5.74 275,482 $ 7.24
======= === ====== ======= ======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the
F-25
<PAGE> 108
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amount indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net loss applicable to common
stockholders:
As reported............................ $(9,092,535) (18,032,858) (17,906,614)
=========== ============ ============
Pro forma.............................. $(9,276,532) (18,267,627) (18,147,186)
=========== ============ ============
</TABLE>
Pro forma net loss reflects only options granted since 1996. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net loss amount presented above because
compensation cost is reflected over the options' vesting period of four to five
years.
During 1997 and 1998, the Company granted consultants 4,950 and 15,000,
respectively, incentive stock options for services performed. The options are
exercisable at $7.72 and $11.50 per share and expire May 2004 and 2005,
respectively. The options were valued at $5,000 and $22,000 and were charged to
compensation expense in 1997 and 1998, respectively.
During June 1997, the Company issued 81,268 warrants to purchase shares of
common stock in connection with long-term debt executed with a bank. The Company
issued an additional 4,581 warrants in September 1997 pursuant to the
anti-dilution clause of the loan agreement. The warrants are exercisable at
$0.02 per share and expire July 31, 2002. The warrants valued at $669,308 are
included in other assets. The value of the warrants is charged to interest
expense over the term of the related debt. In June 1999, the Company issued an
additional 34,795 warrants valued at $149,180 exercisable at $0.02 in connection
with the extension of this debt with the bank.
On October 7, 1997, the Company issued to the placement agents warrants to
purchase 111,354 shares of common stock exercisable at $9.60 per share which may
be exercised from November 10, 1998 and prior to the earlier date of (i)
November 10, 2001; or (ii) the sale of substantially all Company assets, merger
or liquidation, dissolution, winding-up or reorganization of the Company. The
Company issued additional warrants to purchase 27,839 shares of common stock.
The warrants are exercisable at $14.00 per share, subject to antidilution
provisions and are exercisable as defined above.
On October 8, 1997, the Company issued 312,500 warrants to purchase shares
of common stock (the "Warrants") in connection with the Private Placement. The
Warrants are exercisable at $14.00 per share, subject to antidilution
provisions. The Warrants may be exercised prior to the earlier of (i) September
30, 2001, (ii) eighteen months after the time that the Company becomes subject
to the reporting requirements of the Exchange Act of 1934, as amended or (iii)
the sale of substantially all Company assets, merger, or the liquidation,
dissolution, winding-up or reorganization of the Company.
During 1998, the Company issued 112,500 warrants to purchase shares of
common stock in connection with long-term debt executed with a bank. The
warrants were issued to certain stockholders as consideration of their personal
guarantees and indemnification arrangements for the long-term debt. The warrants
are exercisable at $11.50 per share and expire at
F-26
<PAGE> 109
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
April 20, 2003. The warrants valued at $350,249 are included in other assets.
The value of the warrants is charged to interest expense over the term of the
related debt.
During 1998, the Company issued 68,200 warrants to purchase common stock in
connection with the Private Placement of common stock. The warrants are
exercisable at $13.80 per share and expire after five years.
On March 25, 1998, the Company issued 93,418 warrants to purchase shares of
common stock in connection with long-term debt executed with a bank. The
warrants are exercisable at $0.02 per share and expire July 31, 2002. The
warrants valued at $1,071,189 are included in other assets. The value of the
warrants is charged to interest expense over the term of the related debt.
In January 1999, the Company issued 32,500 warrants to purchase common
stock in connection with the Private Placement of Series C Preferred Stock. The
warrants are exercisable at $12.00 per share and expire January 2004.
In March 1999, 525,000 warrants were issued to purchase common stock for an
exercise price of $0.02. The warrants valued at $4,200,000 are included in other
assets. The value of the warrants is amortized to interest expense over the term
of the related debt.
In May 1999, the Company granted a consultant 35,000 incentive stock
options for services performed. The options are exercisable at $8.00 per share
and expire in May 2003. The Company recorded $37,443 of deferred compensation
related to the issuance of the options. The unearned portion is amortized as
compensation expense over the term of the agreement through May 2001.
Compensation expense totaled $9,361 during 1999.
In May 1999, in conjunction with the issuance of Bridge Notes in a Private
Placement described in Note 8, 449,200 warrants were issued to purchase common
stock for an exercise price of $0.02. The warrants valued at $3,593,600 are
included in other assets. The value of the warrants is charged to interest
expense over the term of the related debt.
In September 1999, the Company issued 53,000 warrants to purchase common
stock in connection with the Bridge Note conversions described in Note 8. The
warrants are exercisable at $0.02 and expire after five years.
In December 1999, the Company granted a consultant 35,000 incentive stock
options for services performed. The options are exercisable at $4.00 per share
and expire in December 2003. The Company recorded $367,500 of deferred
compensation related to the issuance of the options. The unearned portion is
amortized as compensation expense over the term of the agreement through
December 2001. Compensation expense totaled $2,917 during 1999.
In December 1999, the Company issued 1,255,327 warrants to purchase common
stock in connection with the Private Placement of Series C preferred stock
described in Note 10(a). 1,243,888 and 11,439 warrants are exercisable at $0.02
and $9.60, respectively, and expire October 1, 2002.
In November 1999, the Company issued 56,250 warrants to purchase common
stock in connection with the extension of its $4,500,000 line of credit. The
warrants were issued to certain stockholders as part of their personal
guarantees and indemnification arrangements for this line of credit. The
warrants valued at $450,000 are exercisable at $4.00, expire November 1, 2004,
are included in other assets and are being amortized over the term of the line
of credit.
F-27
<PAGE> 110
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1999, the Company granted a consultant 50,000 warrants to
purchase common stock for services performed in connection with the purchase of
Series C preferred stock described in Note 10(d). The warrants are exercisable
at $0.02 and expire December 2004.
During 1999, 655,843 and 25,250 warrants were exercised at $0.02 and $7.00
per share, respectively, for a total of $189,867.
(12) OPERATING LEASE COMMITMENTS
The Company has entered into various non-cancelable operating lease
agreements for its facilities in Scottsdale, Arizona, automobile, and office
equipment. Existing facility leases require monthly rents plus payment of
property taxes, normal maintenance and insurance on facilities. Rental expense
for the operating leases was $394,950, $365,782 and $478,037 during the years
ended 1997, 1998, and 1999, respectively.
A summary of the minimum future lease payments for the years ending
December 31 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $ 483,037
2001........................................................ 505,113
2002........................................................ 479,937
----------
$1,468,087
==========
</TABLE>
(13) INCOME TAXES
The Company has generated net operating losses for both financial and
income tax reporting purposes since inception. At December 31, 1998 and 1999,
the Company had net operating loss carryforwards for federal income tax purposes
of approximately $11,842,000 and $32,000,000, respectively, which, subject to
annual limitations, are available to offset future taxable income, if any,
through 2019 and net operating loss carryforwards for state income tax purposes
of approximately $11,842,000 and $32,000,000, which are available to offset
future taxable income through 2004.
F-28
<PAGE> 111
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The temporary differences that give rise to deferred tax assets and
liabilities at December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward for federal income
taxes.................................................. $ 6,092,700 $ 12,941,231
Net operating loss carryforward for state income taxes.... 1,119,019 2,289,030
Depreciation and amortization............................. 57,224 90,395
Section 263A inventory.................................... 63,132 63,132
Accrued liabilities....................................... 272,295 201,563
Reserves.................................................. 215,465 218,836
Bad debts................................................. 263,117 255,749
Investment tax credits.................................... 161,022 180,557
Inventory obsolescence.................................... 2,366,033 791,603
------------ ------------
Total gross deferred tax assets................... 10,610,007 17,032,096
Deferred tax liabilities.................................... -- --
------------ ------------
Net deferred tax assets........................... 10,610,007 17,032,096
Less valuation allowance.................................... (10,610,007) (17,032,096)
------------ ------------
Net deferred tax assets........................... $ -- --
============ ============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1998 and
1999 was $10,610,007 and $17,032,096, respectively. The net change in the total
valuation allowance for the years ended December 31, 1998 and 1999 was an
increase of $6,769,007 and $6,422,089, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon
generation of future taxable income during the periods in which those temporary
differences become deductible. In addition, due to the frequency of equity
transactions within the Company, it is possible the use of the net operating
loss carryforward may be limited in accordance with Section 382 of the Internal
Revenue Code. A determination as to this limitation will be made at a future
date as the net operating losses are utilized. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not that the Company will not realize the benefits of these
deductible differences.
(14) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash with high credit quality financial
institutions and generally limits the amount of credit exposure to the amount of
FDIC coverage. However, periodically during the year, the Company maintains cash
in financial institutions in excess of the FDIC insurance coverage limit of
$100,000. The Company performs ongoing credit evaluations of its customers'
financial condition but does not typically require collateral to support
customer receivables. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information.
F-29
<PAGE> 112
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Two customers accounted for 29% and 18% of net sales for the year ended
December 31, 1997. Three customers accounted for 18%, 17% and 16% of net sales
for the year ended December 31, 1998. One customer accounted for 26% of net
sales for the year ended December 31, 1999.
(15) RELATED PARTY TRANSACTIONS
The Company has an agreement with a related entity under which this entity
provides management services. The Company paid the consultant approximately
$32,000, $52,000 and $42,000 for the years ended December 31, 1997, 1998 and
1999, respectively.
Certain officers/stockholders of the Company have personally guaranteed the
bank debt of the Company.
(16) EXPORT SALES
Export sales were approximately 31%, 34% and 18% of the Company's net sales
for the years ended December 31, 1997, 1998 and 1999, respectively. The
principal international market served by the Company was Europe.
(17) COMMITMENTS AND CONTINGENCIES
The Company has a defined contribution 401(K) plan for all employees. Under
the 401(K) plan, employees are permitted to make contributions to the plan in
accordance with IRS regulations. The Company may make discretionary
contributions as approved by the Board of Directors. There were no contributions
during 1997, 1998 and 1999.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, based on consultation
with legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity. Accordingly, the accompanying consolidated financial
statements do not include a provision for losses, if any, that might result from
the ultimate disposition of these matters.
F-30
<PAGE> 113
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(18) SUPPLEMENTAL FINANCIAL INFORMATION
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended December 31, 1997, 1998
and 1999 follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997... $ 10,000 $ 165,184 $ 954 $ 174,230
========== ========== ========== ==========
Year ended December 31, 1998... $ 174,230 $ 762,217 $ 288,295 $ 648,152
========== ========== ========== ==========
Year ended December 31, 1999... $ 648,152 $ 219,013 $ 237,165 $ 630,000
========== ========== ========== ==========
Allowance for sales returns:
Year ended December 31, 1997... $ 9,942 $ 223,242 $ 111,487 $ 121,697
========== ========== ========== ==========
Year ended December 31, 1998... $ 121,697 $ 235,000 $ -- $ 356,697
========== ========== ========== ==========
Year ended December 31, 1999... $ 356,697 $ 766,357 $ 778,054 $ 345,000
========== ========== ========== ==========
Reserve for obsolescence of
inventories:
Year ended December 31, 1997... $ 244,823 $ 921,409 $ 83,774 $1,082,458
========== ========== ========== ==========
Year ended December 31, 1998... $1,082,458 $4,469,481 $ 58,314 $5,493,625
========== ========== ========== ==========
Year ended December 31, 1999... $5,493,625 $1,733,463 $5,277,088 $1,950,000
========== ========== ========== ==========
</TABLE>
F-31
<PAGE> 114
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(19) NET LOSS PER SHARE
The computation of basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss............................................ $(8,775,170) (18,032,858) (16,457,073)
Less dividend declared on Series B preferred
stock............................................. (317,365) -- --
Beneficial conversion costs of preferred stock...... -- -- (1,449,541)
----------- ----------- -----------
Net loss attributable to common stockholders........ $(9,092,535) (18,032,858) (17,906,614)
=========== =========== ===========
Weighted average common shares outstanding --
basic............................................. 2,638,577 4,135,575 4,994,283
=========== =========== ===========
Pro forma as converted -- basic loss per share...... $ (3.45) (4.36) (3.59)
=========== =========== ===========
Weighted average common shares outstanding --
basic............................................. 2,638,577 4,135,575 4,994,283
Effect of dilutive securities....................... 11,897 157,470 712,300
----------- ----------- -----------
Weighted average common shares outstanding --
diluted........................................... 2,650,474 4,293,045 5,706,583
=========== =========== ===========
Pro forma as converted -- diluted loss per share.... $ (3.43) (4.20) (3.14)
=========== =========== ===========
Stock options and warrants not included in diluted
EPS since antidilutive............................ 639,131 1,110,607 2,834,015
=========== =========== ===========
Convertible preferred stock not included in diluted
EPS since antidilutive............................ -- 279,200 1,199,550
=========== =========== ===========
</TABLE>
The dilutive securities used in the diluted weighted average common shares
outstanding represents issuances of options and warrants at a nominal value.
(20) SUBSEQUENT EVENTS
On March 6, 2000, the Company signed a Strategic Partner Agreement with
Cybex Computer Products Corporation (Cybex). The Company and Cybex have agreed
to license certain technology to each other and the Company has agreed to sell
certain of its products to Cybex on a private label basis. In conjunction with
this agreement, the Company sold Cybex 500,000 shares of $0.01 par value Series
D preferred stock for $5,000,000, or $10.00 per share. The Series D preferred
stockholders have voting rights consistent with common stockholders and have
liquidation preference over common stockholders but subordinate to Series C
preferred stockholders. The Company may not pay any cash dividends on its common
stock while any shares of Series D preferred stock remain outstanding without
the consent of the Series D stockholders. The Series D preferred stock is
convertible into shares of common stock. On March 1, 2002, each share of Series
D preferred stock will convert automatically into a number of shares of common
stock determined by dividing $10.00 by the offering price per share used in the
last round of equity private placement financing prior to March 1, 2002;
provided, however, immediately prior to the consummation of this offering, each
share of Series D preferred stock will convert automatically into the number of
shares of common stock determined by dividing $10.00 by 95% of the offering
price per share of the common stock used in this offering. In the event of
liquidation or dissolution, the holders of Series D preferred stock will be
entitled to receive the amount they paid for their stock, plus accrued
F-32
<PAGE> 115
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and unpaid dividends out of assets legally available for such payments after the
holders of Series C preferred stock have received their preferential payments,
but prior to the time other holders of our securities will be entitled to any
payments.
On February 29, 2000, the Company amended the certain Bridge Promissory
Notes to extend the maturity date of $1,225,000 of the Existing Bridge Notes and
related accrued interest of approximately $160,000 from March 31, 2000 to the
earlier of an initial public offering (IPO) or other equity infusion of
$10,000,000 or greater, or March 31, 2001. In addition, the annual interest rate
was increased to 14%. In conjunction with the extension of the maturity date,
the Company issued warrants to purchase 138,502 shares of common stock. The
warrants are exercisable at a purchase price equal to the offering price used in
the last round of equity private placement financing prior to the note maturity
date of March 31, 2001, or if the Company has completed an initial public
offering of common stock prior to the note maturity date, then the purchase
price shall be ninety-five percent of the offering price of the initial public
offering. However, if the outstanding principal balance due under these Bridge
Notes are not paid by September 30, 2000, 2,500 warrants for every $100,000 of
extended and outstanding principal due shall be awarded per quarter until the
principal balance is paid. These warrants are exercisable for common stock at an
exercise price of $0.02.
During January 2000, the Company completed a Private Placement and issued
48,706 shares of Series C preferred stock at $6.00 per share for $292,240. In
conjunction with this Private Placement, the Company issued a warrant for each
share of Series C preferred stock to purchase two shares of common stock. The
total warrants issued of 97,412 are exercisable at $0.02 per common stock share
and expire October 1, 2002.
On March 13, 2000, the Company entered into agreements to extend the
maturity date of the lines of credit and promissory note agreements from March
31, 2000 to March 31, 2001. As part of the extension agreement, the interest
rate on the $750,000 line of credit was increased from the bank's corporate base
rate plus 2.5% to the bank's corporate base rate plus 3.5%.
On March 10, 2000, the Company's Board of Directors authorized and on March
31, 2000 the Company's stockholders will approve a 1-for-2 reverse stock split,
and a post-split adjustment of the number of authorized shares of common stock
to 90,000,000 shares. All share information included in the accompanying
consolidated financial statements has been retroactively adjusted to reflect
this reverse split and post-split adjustment.
F-33
<PAGE> 116
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(21) QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the quarterly data for the years ended December 31, 1998 and
1999 follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Net sales........................... $ 5,568,430 $ 6,815,773 $ 5,723,055 $ 2,964,799
=========== =========== =========== ===========
Gross profit (loss)................. $ 851,359 $ 1,535,198 $(3,548,635) $(1,295,687)
=========== =========== =========== ===========
Operating expenses.................. $(2,459,162) $(2,581,094) $(3,420,381) $(5,477,414)
=========== =========== =========== ===========
Operating loss...................... $(1,607,803) $(1,045,896) $(6,969,016) $(6,773,101)
=========== =========== =========== ===========
Net loss attributable to common
stockholders..................... $(1,838,670) $(1,480,253) $(7,453,497) $(7,260,438)
=========== =========== =========== ===========
Loss per share:
Basic............................ $ (0.49) $ (0.35) $ (1.73) $ (1.67)
=========== =========== =========== ===========
Diluted.......................... $ (0.48) $ (0.34) $ (1.66) $ (1.60)
=========== =========== =========== ===========
Year ended December 31, 1999:
Net sales........................... $ 3,227,784 $ 3,560,417 $ 3,374,233 $ 3,789,576
=========== =========== =========== ===========
Gross profit........................ $ 432,909 $ 96,298 $ 823,676 $ 848,422
=========== =========== =========== ===========
Operating expenses.................. $(3,455,748) $(3,374,847) $(2,422,088) $(2,983,208)
=========== =========== =========== ===========
Operating loss...................... $(3,022,839) $(3,278,549) $(1,598,412) $(2,134,786)
=========== =========== =========== ===========
Net loss attributable to common
stockholders..................... $(3,649,929) $(6,186,662) $(3,068,240) $(5,001,783)
=========== =========== =========== ===========
Pro forma as converted net loss per
share:
Basic............................ $ (0.80) $ (1.33) $ (0.64) $ (0.84)
=========== =========== =========== ===========
Diluted.......................... $ (0.75) $ (1.12) $ (0.53) $ (0.75)
=========== =========== =========== ===========
</TABLE>
F-34
<PAGE> 117
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under the
circumstances and in jurisdictions where it is lawful to do so. The information
contained in the prospectus is correct only as of its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 8
FORWARD-LOOKING STATEMENTS............ 20
USE OF PROCEEDS....................... 20
DIVIDEND POLICY....................... 21
CAPITALIZATION........................ 22
DILUTION.............................. 24
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 28
BUSINESS.............................. 38
MANAGEMENT............................ 53
PRINCIPAL STOCKHOLDERS................ 61
CERTAIN TRANSACTIONS.................. 63
DESCRIPTION OF CAPITAL STOCK.......... 66
SHARES ELIGIBLE FOR FUTURE SALE....... 74
UNDERWRITING.......................... 76
INTERESTS OF NAMED EXPERTS AND
COUNSEL............................. 79
EXPERTS............................... 79
ADDITIONAL INFORMATION AVAILABLE TO
YOU................................. 79
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS
ARE ALSO OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[MOBILITY ELECTRONICS LOGO]
Mobility Electronics, Inc.
4,000,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Banc of America Securities LLC
J.C. Bradford & Co.
PROSPECTUS
, 2000
<PAGE> 118
[DESCRIPTION OF GRAPHICS ON INSIDE BACK COVER PAGE]
The upper left portion of the inside back cover page will contain the
phrase "Universal Docking Products" directly above smaller text which will read,
"Our first major application for Split Bridge(TM) technology is the creation of
a new universal docking product category which allows portable computer users to
configure a flexible, high performance docking solution that meets their
individual needs, and more importantly, is compatible with essentially all makes
and models of portable computers." To the right of and beneath that text will be
pictures of three of our products: the EasiDock(R) 1000, the EasiDock(R) 2000
and the EasiDock(R) 3000, each with captions indicating the name of the product.
Our company logo will be located in the bottom center of the inside back cover.
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses paid or to be paid by the
Company (other than underwriting compensation expected to be incurred) in
connection with the offering described in this Registration Statement. All
amounts are estimates, except the SEC Registration Fee, the NASD Filing Fee and
the Nasdaq National Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 18,480.00
NASD Filing Fee............................................. 7,500.00
Nasdaq National Market Listing Fee.......................... 63,725.00
Blue Sky Qualification Fees and Expenses.................... 15,000.00
Printing Costs.............................................. 200,000.00
Legal Fees and Expenses..................................... 300,000.00
Accounting Fees and Expenses................................ 170,000.00
Directors and Officers Liability Insurance Premium.......... 275,000.00
Transfer Agent and Registrar Fees and Expenses.............. 20,000.00
Miscellaneous............................................... 153,000.00
------------
Total............................................. $ 1,222,705
============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he 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 expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he 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 expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only
II-1
<PAGE> 120
to the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (a) and (b). Such determination shall be
made, with respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by a majority vote of such directors,
even though less than a quorum, or (3) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion, or
(4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
Section 145. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon such
terms and conditions, if any, as the corporation deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
II-2
<PAGE> 121
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of the Company provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except as
limited by the DGCL. If the DGCL is amended to authorize the further elimination
or limitation of the liability of directors, then the liability of a director of
the Company, in addition to the limitation on personal liability described
above, shall be limited to the fullest extent permitted by the amended DGCL.
Further, any repeal or modification of such provision of the Certificate of
Incorporation by the stockholders of the Company shall be prospective only, and
shall not adversely affect any limitation on the personal liability of a
director of the Company existing at the time of such repeal or modification.
BYLAWS
The Bylaws of the Company provide that the Company (i) shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director or officer of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan and
(ii) upon a determination by the Board of Directors that indemnification is
appropriate, the Company may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by reason of the fact that such person is or was an employee or agent of
the Company or at the request of the Company was serving as an employee or agent
of any other corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan, in the case of (i) and (ii) against reasonable expenses
(including attorneys' fees), judgments, fines, penalties, amounts paid in
settlement and other liabilities actually and reasonably incurred by such person
in connection with such action or suit if such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. However, in an action
or suit by or in the right of the Company to procure a judgment in its favor, no
indemnification shall be made in respect of any claim as to which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that a court of appropriate jurisdiction shall determine that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity of such expenses
which the court shall deem proper. Any indemnification shall be made by the
Company upon a determination that indemnification of such person is proper in
the circumstances because he has met the applicable standard of conduct set
forth above. Expenses incurred by a person who is or was a director or officer
of the Company in defending such actions or suits shall be paid by the Company
at reasonable intervals in advance of the final disposition of such action or
suit upon receipt of an undertaking by or on behalf of the director or officer
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Company. In addition, the Company shall pay or
reimburse expenses incurred by any person who is or was a director or officer of
the Company in connection with such person's appearance as a witness or other
participant in a proceeding in which such person or the Company is not a named
party to such proceeding, provided that such appearance or participation is on
behalf of the Company or by reason of his past or present capacity as a director
or officer of the Company. The Company intends these provisions to provide
indemnification for appropriate persons to the fullest extent permitted by law.
II-3
<PAGE> 122
INDEMNITY AGREEMENTS
The Company has entered into Indemnity Agreements with each of its
directors and executive officers. Pursuant to such agreements, the Company will,
to the extent permitted by applicable law, indemnify such persons against all
expenses, judgments fines and penalties incurred in connection with the defense
or settlement of any actions brought against them by reason of the fact that
they were directors or officers of the Company or assumed certain
responsibilities at the direction of the Company.
UNDERWRITING AGREEMENT
The underwriting agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
INSURANCE
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has issued unregistered securities to (a) founders and
employees and (b) other individual and institutional investors. Each such
issuance was made in reliance upon the exemptions from registration requirements
of the Securities Act of 1933, as amended, contained in Section 3(a)(9), Section
4(2) and/or Regulation D promulgated thereunder, or Rule 701 promulgated
thereunder on the basis that such transactions did not involve a public
offering. When appropriate, the Company determined that the purchasers of
securities described below were sophisticated investors who had the financial
ability to assume the risk of their investment in the Company's securities and
acquired such securities for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the securities are not to be offered, sold or
transferred other than pursuant to an effective registration statement under the
Securities Act or an exemption from such registration requirements. The
following information relates to securities issued or sold by the Company within
the last twelve quarters:
MERGER WITH ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, L.L.C.
In connection with the merger of Electronics Accessory Specialists
International, L.L.C. ("Predecessor") with and into the Company in August 1996,
the common and preferred interests in Predecessor were converted into shares of
common stock, Series A Preferred Stock and Series B Preferred Stock of the
Company. As a result, 93,899 shares of common stock, 2,498 shares of Series A
Preferred Stock and 2,974 shares of Series B Preferred Stock of the Company were
issued to individual and institutional investors. Additionally, outstanding
options to purchase an aggregate of 264,396 common interests in Predecessor were
converted into similar interests to purchase shares of common stock of the
Company and were issued to six founders of the Company.
CONVERTIBLE DEBENTURES AND COMMON STOCK
From September 1996 to May 1997 the Company offered to certain accredited
investors the option of purchasing either common stock or 12% Convertible
Debentures (the "Convertible Debentures"). In this offering, we sold an
aggregate of 277,552 shares of common stock, at a price of $7.73 per share, and
approximately $2.2 million in aggregate principal amount of Convertible
Debentures. In December 1998, approximately $2.1 million of the Convertible
Debentures were converted to common stock at a price of $7.73 per share. The
remaining Convertible Debentures ($95,000) require the Company to pay quarterly
II-4
<PAGE> 123
payments of interest at a rate of 12% per annum. Beginning on the second
anniversary of the date of issuance of each Convertible Debenture, the Company
shall be required to pay 20 equal quarterly installments of principal and
accrued but unpaid interest in an amount necessary to fully amortize the notes
by the twentieth installment, when all remaining principal and accrued interest
will be due.
PREFERRED STOCK CONVERSION
In 1996 the holders of Series A preferred stock converted such shares into
common stock and Convertible Debentures. As a result of this conversion, 2,500
shares of Series A preferred stock were converted into 88,836 shares of common
stock and $306,374 of Convertible Debentures and issued to individual and
institutional investors.
In 1997 the holders of Series B preferred stock converted such shares into
common stock. As a result of this conversion, 2,101 shares of Series B preferred
stock were converted into 125,500 shares of common stock. The remaining 2,085
shares of Series B preferred stock were redeemed by the Company. Furthermore,
Series B preferred stockholders used $88,700 of dividends and interest on such
shares to purchase 11,088 shares of common stock.
FINOVA CAPITAL CORPORATION
In June 1997 and March 1998 the Company issued an aggregate of $3.35
million of Secured Promissory Notes to Finova Capital Corporation (the "Finova
Notes"). Interest on the Finova Notes accrues at 13.5% per annum and is payable
monthly, and the principal is due and payable on June 23, 2002. In connection
with the Finova Notes, the Company issued warrants to Finova (the "Finova
Warrants") to purchase an aggregate of up to 209,062 shares of common stock, at
an exercise price of $0.02 per share. The Finova Warrants expire on July 31,
2002.
MIRAM ACQUISITION
In July 1997, Mobility issued 55,000 shares of common stock to Miram
International, Inc. in consideration for the purchase of certain assets. In
addition, in May 1999, Mobility issued an additional 38,500 shares to Miram and
its shareholders in settlement of a contingent earn-out and other matters.
BANK GUARANTEE
In April 1998 certain officers of the Company and other individual and
institutional investors guaranteed a total of approximately $2.5 million of the
Company's working capital line of credit with Bank of America. As consideration
for such guarantees, a total of 112,500 warrants were issued to these
individuals and entities. The warrants are exercisable at $11.50 per share and
expire on April 20, 2003.
In November 1999 Messrs. Mollo and Doss and certain other individuals
guaranteed a total of $7.2 million, or $1,800,000 each, of our working capital
line of credit with Bank of America. Certain other individuals and institutional
investors sub-guaranteed the primary guarantees. As consideration for the
guarantees, a total of 56,250 warrants were issued to these officers, directors,
individuals and entities. The warrants are exercisable at $4.00 per share and
expire on November 1, 2004.
PRIVATE PLACEMENTS
In November 1997 the Company completed a private placement of approximately
$10.0 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 1,124,500
shares of Common
II-5
<PAGE> 124
Stock were issued for approximately $9.0 million, or $8.00 per share, and
125,500 shares were issued for converted Series B preferred stock referenced
above, for approximately $1.0 million. Additionally, warrants to purchase
139,193 shares of Common Stock were issued to the placement agents and 312,500
warrants were issued to members of management of the Company and other
individuals and institutional investors. The warrants issued to the placement
agents are exercisable at prices ranging from $9.60 to $14.00 per share and
expire on November 10, 2001. The warrants issued to members of management of the
Company and other individuals and institutional investors are exercisable at
$14.00 per share and expire on September 30, 2001.
In June 1998 the Company completed a private placement of approximately
$8.5 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 742,500
shares of Common Stock were issued at $11.50 per share. Additionally, warrants
to purchase 68,200 shares of Common Stock were issued to the placement agents.
These warrants are exercisable at $13.80 per share and expire on June 12, 2002.
In January 1999 the Company completed a private placement of approximately
$5.0 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 735,300
shares of Series C preferred stock was issued at a price of $6.75 per share
(this price was lowered to $6.00 per share as the result of a subsequent
issuance of Series C preferred stock at such price, and an additional 91,909
shares of Series C preferred stock were issued as a result of such price
reduction).
In January 2000 the Company completed a private placement of approximately
$7.4 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 1,231,450
shares of Series C preferred stock were issued at a price of $6.00 per share.
Additionally, warrants were issued to investors to purchase 1,231,450 shares of
Common Stock at $0.02 per share. These warrants expire October 1, 2002.
BRIDGE PROMISSORY NOTES
In March 1999 the Company issued an aggregate of $3.5 million of Bridge
Promissory Notes (the "Bridge Notes") to various members of management of the
Company, other individuals and institutional investors. Interest on the Bridge
Notes accrues at 13% per annum and was payable upon maturity of the notes on
March 5, 2000. In connection with the Bridge Notes, the Company issued warrants
to purchase an aggregate of 525,000 shares of Common Stock at a price of $0.02
per share, which will expire March 5, 2002. In June 1999 approximately $2.3
million of the Bridge Notes and accrued interest thereon of approximately
$96,000 were converted to 296,343 shares of Common Stock at $8.00 per share.
In February 2000, the outstanding balance of the Bridge Notes issued in
March 1999 of approximately $1.2 million and the accrued interest thereon of
approximately $160,000 were extended to March 31, 2001. The interest rate was
increased to 14% per annum and is payable on the first day of each calendar
quarter commencing on April 1, 2000 and continuing on the first day of each
calendar quarter thereafter until all interest has been paid in full. The
principal is due and payable on the earlier of (i) March 31, 2001; (ii) thirty
days following the closing of an initial public offering; or (iii) thirty days
following the closing of a private offering of equity securities with aggregate
subscriptions of at least $10.0 million. A conversion option was granted to
allow the Bridge Noteholder to convert the note to Common Stock at a price equal
to 95% of the IPO per share price. The conversion must be made within fifteen
days of the closing of the IPO. In conjunction with the Bridge Note extension,
the Company issued warrants to purchase 138,502 shares of Common Stock at a
II-6
<PAGE> 125
price of 95% of the IPO per share price. In the event that the Bridge Notes
remain outstanding as of October 1, 2000, the Company will issue 2,500 warrants
for each $100,000 of principal outstanding on the first day of each calendar
quarter until the principal balance is paid in full. The warrants will be priced
at $0.02 per share.
In June through August 1999 the Company issued an additional aggregate of
approximately $3.7 million of Bridge Promissory Notes (the "Bridge Notes") to
various members of management of the Company, other individuals and
institutional investors. Interest on the Bridge Notes accrues at 13% per annum
and is payable upon maturity of the notes on July 31, 2000. In connection with
the Bridge Notes, the Company issued warrants to purchase an aggregate of
449,200 shares of Common Stock at a price of $0.02 per share. Immediately upon
issuance, approximately $3.2 million of the Bridge Notes were converted to
394,063 shares of Common Stock at $8.00 per share.
ISSUANCE TO STRATEGIC PARTNERS
In May 1999, the Company issued an aggregate of 333,332 shares of Series C
preferred stock to two strategic investors for aggregate consideration of $2
million ($6.00 per share).
ISSUANCE TO STRATEGIC PARTNER
In March 2000, the Company issued 500,000 shares of Series D preferred
stock to a strategic partner, at a price of $10.00 per share. This offer was
made in connection with the execution and delivery of certain strategic
agreements between the Company and such strategic partner.
ISSUANCE OF OTHER OPTIONS
In November 1996 the Company issued options to purchase 11,220 shares of
Common Stock at $7.73 per share, 4,048 of which are currently vested, to six
employees under the 1996 Plan. These options expire in November 2002.
In 1997 the Company issued options to purchase 37,640 shares of Common
Stock at prices ranging from $0.02 to $8.00 per share, 7,650 of which are
currently vested, to various directors, officers and employees under the 1996
Plan. These options expire on various dates from 2000 through 2004.
In 1998 the Company issued options to purchase 391,456 shares of Common
Stock at a price of $11.50 per share, 103,032 of which are currently vested, to
various directors, officers and employees under the 1996 Plan. These options
expire on various dates in 2004.
In 1999 the Company issued options to purchase 669,239 shares of Common
Stock at prices ranging from $0.02 to $11.50 per share, 28,554 of which are
currently vested, to various directors, officers and employees under the 1996
Plan. These options expire on various dates from 2002 to 2010.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.(3)
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of June 17, 1997.(3)
</TABLE>
II-7
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.3 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of September 10, 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
3.9 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of March 31, 2000.(3)
4.1 -- Specimen of Common Stock Certificate.(3)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company
and Miram International, Inc. dated July 29, 1997.(1)
4.4 -- Form of Unit Purchase Agreement used in 1998 Private
Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's common
stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's common stock
and warrants to purchase 500 shares of the Company's
Common Stock.(1)
4.6 -- Form of Warrant to Purchase Shares of common stock of the
Company used with the 13% Bridge Notes and Series C
Preferred Stock Private Placements.(3)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placement.(1)
4.10 -- 13% Bridge Note Conversion Notice expired June 30,
1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used
in 1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreement used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement dated May 3,
1999, between the Company, Philips Semiconductors VLSI,
Inc. (f/k/a VLSI Technology, Inc.) and Seligman
Communications and Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom
Capital Corporation) dated as of March 25, 1998.(1)
4.15 -- Stock Purchase Warrant issued by the Company to Finova
Capital Corporation (f/k/a Sirrom Capital Corporation)
dated as of March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999, between the Company and Seligman
Communications and Information Fund, Inc.(1)
</TABLE>
II-8
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.17 -- Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated April 20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated November 2, 1999.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company
issued in the 1997 Private Placement.(2)
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and Seligman Communications and
Information Fund, Inc. entered into in connection with
the Series C Preferred Stock and Warrant Purchase
Agreement dated October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued
in connection with the Loan Extension Agreement dated
February 29, 2000.(2)
4.25 -- Investor Rights Agreement dated May 3, 1999 between the
Company, Philips Semiconductors VLSI, Inc. (f/k/a VLSI
Technology, Inc.) and Seligman Communications and
Information Fund, Inc.(3)
4.26 -- Registration Rights Agreement by and between the Company
and Cybex Computer Products Corporation entered into in
connection with the Strategic Partner Agreement dated
March 6, 2000.(3)
5.1 -- Opinion of Jackson Walker L.L.P.*
10.1 -- Lease by and between Monaghan Company, LLC and Colonial
Trust Company and the Company dated December 20, 1996.(1)
10.2 -- First Amendment to Lease dated January 29, 1999 by and
between Monaghan Company, LLC and Colonial Trust Company
and the Company dated December 20, 1996.(1)
10.3 -- Office Lease dated July 3, 1998 by and between SunLife
Assurance Company of Canada and the Company.(3)
10.4 -- Asset Purchase Agreement and Plan of Reorganization
between Miram International, Inc., John Moroz, Mykola
Moroz and the Company dated July 29, 1997.(1)
10.5 -- Promissory Note made by Miram International, Inc. to
Mykola Moroz dated July 3, 1997 in the amount of
$400,000.(1)
10.6 -- Amended and Restated 1996 Long Term Incentive Plan, as
amended on January 13, 2000.(1)
10.7 -- Richard W. Winterich Employment Agreement dated November
20, 1998.(1)
10.8 -- Richard W. Winterich Option Agreement dated April 12,
1999.(1)
10.9 -- Richard W. Winterich Option Agreement dated April 12,
1999.(1)
10.10 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.(1)
10.11 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.(1)
</TABLE>
II-9
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Charles R. Mollo Employment Agreement dated December 1,
1999.(1)
10.13 -- Charles R. Mollo Option Agreement dated December 1,
1999.(1)
10.14 -- Jeffrey S. Doss Employment Agreement dated December 1,
1999.(1)
10.15 -- Jeffrey S. Doss Option Agreement dated December 1,
1999.(1)
10.16 -- Jeffrey S. Doss Pledge Agreement dated December 1,
1999.(1)
10.17 -- Jeffrey S. Doss Promissory Note in favor of the Company
dated December 1, 1999 in the principal amount of
$300,000.(1)
10.18 -- First Amendment to Option Agreement dated December 1,
1999 between Jeffrey S. Doss and the Company.(1)
10.19 -- Robert P. Dilworth Consulting Agreement dated May 21,
1999.(1)
10.20 -- Robert P. Dilworth Nonqualified Stock Option Agreement
dated May 21, 1999.(1)
10.21 -- William O. Hunt Consulting Agreement dated December 8,
1999.(2)
10.22 -- William O. Hunt Non-qualified Stock Option Agreement
dated December 8, 1999.(2)
10.23 -- Amendment No. 3 to Letter of Credit, Loan and Security
Agreement and Promissory Note made by Company to Bank of
America dated October 31, 1999.(1)
10.24 -- Amended and Restated Business Loan Agreement (Receivables
and Inventory) dated as of November 2, 1999 between the
Company and Bank of America, N.A.(1)
10.25 -- Restated Promissory Note in the principal amount of
$3,000,000 dated as of November 2, 1999 between the
Company and Bank of America, N.A.(1)
10.26 -- Promissory Note in the principal amount of $1,500,000
dated as of November 2, 1999 between the Company and Bank
of America, N.A.(1)
10.27 -- Promissory Note in the principal amount of $150,000 dated
as of November 2, 1999 between the Company and Bank of
America, N.A.(1)
10.28 -- Promissory Note in the principal amount of $75,000 dated
as of November 2, 1999 between the Company and Bank of
America, N.A.(1)
10.29 -- Restated Continuing Guaranty of Janice Breeze dated
November 2, 1999.(1)
10.30 -- Restated Continuing Guaranty of Jeffrey S. Doss dated
November 2, 1999.(1)
10.31 -- Restated Continuing Guaranty of Charles R. Mollo dated
November 2, 1999.(1)
10.32 -- Restated Continuing Guaranty of Cameron Wilson dated
November 2, 1999.(1)
10.33 -- Secured Promissory Note made by the Company in favor of
Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated March 25, 1998 in the principal amount
of $1,750,000.(1)
10.34 -- First Amendment to Loan Agreement and Loan Documents by
and between the Company and Finova Capital Corporation
(f/k/a Sirrom Capital Corporation) dated as of March 25,
1998.(1)
10.35 -- Secured Promissory Note made by the Company in favor of
Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated June 24, 1997 in the principal amount
of $1,600,000.(1)
10.36 -- Settlement Agreement dated May 21, 1999 by and among John
Moroz, Peter Moroz, Mykola Moroz and the Company.(2)
10.37 -- Letter Agreement dated October 22, 1999 by and between J.
C. Bradford & Co., L.L.C. and the Company.(2)
</TABLE>
II-10
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.38 -- Form of Loan Extension Agreement dated February 29, 2000
by and between the Company and holders of 13% Bridge
Notes issued in March 1999.(2)
10.39 -- Strategic Partner Agreement by and between the Company
and Cybex Computer Products Corporation dated March 6,
2000.(2)
10.40 -- Donald W. Johnson Employment Agreement dated March 20,
2000.(2)
10.41 -- Strategic Vendor Agreement dated August 10, 1998 by and
between the Company and Molex Incorporated.(2)
10.42 -- Form of Indemnity Agreement by and between the Company
and its officers and directors.(2)
10.43 -- Loan Modification and Extension Agreement dated March 13,
2000 between Bank of America N.A. and the Company.(2)
10.44 -- Amended and Restated Promissory Note (Facility I) dated
March 13, 2000 in the aggregate principal amount of
$3,000,000.(2)
10.45 -- Amended and Restated Promissory Note (Facility II) dated
March 13, 2000 in the aggregate principal amount of
$1,500,000.(2)
10.46 -- Separation Agreement dated October 1, 1999 by and among
the Company, Cameron Wilson and C. Wilson Company.(2)
10.47 -- Private Label and Manufacturing Agreement dated May 11,
1998 by and between the Company and Targus Group
International, Inc.(3)
10.48 -- Design and Development Agreement dated May 12, 1998 by
and between VLSI Technology, Inc. and the Company.(2)
10.49 -- Donald W. Johnson Non-qualified Stock Option dated April
1, 2000.(3)
10.50 -- License Agreement dated March 6, 2000 by and between the
Company and Cybex Computer Products Corporation.(3)
10.51 -- License Agreement dated March 6, 2000 by and between the
Company and Cybex Computer Products Corporation.(3)
10.52 -- Private Label Agreement dated March 6, 2000 by and
between the Company and Cybex Computer Products
Corporation.(3)
21.1 -- Subsidiaries.(1)
23.1 -- Consent of KPMG LLP.(2)
23.2 -- Consent of Jackson Walker L.L.P. (Contained in Exhibit
5.1).*
24.1 -- Power of Attorney.(1)
27.1(a) -- Financial Data Schedule.(3)
27.1(b) -- Financial Data Schedule.(3)
</TABLE>
- ------------
* To be filed by amendment.
(1) Previously filed as an exhibit to Registration Statement No. 333-30284 dated
February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 1 to Registration Statement
No. 333-30784 dated March 28, 2000.
(3) Filed herewith.
All other schedules and exhibits are omitted because they are not
applicable or because the required information is contained in the Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-11
<PAGE> 130
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 foregoing provisions, 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 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 Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-12
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Mobility
Electronics, Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Scottsdale, State of Arizona, on May 4, 2000.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
----------------------------------
Charles R. Mollo,
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
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>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ CHARLES R. MOLLO President, Chief Executive May 4, 2000
- ----------------------------------------------------- Officer and Chairman of the
Charles R. Mollo Board (Principal Executive
Officer)
* Chief Financial Officer and Vice May 4, 2000
- ----------------------------------------------------- President (Principal Financial
Richard W. Winterich and Accounting Officer)
* Executive Vice President and May 4, 2000
- ----------------------------------------------------- Director
Jeffrey S. Doss
* Director May 4, 2000
- -----------------------------------------------------
Robert P. Dilworth
* Director May 4, 2000
- -----------------------------------------------------
William O. Hunt
* Director May 4, 2000
- -----------------------------------------------------
Kenneth A. Steel, Jr.
* Director May 4, 2000
- -----------------------------------------------------
Jeffrey R. Harris
*By: /s/ CHARLES R. MOLLO
------------------------------------------------
Charles R. Mollo,
Attorney-in-Fact
</TABLE>
II-13
<PAGE> 132
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.(3)
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of June 17, 1997.(3)
3.3 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of September 10, 1997.(1)
3.4 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of July 20, 1998.(1)
3.5 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of February 3, 2000.(1)
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.(1)
3.7 -- Amended Bylaws of the Company.(1)
3.8 -- Certificate of the Designations, Preferences, Rights and
Limitations of Series D Preferred Stock.(2)
3.9 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of March 31, 2000.(3)
4.1 -- Specimen of Common Stock Certificate.(3)
4.2 -- Form of 12% Convertible Debenture of the Company.(1)
4.3 -- Registration Rights Agreement by and between the Company
and Miram International, Inc. dated July 29, 1997.(1)
4.4 -- Form of Unit Purchase Agreement used in 1998 Private
Placements for the Purchase of Up To 900 Units, Each
Consisting of 1,000 shares of the Company's common
stock.(1)
4.5 -- Form of Unit Purchase Agreement used in 1997 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's common stock
and warrants to purchase 500 shares of the Company's
Common Stock.(1)
4.6 -- Form of Warrant to Purchase Shares of common stock of the
Company used with the 13% Bridge Notes and Series C
Preferred Stock Private Placements.(3)
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.(1)
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.(1)
4.9 -- Form of 13% Bridge Note issued in July 1999 Private
Placement.(1)
4.10 -- 13% Bridge Note Conversion Notice expired June 30,
1999.(1)
4.11 -- Form of Series C Preferred Stock Purchase Agreement used
in 1998 and 1999 Private Placements.(1)
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreement used in 1999 and 2000 Private Placements.(1)
4.13 -- Series C Preferred Stock Purchase Agreement dated May 3,
1999, between the Company, Philips Semiconductors VLSI,
Inc. (f/k/a VLSI Technology, Inc.) and Seligman
Communications and Information Fund, Inc.(1)
4.14 -- Amended and Restated Stock Purchase Warrant issued by the
Company to Finova Capital Corporation (f/k/a Sirrom
Capital Corporation) dated as of March 25, 1998.(1)
</TABLE>
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.15 -- Stock Purchase Warrant issued by the Company to Finova
Capital Corporation (f/k/a Sirrom Capital Corporation)
dated as of March 25, 1998.(1)
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999, between the Company and Seligman
Communications and Information Fund, Inc.(1)
4.17 -- Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles R. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated April 20, 1998.(1)
4.18 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated April 20, 1998.(1)
4.19 -- Form of Warrant to Purchase common stock of the Company
issued to certain holders in connection with that certain
Contribution and Indemnification Agreement by and among
Janice L. Breeze, Jeffrey S. Doss, Charles S. Mollo,
Cameron Wilson, the Company and certain Stockholders of
the Company dated November 2, 1999.(2)
4.20 -- Form of Warrant to Purchase Common Stock of the Company
issued in the 1997 Private Placement.(2)
4.21 -- Form of 13% Bridge Note issued in March 1999 Private
Placement.(2)
4.23 -- Investor Rights Agreement dated October 29, 1999 by and
between the Company and Seligman Communications and
Information Fund, Inc. entered into in connection with
the Series C Preferred Stock and Warrant Purchase
Agreement dated October 29, 1999.(2)
4.24 -- Form of Warrant to Purchase Shares of Common Stock issued
in connection with the Loan Extension Agreement dated
February 29, 2000.(2)
4.25 -- Investor Rights Agreement dated May 3, 1999 between the
Company, Philips Semiconductors VLSI, Inc. (f/k/a VLSI
Technology, Inc.) and Seligman Communications and
Information Fund, Inc.(3)
4.26 -- Registration Rights Agreement by and between the Company
and Cybex Computer Products Corporation entered into in
connection with the Strategic Partner Agreement dated
March 6, 2000.(3)
5.1 -- Opinion of Jackson Walker L.L.P.*
10.1 -- Lease by and between Monaghan Company, LLC and Colonial
Trust Company and the Company dated December 20, 1996.(1)
10.2 -- First Amendment to Lease dated January 29, 1999 by and
between Monaghan Company, LLC and Colonial Trust Company
and the Company dated December 20, 1996.(1)
10.3 -- Office Lease dated July 3, 1998 by and between SunLife
Assurance Company of Canada and the Company.(3)
10.4 -- Asset Purchase Agreement and Plan of Reorganization
between Miram International, Inc., John Moroz, Mykola
Moroz and the Company dated July 29, 1997.(1)
10.5 -- Promissory Note made by Miram International, Inc. to
Mykola Moroz dated July 3, 1997 in the amount of
$400,000.(1)
10.6 -- Amended and Restated 1996 Long Term Incentive Plan, as
amended on January 13, 2000.(1)
10.7 -- Richard W. Winterich Employment Agreement dated November
20, 1998.(1)
10.8 -- Richard W. Winterich Option Agreement dated April 12,
1999.(1)
</TABLE>
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.9 -- Richard W. Winterich Option Agreement dated April 12,
1999.(1)
10.10 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.(1)
10.11 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.(1)
10.12 -- Charles R. Mollo Employment Agreement dated December 1,
1999.(1)
10.13 -- Charles R. Mollo Option Agreement dated December 1,
1999.(1)
10.14 -- Jeffrey S. Doss Employment Agreement dated December 1,
1999.(1)
10.15 -- Jeffrey S. Doss Option Agreement dated December 1,
1999.(1)
10.16 -- Jeffrey S. Doss Pledge Agreement dated December 1,
1999.(1)
10.17 -- Jeffrey S. Doss Promissory Note in favor of the Company
dated December 1, 1999 in the principal amount of
$300,000.(1)
10.18 -- First Amendment to Option Agreement dated December 1,
1999 between Jeffrey S. Doss and the Company.(1)
10.19 -- Robert P. Dilworth Consulting Agreement dated May 21,
1999.(1)
10.20 -- Robert P. Dilworth Nonqualified Stock Option Agreement
dated May 21, 1999.(1)
10.21 -- William O. Hunt Consulting Agreement dated December 8,
1999.(2)
10.22 -- William O. Hunt Non-qualified Stock Option Agreement
dated December 8, 1999.(2)
10.23 -- Amendment No. 3 to Letter of Credit, Loan and Security
Agreement and Promissory Note made by Company to Bank of
America dated October 31, 1999.(1)
10.24 -- Amended and Restated Business Loan Agreement (Receivables
and Inventory) dated as of November 2, 1999 between the
Company and Bank of America, N.A.(1)
10.25 -- Restated Promissory Note in the principal amount of
$3,000,000 dated as of November 2, 1999 between the
Company and Bank of America, N.A.(1)
10.26 -- Promissory Note in the principal amount of $1,500,000
dated as of November 2, 1999 between the Company and Bank
of America, N.A.(1)
10.27 -- Promissory Note in the principal amount of $150,000 dated
as of November 2, 1999 between the Company and Bank of
America, N.A.(1)
10.28 -- Promissory Note in the principal amount of $75,000 dated
as of November 2, 1999 between the Company and Bank of
America, N.A.(1)
10.29 -- Restated Continuing Guaranty of Janice Breeze dated
November 2, 1999.(1)
10.30 -- Restated Continuing Guaranty of Jeffrey S. Doss dated
November 2, 1999.(1)
10.31 -- Restated Continuing Guaranty of Charles R. Mollo dated
November 2, 1999.(1)
10.32 -- Restated Continuing Guaranty of Cameron Wilson dated
November 2, 1999.(1)
10.33 -- Secured Promissory Note made by the Company in favor of
Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated March 25, 1998 in the principal amount
of $1,750,000.(1)
10.34 -- First Amendment to Loan Agreement and Loan Documents by
and between the Company and Finova Capital Corporation
(f/k/a Sirrom Capital Corporation) dated as of March 25,
1998.(1)
10.35 -- Secured Promissory Note made by the Company in favor of
Finova Capital Corporation (f/k/a Sirrom Capital
Corporation) dated June 24, 1997 in the principal amount
of $1,600,000.(1)
</TABLE>
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.36 -- Settlement Agreement dated May 21, 1999 by and among John
Moroz, Peter Moroz, Mykola Moroz and the Company.(2)
10.37 -- Letter Agreement dated October 22, 1999 by and between J.
C. Bradford & Co., L.L.C. and the Company.(2)
10.38 -- Form of Loan Extension Agreement dated February 29, 2000
by and between the Company and holders of 13% Bridge
Notes issued in March 1999.(2)
10.39 -- Strategic Partner Agreement by and between the Company
and Cybex Computer Products Corporation dated March 6,
2000.(2)
10.40 -- Donald W. Johnson Employment Agreement dated March 20,
2000.(2)
10.41 -- Strategic Vendor Agreement dated August 10, 1998 by and
between the Company and Molex Incorporated.(2)
10.42 -- Form of Indemnity Agreement by and between the Company
and its officers and directors.(2)
10.43 -- Loan Modification and Extension Agreement dated March 13,
2000 between Bank of America N.A. and the Company.(2)
10.44 -- Amended and Restated Promissory Note (Facility I) dated
March 13, 2000 in the aggregate principal amount of
$3,000,000.(2)
10.45 -- Amended and Restated Promissory Note (Facility II) dated
March 13, 2000 in the aggregate principal amount of
$1,500,000.(2)
10.46 -- Separation Agreement dated October 1, 1999 by and among
the Company, Cameron Wilson and C. Wilson Company.(2)
10.47 -- Private Label and Manufacturing Agreement dated May 11,
1998 by and between the Company and Targus Group
International, Inc.(3)
10.48 -- Design and Development Agreement dated May 12, 1998 by
and between VLSI Technology, Inc. and the Company.(2)
10.49 -- Donald W. Johnson Non-qualified Stock Option dated April
1, 2000.(3)
10.50 -- License Agreement dated March 6, 2000 by and between the
Company and Cybex Computer Products Corporation.(3)
10.51 -- License Agreement dated March 6, 2000 by and between the
Company and Cybex Computer Products Corporation.(3)
10.52 -- Private Label Agreement dated March 6, 2000 by and
between the Company and Cybex Computer Products
Corporation.(3)
21.1 -- Subsidiaries.(1)
23.1 -- Consent of KPMG LLP.(2)
23.2 -- Consent of Jackson Walker L.L.P. (Contained in Exhibit
5.1).*
24.1 -- Power of Attorney.(1)
27.1(a) -- Financial Data Schedule.(3)
27.1(b) -- Financial Data Schedule.(3)
</TABLE>
- ------------
* To be filed by amendment.
(1) Previously filed as an exhibit to Registration Statement No. 333-30284 dated
February 11, 2000.
(2) Previously filed as an exhibit to Amendment No. 1 to Registration Statement
No. 333-30784 dated March 28, 2000.
(3) Filed herewith.
<PAGE> 1
Exhibit 1.1
_______________ Shares
Mobility Electronics, Inc.
Common Stock
($0.01 Par Value)
EQUITY UNDERWRITING AGREEMENT
_______________, 2000
Deutsche Bank Securities Inc.
Banc of America Securities LLC
J.C. Bradford & Co.
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Mobility Electronics, Inc., a Delaware corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of __________ shares of the Company's Common
Stock, $0.01 par value (the "Firm Shares"). The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Company also proposes to sell at the
Underwriters' option an aggregate of up to __________ additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
Deutsche Bank Securities Inc. ("DBSI") has agreed to reserve up to
___________ of the Shares to be purchased by it under this Agreement for sale to
the Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants"), as set forth in
the Prospectus (as such term is hereinafter defined) under the heading
"Underwriters" (the "Directed Share Program"). The Shares to be sold by DBSI and
its affiliates
<PAGE> 2
pursuant to the Directed Share Program are referred to hereinafter as the
"Directed Shares." Any Directed Shares not orally confirmed for purchase by any
Participants by the end of the business day on which this Agreement is executed
may be offered to the public by the Underwriters as set forth in the Prospectus.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Underwriters as follows:
(a) A registration statement on Form S-1 (File No. 333-30264)
with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission. The
Company has complied with the conditions for the use of Form S-1.
Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the
Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have
heretofore been delivered by the Company to you. Such registration
statement, together with any prospectus filed by the Company pursuant
to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means the form of
prospectus first filed with the Commission pursuant to Rule 424(b).
Each preliminary prospectus included in the Registration Statement
prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus." Any reference herein to the Registration
Statement, any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include any documents incorporated by reference
therein, and, in the case of any reference herein to any Prospectus,
also shall be deemed to include any documents incorporated by reference
therein, and any supplements or amendments thereto, filed with the
Commission after the date of filing of the Prospectus under Rules
424(b) or 430A, and prior to the termination of the offering of the
Shares by the Underwriters.
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. The Company has no direct or indirect subsidiaries (the
"Subsidiaries") as of the date hereof and is duly qualified to transact
business in all jurisdictions in which the conduct of its business
requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the Company.
2
<PAGE> 3
(c) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable; the Shares to be issued and sold by the Company have
been duly authorized and when issued and paid for as contemplated
herein will be validly issued, fully paid and non-assessable; and
following the closing of this offering no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and
sale thereof. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives
rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common
Stock.
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the
Shares conform to the description thereof contained in the Registration
Statement. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments
or supplements thereto will contain, all statements which are required
to be stated therein by, and will conform to, the requirements of the
Act and the Rules and Regulations. The documents incorporated by
reference in the Prospectus, at the time filed with the Commission
conformed, in all respects to the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or the Act, as
applicable, and the rules and regulations of the Commission thereunder.
The Registration Statement and any amendment thereto do not contain,
and will not contain, any untrue statement of a material fact and do
not omit, and will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading. The Prospectus and any amendments and supplements thereto
do not contain, and will not contain, any untrue statement of material
fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives, specifically for use in the
preparation thereof.
(f) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes and schedules as set
forth or incorporated by reference in the Registration Statement,
present fairly the financial position and the results of operations and
cash flows of the Company and the consolidated Subsidiaries, at the
indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with
generally accepted principles of accounting, consistently applied
throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such
periods have been made. The summary financial and statistical data
included or incorporated by reference in the Registration
3
<PAGE> 4
Statement presents fairly the information shown therein and such data
has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the company. The pro
forma financial statements and other pro forma financial information
included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements, have been properly compiled on the pro forma
bases described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(g) KPMG LLP, who have certified certain of the financial
statements filed with the Commission as part of, or incorporated by
reference in, the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company before
any court or administrative agency or otherwise which if determined
adversely to the Company might result in any material adverse change in
the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company or to prevent the consummation of the transactions contemplated
hereby, except as set forth in the Registration Statement.
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except
those reflected in such financial statements (or as described in the
Registration Statement) or which are not material in amount. The
Company occupies its leased properties under valid and binding leases
conforming in all material respects to the description thereof set
forth in the Registration Statement.
(j) The Company has filed all Federal, State, local and
foreign tax returns which have been required to be filed and have paid
all taxes indicated by said returns and all assessments received by the
Company to the extent that such taxes have become due and are not being
contested in good faith and for which an adequate reserve for accrual
has been established in accordance with generally accepted accounting
principles. All tax liabilities have been adequately provided for in
the financial statements of the Company, and the Company does not know
of any actual or proposed additional material tax assessments.
(k) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or
affecting the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise), or prospects of
the Company, whether or
4
<PAGE> 5
not occurring in the ordinary course of business, and there has not
been any material transaction entered into or any material transaction
that is probable of being entered into by the Company, other than
transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be
amended or supplemented. The Company has no material contingent
obligations which are not disclosed in the Company's financial
statements which are included in the Registration Statement.
(l) The Company is not or with the giving of notice or lapse
of time or both, will not be, in violation of or in default under its
Certificate of Incorporation or Bylaws or under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a
party or by which it, or any of its properties, is bound and which
default is of material significance in respect of the condition,
financial or otherwise of the Company or the business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company. The execution and delivery of
this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company is a party, or of
the Certificate of Incorporation or Bylaws of the Company or any order,
rule or regulation applicable to the Company of any court or of any
regulatory body or administrative agency or other governmental body
having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated (except such additional steps as may
be required by the Commission, the National Association of Securities
Dealers, Inc. (the "NASD") or such additional steps as may be necessary
to qualify the Shares for public offering by the Underwriters under
state securities or Blue Sky laws) has been obtained or made and is in
full force and effect.
(n) The Company holds all material licenses, certificates and
permits from governmental authorities which are necessary to the
conduct of its business; the Company owns or possesses the right to use
all patents, patent rights, trademarks, trade names, service marks,
service names, copyrights, license rights, know-how (including trade
secrets and other unpatented and unpatentable proprietary or
confidential information, systems or procedures) and other intellectual
property rights ("Intellectual Property") necessary to carry on its
business in all material respects; the Company has not infringed, and
the Company has not received notice of conflict with, any Intellectual
Property of any other person or entity. The Company has taken all
reasonable steps which the Company believed it should take, in light of
the facts and circumstances surrounding the negotiation of agreements
with its contractors, to secure interests in such Intellectual Property
from its contractors. There are no outstanding options, licenses or
agreements of any kind relating to the Intellectual Property of the
Company that are required to be described in the Prospectus and are not
described in all material respects. The Company is not a party to
5
<PAGE> 6
or bound by any options, licenses or agreements with respect to the
Intellectual Property of any other person or entity that are required
to be set forth in the Prospectus and are not described in all material
respects. None of the technology employed by the Company has been
obtained or is being used by the Company in violation of any
contractual obligation binding on the Company or any of its officers,
directors or employees or otherwise in violation of the rights of any
persons; the Company has not received any written or oral
communications alleging that the Company has violated, infringed or
conflicted with, or, by conducting its business as set forth in the
Prospectus, would violate, infringe or conflict with, any of the
Intellectual Property of any other person or entity. The Company knows
of no infringement by others of Intellectual Property owned by or
licensed to the Company.
(o) Neither the Company, nor to the Company's knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any
action designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate
the sale or resale of the Shares. The Company acknowledges that the
Underwriters may engage in passive market making transactions in the
Shares on the Nasdaq Stock Market in accordance with Regulation M under
the Exchange Act.
(p) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940, (as
amended, the "1940 Act") and the rules and regulations of the
Commission thereunder.
(q) 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 authorization; (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.
(r) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its
business and the value of its properties and as is customary for
companies engaged in similar industries.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan"
6
<PAGE> 7
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(t) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's
officers, directors or 5% or greater securityholders, except as set
forth in the Registration Statement.
(u) No labor dispute with the employees of the Company exists
or, to the knowledge of the Company, is imminent, and the Company is
not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, customers or vendors,
which, in any case, may reasonably be expected to result in any
material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or to prevent the consummation
of the transactions contemplated hereby.
(v) There are no contracts or documents which are required to
be described in the Registration Statement or the Prospectus or to be
filed as exhibits thereto which have not been so described and filed as
required.
(w) Except as disclosed in the Prospectus, there has been no
storage, disposal, generation, manufacture, refinement, transportation,
handling or treatment of toxic wastes, hazardous waste or hazardous
substances (collectively, "Hazardous Materials") by the Company (or, to
the knowledge of the Company, any of the Company's predecessors in
interest) at, upon or from any of the property now owned or leased by
the Company in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require
remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial
action which would not result in, or could not be reasonably likely to
result in, singly or in the aggregate with all such violations and
remedial actions, any material adverse change in the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company or prevent the
consummation of the transactions contemplated hereby; there has been no
material spill, discharge, leak, emission, injection, escape, dumping
or release of any kind onto such property or into the environment
surrounding such property of any Hazardous Materials due to or caused
by the Company (or, to the knowledge of the Company, any of the
Company's predecessors in interest) except for any such spill,
discharge, leak, emission, injection, escape, dumping or release which
would not result in or would not be reasonably likely to result in,
singly or in the aggregate with all other such spills, discharges,
leaks, emissions, injections, escapes, dumpings and releases, any
material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or prevent the consummation of
the transactions contemplated hereby. The terms "hazardous wastes,"
"toxic wastes" and "hazardous substances" shall have the meanings
specified in any applicable local, State or Federal laws or regulations
with respect to environmental protection. The Company is in compliance
with any and all
7
<PAGE> 8
applicable Federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants except where
the failure to so comply would not result in any material adverse
change in the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of
the Company or prevent the consummation of the transactions
contemplated hereby.
(x) Other than as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right (other than rights which have
been waived or satisfied) to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the Act.
(y) The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all
applicable laws, rules and regulations, of the jurisdictions in which
it is conducting business including, without limitation, all applicable
local, state and Federal laws and regulations, except where the failure
to so comply would not result in any material adverse change in the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company or
prevent the consummation of the transactions contemplated hereby.
(z) No consent, approval, authorization or order of, or
qualification with, any governmental body or agency, other than those
obtained, is required in connection with the offering of the Directed
Shares in any jurisdiction where the Directed Shares are being offered.
(aa) The Company has not offered, or caused DBSI or its
affiliates to offer, Shares to any person pursuant to the Directed
Share Program with the specific intent to unlawfully influence (i) a
customer or supplier of the Company to alter the customer's or
supplier's level or type of business with the Company, or (ii) a trade
journalist or publication to write or publish favorable information
about the Company or its products.
(bb) The Company has furnished to the Underwriters copies of
all unaudited interim financial statements of the Company that have
been prepared by or made available to the Company for any period
subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set
forth, the Company agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a
8
<PAGE> 9
price of $_____ per share, the number of Firm Shares set forth opposite
the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in Federal (same day) funds to an account designated by the
Company against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such
payment and delivery are to be made through the facilities of the
Depository Trust Company, New York, New York at 10:00 a.m., New York
time, on the third business day after the date of this Agreement or at
such other time and date not later than five business days thereafter
as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business
day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not
permitted by law or executive order to be closed.) The certificates for
the Firm Shares will be delivered in such denominations and in such
registrations as the Representatives request in writing not later than
the second full business day prior to the Closing Date, and will be
made available for inspection by the Representatives at least one
business day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase the Option Shares at the price per share as
set forth in the first paragraph of this Section 2. The option granted
hereby may be exercised in whole or in part by giving written notice
(i) at any time before the Closing Date and (ii) only once thereafter
within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters
are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined
by the Representatives but shall not be earlier than three nor later
than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein
referred to as the "Option Closing Date"). If the date of exercise of
the option is three or more days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date. The
number of Option Shares to be purchased by each Underwriter shall be in
the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by you
in such manner as to avoid fractional shares. The option with respect
to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such
option at any time prior to its expiration by giving written notice of
such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Option Shares shall be made on the
Option Closing Date in Federal (same day) funds drawn to the order of
the Company against delivery of certificates therefor through the
facilities of the Depository Trust Company, New York, New York.
9
<PAGE> 10
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations
a Prospectus in a form approved by the Representatives containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations, (B) not file any amendment to the Registration Statement
or supplement to the Prospectus or document incorporated by reference
therein of which the Representatives shall not previously have been
advised and furnished with a copy or to which the Representatives shall
have reasonably objected in writing or which is not in compliance with
the Rules and Regulations and (C) file on a timely basis all reports
and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the
Prospectus and prior to the termination of the offering of the Shares
by the Underwriters.
(b) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto
shall have become effective, (B) of receipt of any comments from the
Commission, (C) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, and (D) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending
the use of the Prospectus and to obtain as soon as possible the lifting
thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have
designated in writing and will make such
10
<PAGE> 11
applications, file such documents, and furnish such information as may
be reasonably required for that purpose, provided the Company shall not
be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now
so qualified or required to file such a consent. 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 the Representatives may reasonably
request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will
deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits
filed therewith that may reasonably be requested), including documents
incorporated by reference therein, if any, and of all amendments
thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act and the rules and regulations of the
Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and the
Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur
as a result of which, in the judgment of the Company or in the
reasonable opinion of the Underwriters, it becomes necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at
any time to amend or supplement the Prospectus to comply with any law,
the Company promptly will either (A) prepare and file with the
Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus or (B) prepare and file with the
Commission an appropriate filing under the Exchange Act which shall be
incorporated by reference in the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration
Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which
earning statement shall satisfy the requirements of Section 11(a) of
the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
11
<PAGE> 12
(g) [RESERVED]
(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible
into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or agreement for such) will be made for a
period of 180 days after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of DBSI.
(i) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq Stock Market.
(j) The Company has caused each executive officer and director
of the Company, and certain stockholders of the Company listed on
Schedule II hereto, to furnish to you, on or prior to the date of this
Agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to
offer, sell, sell short or otherwise dispose of any shares of Common
Stock of the Company or other capital stock of the Company, or any
other securities convertible, exchangeable or exercisable for Common
Stock or derivative of Common Stock owned by such person or request the
registration for the offer or sale of any of the foregoing (as to which
such person has the right to direct the disposition thereof) for a
period of 180 days after the date of this Agreement, directly or
indirectly, except with the prior written consent of DBSI (the "Lockup
Agreements").
(k) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports
with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company to register as an investment
company under the 1940 Act.
(m) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(n) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
(o) The Company will comply with all applicable securities and
other applicable laws, rules and regulations in each jurisdiction in
which the Directed Shares are offered in connection with the Directed
Share Program.
12
<PAGE> 13
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees of the Commission;
the filing fees and expenses (including legal fees and disbursements) incident
to securing any required review by the NASD of the terms of the sale of the
Shares; the Listing Fee of the Nasdaq Stock Market; and the expenses, including
the fees and disbursements of counsel for the Underwriters, incurred in
connection with the qualification of the Shares under State securities or Blue
Sky laws. Any transfer taxes imposed on the sale of the Shares to the several
Underwriters will be paid by the Company. The Company agrees to pay all costs
and expenses of the Underwriters, including the fees and disbursements of
counsel for the Underwriters, incident to the offer and sale of the Directed
Shares. The Company shall not, however, be required to pay for any of the
Underwriters expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws), including, without
limitation, the fees and disbursements of counsel for the Underwriters, and any
advertising expenses in connection with any offers the Underwriters make, except
that, if this Agreement shall not be consummated because the conditions in
Section 6 hereof are not satisfied, or because this Agreement is terminated by
the Representatives pursuant to Section 11 hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company contained herein, and to the performance by the Company of its covenants
and obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or otherwise)
shall have been disclosed to the Representatives and complied with to
their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as
13
<PAGE> 14
amended from time to time, shall have been issued and no proceedings
for that purpose shall have been taken or, to the knowledge of the
Company, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court
of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of
Jackson Walker L.L.P., counsel for the Company, dated the Closing Date
or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; and the
Company is duly qualified to transact business in all jurisdictions in which the
conduct of its business requires such qualification, except those jurisdictions
where the failure to so qualify would not have a material adverse effect upon
the business of the Company (such counsel being entitled to rely in respect of
the opinion in this clause upon certificates of Secretaries of State or other
appropriate public officials and in respect of matters of fact upon certificates
of officers of the Company).
(ii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus
as of the date so indicated; the authorized shares of the Company's Common Stock
have been duly authorized; the outstanding shares of the Company's Common Stock
have been duly authorized and validly issued and are fully paid and
non-assessable; all of the Shares conform to the description thereof contained
in the Prospectus; the certificates for the Shares, assuming they are in the
form filed with the Commission, are in due and proper form; the shares of Common
Stock, including the Option Shares, if any, to be sold by the Company pursuant
to this Agreement have been duly authorized and will be validly issued, fully
paid and non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of stockholders exist with respect to any of
the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Stock or other securities of the Company
included in the Registration
14
<PAGE> 15
Statement or the right, as a result of the filing of the Registration Statement,
to require registration under the Act of any shares of Common Stock or other
securities of the Company.
(iv) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto and document incorporated by reference
therein comply as to form in all material respects with the requirements of the
Act or the Exchange Act, as applicable and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the financial
statements and related schedules included or incorporated by reference therein).
The conditions for the use of Form S-1, set forth in the General Instructions
thereto, have been satisfied.
(vi) The statements under the captions "Business,"
"Certain Transactions," "Description of Capital Stock" and "Shares Eligible for
Future Sale" in the Prospectus and "Item 15. Recent Sales of Unregistered
Securities" in Part II of the Registration Statement, insofar as such statements
constitute a summary of documents referred to therein or matters of law, fairly
summarize in all material respects the information required to be disclosed in
the Prospectus and the Registration Statement.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to or incorporated by reference in
the Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed, incorporated by reference or described as
required, and such contracts and documents to the extent they are required to be
summarized in the Registration Statement or the Prospectus are fairly summarized
as required in all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Certificate of Incorporation or Bylaws of the
Company, or any agreement or instrument known to such counsel to which the
Company is a party or by which the Company may be bound.
(x) This Agreement has been duly authorized, executed
and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by
15
<PAGE> 16
State securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion, Jackson Walker L.L.P. may state
that they express no opinion as to the laws of any jurisdiction other than the
laws of the State of Texas and the corporate law of the State of Delaware
(excluding, in each case, conflict of law rules), and the Federal laws of the
United States. In addition to the matters set forth above, such opinion shall
also include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that (i) the Registration Statement, at
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, 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,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that in connection with the statements described in each of
(i) and (ii) above, such counsel need express no view as to financial
statements, schedules and statistical information included or incorporated by
reference therein). With respect to such statement, Jackson Walker L.L.P. may
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(c) The Representatives shall have received from Willkie Farr
& Gallagher, counsel for the Underwriters, an opinion dated the Closing
Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (ii), (iii) and (iv) of Paragraph
(b) of this Section 6, and that the Company is a duly organized and
validly existing corporation under the laws of the State of Delaware.
In rendering such opinion, Willkie Farr & Gallagher may rely as to all
matters governed other than by the laws of the State of New York or
Federal laws on the opinion of counsel referred to in Paragraph (b) of
this Section 6. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has
come to the attention of such counsel which leads them to believe that
(i) the Registration Statement, or any amendment thereto, as of the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act)
and as of the Closing Date or the Option Closing Date, as the case may
be, 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, and (ii) the Prospectus, or
any supplement thereto, on the date it was filed pursuant to the Rules
and Regulations and as of the Closing Date or the Option Closing Date,
as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are
made, not
16
<PAGE> 17
misleading (except that in connection with the statements described in
each of (i) and (ii) above, such counsel need express no view as to
financial statements, schedules and statistical information included or
incorporated by reference therein). With respect to such statement,
Willkie Farr & Gallagher may state that their belief is based upon the
procedures set forth therein, but is without independent check and
verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Willkie Farr & Gallagher a memorandum or summary, in
form and substance satisfactory to the Representatives, with respect to
the qualification for offering and sale by the Underwriters of the
Shares under the State securities or Blue Sky laws of such
jurisdictions as the Representatives may reasonably have designated to
the Company.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter
dated the date hereof, the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to you, of KPMG LLP
confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating that in their opinion the financial statements
and schedules examined by them and included in the Registration
Statement (or incorporated by reference therein) comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing
such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial and statistical information
contained in the Registration Statement and Prospectus (or incorporated
by reference therein).
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial
Officer of the Company to the effect that, as of the Closing Date or
the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof that are qualified as to materiality are
true and correct and the other representations and warranties in such section
are true and correct in all material respects, as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
17
<PAGE> 18
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, in his or her opinion, as of the
effective date of the Registration Statement, the statements contained in the
Registration Statement were true and correct in all material respects, and such
Registration Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set forth
in such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or otherwise,
of the Company or the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company, whether or not arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations
and warranties, covenants and conditions contained herein and related
matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq Stock
Market.
(i) The Lockup Agreements described in Section 4(j) are in
full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Willkie Farr
& Gallagher, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company of such termination in writing
or by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
18
<PAGE> 19
8. INDEMNIFICATION.
(a) The Company agrees:
(i) to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, (ii) 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 any act or failure to act, or (iii) any
alleged act or failure to act by any Underwriter in connection with, or relating
in any manner to, the Shares or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon matters covered by clause (i) or (ii) above
(provided, that the Company shall not be liable under this clause (iii) to the
extent that it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to be taken
by such Underwriter through its gross negligence or willful misconduct);
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. The Company
also agrees to indemnify and hold harmless DBSI and each person, if any, who
controls DBSI within the meaning of either Section 15 of the Act, or Section 20
of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments incurred as a result of DBSI's participation as a
"qualified independent underwriter" within the meaning of Rule 2720 of the
National Association of Securities Dealers' Conduct Rules in connection with the
offering of the Shares, except for any losses, claims, damages, liabilities and
judgments resulting from DBSI's or such controlling person's willful misconduct.
This indemnity obligation will be in addition to any liability which the Company
may otherwise have.
(ii) to reimburse each Underwriter and each such
controlling person upon demand for any legal or other out-of-pocket expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding. In the event that it
is finally judicially determined that the Underwriters were not entitled to
receive payments for legal and other expenses pursuant to this subparagraph, the
Underwriters will promptly return all sums that had been advanced pursuant
hereto.
(b) [RESERVED]
(c) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its
officers who have signed the
19
<PAGE> 20
Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims,
damages or liabilities to which the Company or any such director,
officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or
(ii) the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer or
controlling person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided,
however, that each Underwriter will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a), (b) or (c) shall be
available to any party who shall fail to give notice as provided in
this Section 8(d) if the party to whom notice was not given was unaware
of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the 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 the provisions
of Section 8(a), (b) or (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party and shall pay as incurred the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between
20
<PAGE> 21
them or (iii) the indemnifying party shall have failed to assume the
defense and employ counsel reasonably acceptable to the indemnified
party within a reasonable period of time after notice of commencement
of the action. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more
than one separate firm for all such indemnified parties. Such firm
shall be designated in writing by you in the case of parties
indemnified pursuant to Section 8(a) or (b) and by the Company in the
case of parties indemnified pursuant to Section 8(c). The indemnifying
party shall not be liable for any settlement of any proceeding effected
without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of
which indemnification may be sought hereunder (whether or not any
indemnified party is an actual or potential party to such claim, action
or proceeding) unless such settlement, compromise or consent includes
an unconditional release of each indemnified party from all liability
arising out of such claim, action or proceeding. Notwithstanding
anything contained herein to the contrary, if indemnity may be sought
pursuant to Section 8(a) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees
and expenses of not more than one separate firm (in addition to any
local counsel) for DBSI in its capacity as a "qualified independent
underwriter" and all persons, if any, who control DBSI within the
meaning of either Section 15 of the Act or Section 20 of the Exchange
Act.
(e) The Company agrees to indemnify and hold harmless DBSI and
its affiliates and each person, if any, who controls DBSI or its
affiliates within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) (i) caused by any
untrue statement or alleged untrue statement of a material fact
contained in any material prepared by or with the consent of the
Company for distribution to Participants in connection with the
Directed Share Program, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by
the failure of any Participant to pay for and accept delivery of
Directed Shares that the Participant has agreed to purchase; or (iii)
related to, arising out of, or in connection with the Directed Share
Program other than losses, claims, damages or liabilities (or expenses
relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of DBSI.
(f) To the extent the indemnification provided for in this
Section 8 is unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a), (b) or (c) above in respect of
any losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to therein, then each indemnifying party
shall
21
<PAGE> 22
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. The 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 the Company on the one
hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(f) were
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 account of the equitable considerations referred to above in this Section
8(f). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(f) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (f), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(g) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought
under this Section 8 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that
process issuing from such court may be served upon him or it by any
other contributing party and consents to the service of such process
and agrees that any other contributing party may join him or it as an
additional defendant in any such proceeding in which such other
contributing party is a party.
22
<PAGE> 23
(h) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution
agreements contained in this Section 8 and the representations and
warranties of the Company set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or
any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be
entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
23
<PAGE> 24
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Deutsche Bank
Securities Inc., One South Street, Baltimore, Maryland 21202, Attention: General
Counsel, Telecopier: (410) 895-3656; with a copy to Deutsche Bank Securities
Inc., 31 West 52nd Street, New York, New York 10019, Attention: General Counsel,
Telecopier: (212) 469-8173; with a copy to Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019, Attention: William J. Grant, Jr., Telecopier:
(212) 728-8111; if to the Company, to Mobility Electronics, Inc., 7955 East
Redfield Road, Scottsdale, AZ 85260, Attention: Richard W. Winterich,
Telecopier: (480) 596-0349; with a copy to Jackson Walker L.L.P., 901 Main
Street, Suite 6000, Dallas, TX 75202, Attention: Richard F. Dahlson, Telecopier:
(214) 953-5822.
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date if any of the following
has occurred: (i) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, any material
adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise,
of the Company or the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the
United States would, in your reasonable judgment, make it impracticable
or inadvisable to market the Shares or to enforce contracts for the
sale of the Shares, or (iii) suspension of trading in securities
generally on the New York Stock Exchange or the American Stock Exchange
or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects or may
materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or
New York State authorities, (vi) any downgrading, or placement on any
watch list for possible downgrading, in the rating of the Company's
debt securities by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the
Exchange Act); (vii) the suspension of trading of the Company's common
stock by the Nasdaq Stock Market, the Commission, or any other
governmental authority or, (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect
on the securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
24
<PAGE> 25
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that
the only information furnished or to be furnished by any Underwriter to the
Company for inclusion in any Prospectus or the Registration Statement consists
of the information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), legends required by
Item 502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus.
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
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
25
<PAGE> 26
If the foregoing letter is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
MOBILITY ELECTRONICS, INC.
By:
-----------------------------------
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
DEUTSCHE BANK SECURITIES INC.
BANC OF AMERICA SECURITIES LLC
J.C. BRADFORD & CO.
As Representatives of the several
Underwriters listed on Schedule I
By: Deutsche Bank Securities Inc.
By:
---------------------------------
Name:
Title: Authorized Officer
<PAGE> 27
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
- ----------------------------------- ---------------------------------
Deutsche Bank Securities Inc.
Banc of America Securities LLC
J.C. Bradford & Co.
-------
Total
=======
<PAGE> 28
SCHEDULE II
LOCK-UP AGREEMENTS
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
Electronics Accessory Specialists International, Inc., a Delaware
corporation (the "Company"), pursuant to the provisions of Section 141(f) of the
Delaware Corporation Law (the "Act"), hereby adopts the following Articles of
Amendment to its Certificate of Incorporation and all amendments thereto that
are in effect immediately prior hereto.
ARTICLE I
The name of the Corporation is Electronics Accessory Specialists
International, Inc.
ARTICLE II
Article 4.B.(4)(d) of the Company's Certificate of Incorporation, as
amended, shall be amended and restated so the it reads its entirety as follows:
(d) Notwithstanding the above, to the extent the Corporation has
legally available funds, the Corporation shall redeem the Series A
Preferred at the following times and in the following amounts: (i) upon the
occurrence of a Sales Transaction, Distributable Cash in the amount
necessary to cause each holder of Series A Preferred to receive its Series
A Preferred Return shall be distributed to the holders of Series A
Preferred; (ii) within 45 days after the end of each calendar quarter and
until each holder of Series A Preferred has received its Series A Preferred
Return, the Corporation shall distribute an amount of Distributable Cash to
the holders of Series A Preferred equal to at least 25% of the
Corporation's net operating cash flow for the preceding quarter (provided
that, to the extent such funds are necessary for the Corporation's
operations, any such quarterly distribution may be waived by the vote of at
least five (5) directors of the Corporation); and (iii) at such other times
and in such amounts as the Board of Directors of the Corporation, in its
sole discretion, may determine. The foregoing notwithstanding, the
Corporation shall not redeem the Series A Preferred or make any payments as
provided in this Section for so long as the Corporation has any outstanding
indebtedness owing Sirrom Capital Corporation and its successors or
assigns.
<PAGE> 2
ARTICLE III
Article 4.C.(4)(d) of the Company's Certificate of Incorporation, as
amended, is hereby amended and restated so that it reads in its entirety as
follows:
(d) After full payment of the Series A Preferred Return, to the extent
the Corporation has legally available funds, the Corporation shall redeem
the Series B Preferred at the following times and in the following amounts:
(i) upon the occurrence of a Sales Transaction, Distributable Cash in the
amount necessary to cause each holder of Series B Preferred to receive its
Series B Preferred Return shall be distributed to the holders of Series B
Preferred; (ii) within 45 days after the end of each calendar quarter and
until each holder of Series B Preferred has received its Series B Preferred
Return, the Corporation shall distribute an amount of Distributable Cash to
the holders of Series B Preferred equal to at least 25% of the
Corporation's net operating cash flow for the preceding quarter (provided
that, to the extent such funds are necessary for the Corporation's
operations, any such quarterly distribution may be waived by the vote of at
least (5) directors of the Corporation; and (iii) at such other times and
in such amounts as the Board of Directors of the Corporation, in its sole
discretion, may determine. The foregoing notwithstanding, the Corporation
shall not redeem the Series B Preferred or make any payments as provided in
this Section for so long as the Corporation has any outstanding
indebtedness owing Sirrom Capital Corporation and its successors or
assigns.
ARTICLE IV
The amendments made by these Articles of Amendments have been effected in
conformity with the provisions of the Act, and the amendments made by these
Articles of Amendment (the "Amendments") were duly adopted (a) by a majority of
the stockholders of the Corporation by written consent dated as of June 17,
1997, (b) a majority of the holders of the Series B Preferred Stock, by written
consent dated as of June 17, 1997, and (c) all of the directors of the
Corporation by written consent dated as of June 17, 1997.
ARTICLE V
The number of shares of common stock outstanding is 103,047; the number of
shares of common stock entitled to vote on the Amendments was 103,047. The
holders of 71,272 (70%) shares of common stock outstanding and entitled to vote
on the Amendments consented to the Amendments. The number of shares of Series B
preferred stock outstanding is 4,186; the number of shares of Series B preferred
stock entitled to vote on the Amendments was 4,186. The holders of 3,236 (78%)
shares of Series B preferred stock outstanding and entitled to vote on the
Amendments consented to the Amendments. There is no Series A preferred stock
outstanding.
- 2 -
<PAGE> 3
No other class of common or preferred shares of the Company was entitled to
vote on the Amendment.
Dated as of the 17th day of June, 1997.
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC.
By: /s/ CHARLES R. MOLLO
------------------------------
Charles R. Mollo,
President
<PAGE> 1
EXHIBIT 3.9
ARTICLES OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
MOBILITY ELECTRONICS, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
Mobility Electronics, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), hereby adopts these Articles of Amendment (the "Articles
of Amendment"), which amend its Certificate of Incorporation and all amendments
thereto that are in effect immediately prior hereto (the "Certificate of
Incorporation"), as described below, and does hereby further certify that:
FIRST: The name of the Corporation is Mobility Electronics, Inc.
SECOND: The Board of Directors of the Corporation duly adopted a resolution
proposing and declaring advisable the amendments to the Certificate of
Incorporation as described herein, and the Corporation's stockholders duly
adopted such amendments, all in accordance with the provisions of Sections 242
and 222 of the DGCL.
THIRD: The amendments to the Certificate of Incorporation effected by these
Articles of Amendment are (i) an amendment to decrease the number of authorized
shares of capital stock of the Corporation and (ii) an amendment to split,
reclassify and convert each share of Common Stock, par value $0.01 per share
(the "Old Common Stock"), of the Corporation that is outstanding on the date of,
and immediately prior to, the filing of these Articles of Amendment and all
rights in respect thereof, into .5 share of Common Stock, par value $0.01 per
share (the "New Common Stock"), subject to the treatment of fractional share
interests as described in these Articles of Amendment.
FOURTH: The Certificate of Incorporation of the Corporation is hereby
amended to effect the decrease in the number of authorized shares of capital
stock by amending the first paragraph of Article 4.A to read, in its entirety,
as follows:
"4.A. General. The aggregate number of shares of capital stock that
the Corporation will have authority to issue is 105,000,000, 90,000,000 of
which will be shares of common stock, having a par value of $0.01 per
share, and 15,000,000 of which will be preferred stock, having a par value
of $0.01 per share."
FIFTH: The Certificate of Incorporation of the Corporation is hereby
amended to effect the conversion of each share of the Old Common Stock into the
right to receive .5 share of the New Common Stock by amending Article 4.A by
adding a new third paragraph that reads, in its entirety, as follows:
1
<PAGE> 2
"Simultaneously with the effective date of this amendment (the "Effective
Date"), each share of Common Stock, $0.01 par value per share (the "Old Common
Stock"), of the Corporation, issued and outstanding immediately prior to the
Effective Date and each such share of Old Common Stock held in the Corporation's
treasury shall automatically and without any action on the part of the holder
thereof be reclassified as and changed into .5 share of the Common Stock, par
value $0.01 per share (the "New Common Stock"), of the Corporation; provided,
however, that no certificate or scrip representing fractional share interests in
the New Common Stock will be issued, and no such fractional share interest will
entitle the holder thereof to vote or to any rights of a stockholder of the
Corporation. Each holder of a certificate or certificates which immediately
prior to the Effective Date represented outstanding shares of the Old Common
Stock (the "Old Certificates," whether one or more) shall be entitled to
receive, upon surrender of the Old Certificates to the Secretary of the
Corporation for cancellation, a certificate or certificates representing the
number of whole shares of the New Common Stock (the "New Common Certificates")
into which and for which the shares of the Old Common Stock, formerly
represented by the Old Certificates so surrendered, are reclassified under the
terms hereof. From and after the Effective Date, the Old Certificates shall
represent only the right to receive the New Common Certificates pursuant to the
provisions hereof. If more than one Old Certificate shall be surrendered at one
time for the account of the same stockholder, the number of shares of New Common
Stock for which New Common Certificates shall be issued shall be computed on the
basis of the aggregate number of shares represented by the Old Certificates so
surrendered. In the event that the Secretary of the Corporation determines that
a holder of Old Certificates has not tendered all of such holder's certificates
for exchange, the Secretary of the Corporation shall carry forward any
fractional share until all certificates of that holder have been presented for
exchange such that not more than one share of New Common Stock shall be issued
to any holder in respect of fractional interests. If any New Common Certificate
is to be issued in a name other than that in which the Old Certificates
surrendered for exchange are issued, the Old Certificates so surrendered shall
be properly endorsed and otherwise in proper form for transfer, and the person
or persons requesting such exchange shall affix any requisite stock transfer tax
stamps to the Old Certificates surrendered, or provide funds for their purchase,
or establish to the satisfaction of the Secretary of the Corporation that such
taxes are not payable. From and after the Effective Time, the total amount of
capital represented by the shares of the New Common Stock into which and for
which the shares of the Old Common Stock are reclassified under the terms hereof
shall be the same as the amount of capital represented by the shares of Old
Common Stock so reclassified, until thereafter reduced or increased in
accordance with applicable law."
2
<PAGE> 3
SIXTH: These Articles of Amendment to the Certificate of Incorporation
shall be effective as of March 30, 2000.
SEVENTH: These Articles of Amendment to the Certificate of Incorporation
were duly adopted by the requisite vote of the Board of Directors and by the
vote of the holders of a majority of the outstanding shares of the Corporation
entitled to vote thereon in accordance with Sections 242 and 222 of the DGCL.
IN WITNESS WHEREOF, Mobility Electronics, Inc. has caused these Articles of
Amendment to the Certificate of Incorporation to be executed by its President
and attested by its Secretary this 31 day of March, 2000.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
-----------------------------------------
Charles R. Mollo, President
ATTEST:
By: /s/ RICHARD F. DAHLSON
-------------------------------
Richard F. Dahlson, Secretary
3
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
[CERTIFICATE NUMBER [COMPANY LOGO [NUMBER OF SHARES
APPEARS HERE] APPEARS HERE] APPEARS HERE]
This Certificate is transferrable in CUSIP 60741410
New York, NY and Ridgefield Park, NJ See Reverse for
Certain Definitions
Mobility Electronics, Inc.
THIS CERTIFIES THAT _________________________ is the owner of
Fully Paid and Non-Accessable Shares of Common Stock of the Par Value of $0.01
Per Share, of Mobility Electronics, Inc. transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney, upon
surrender of this certificate properly enclosed. This certificate is not valid
unless countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the seal of the Corporation and the signatures of its duly authorized
officers.
/s/ Rick Dahlson Dated ________________________
__________________________
Richard F. Dahlson, Secretary [Seal of the Company Appears Here]
/s/Charles R. Mollo Countersigned and Registered:
________________________________ Chase Mellon Shareholder
Charles R. Mollo, President Services, L.L.C.
Transfer Agent and
Registrar
For value received ___________________________ hereby sell, assign and
transfer unto __________________________________________________ Shares of the
Stock represented by the within Certificate and do hereby irrevocably
constitute and appoint _______________________ Attorney to transfer the said
stock on the books of the within named Corporation with full power of
substitution in the premises.
<PAGE> 2
Dated
----------------------
-----------------------------------
(SIGNATURE)
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
The Signature must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership
in an approved signature guarantee medallion program), pursuant to S.E.C. Rule
17Ad-15.
Signature(s) Guaranteed By:
<PAGE> 1
EXHIBIT 4.6
NO. ____ - ______________
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK OF THE COMPANY ISSUABLE UPON
ITS EXERCISE HAVE BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES UNDER THE ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
MOBILITY ELECTRONICS, INC.
(A DELAWARE CORPORATION)
FORM OF WARRANT TO PURCHASE
SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, ____________________ or
registered successors or assigns (hereinafter, the "Holder"), is entitled to
purchase, subject to the conditions set forth below, at any time or from time
to time during the Exercise Period (as defined in subsection 1. 1 below),
__________ (___ ) fully paid and non-assessable shares (the "Shares") of the
common stock, par value $0.01 per share (the "Common Stock"), of Mobility
Electronics, Inc., a Delaware corporation (the "Company"), at a purchase price
of $0.01 per share, subject to adjustment as provided in Section 4 below (the
"Warrant Price").
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and
the Common Stock covered hereby may be purchased, are as follows:
1.1 Method Of Exercise. The Holder of this Warrant may, at any time, or
from time to time, on or after ____________ but on or prior to ________, 2002,
exercise in whole or in part the purchase rights evidenced by this Warrant. Such
exercise shall be effected by: (a) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto, to the Chief
Executive Officer of the Company at the Company's New Mexico office; and (ii)
the payment to the Company, by certified check or bank draft payable to its
order, of an amount equal to the aggregate warrant Price for the number of
Shares for which the purchase rights hereunder are being exercised.
1.2 Satisfaction with Requirements of Securities Act of 1933.
Notwithstanding anything herein to the contrary, each and every exercise of this
Warrant is contingent upon the Company's satisfaction that the issuance of
Common Stock upon the exercise is exempt from the requirements of the Securities
Act of 1933, as amended (the "Act") and all applicable state securities laws.
The
<PAGE> 2
Holder of this Warrant agrees to execute any and all documents determined
necessary by the Company's counsel to effect the exercise of this Warrant.
1.3 Issuance Of Shares and New Warrant. In the event the purchase
rights evidenced by this Warrant are exercised in whole or in part, one or more
certificates for the purchased Shares shall be issued as soon as practicable
thereafter to the person exercising such rights. Such Holder shall also be
issued at such time a new Warrant representing the number of Shares (if any) for
which the purchase rights under this Warrant remain unexercised and continuing
in force and effect.
2. TRANSFERS
2.1 Transfers. Subject to Section 7 below, this Warrant and all rights
hereunder are transferable in whole or in part by the Holder. The transfer shall
be recorded on the books of the Company upon the surrender of this Warrant,
properly endorsed, to the Chief Executive Officer of the Company at the
Company's New Mexico office and the payment to the Company of all transfer taxes
and other governmental charges imposed on such transfer. In the event of a
partial transfer, the Company shall issue to the several Holders one or more
appropriate new Warrants.
2.2 Registered Holder. Each Holder agrees that until such time as any
transfer pursuant to subsection 2.1 is recorded on the books of the Company, the
Company may treat the registered Holder of this Warrant as the absolute owner;
provided that nothing herein affects any requirement that transfer of any
Warrant or share of Common Stock issued or issuable upon the exercise thereof by
subject to securities law compliance.
2.3 Form Of New Warrants. All Warrants issued in connection with
transfers of this Warrant shall bear the same date as this Warrant and shall be
substantially identical in form and provision to this Warrant, with the possible
exception of the number of Shares purchasable thereunder.
3. FRACTIONAL SHARES
Notwithstanding that the number of Shares purchasable upon the exercise
of this Warrant may have been adjusted pursuant to the terms hereof, the Company
shall nonetheless not be required to issue fractions of Shares upon exercise of
this Warrant or to distribute certificates that evidence fractional shares nor
shall the Company be required to make any cash payments in lieu thereof upon
exercise of this Warrant. Holder hereby waives any night to receive fractional
Shares. If a fractional Share shall result from adjustments in the number of
Shares purchasable hereunder, the number of Shares purchasable hereunder shall,
on an aggregate basis taking into account all adjustments hereunder from the
date of issuance of this Warrant, be rounded up to the next whole number.
-2-
<PAGE> 3
4. ANTIDILUTION PROVISIONS
The provisions of this Section 4 shall apply in the event that any of
the events described in this Section 4 shall occur with respect to the Common
Stock at any time on or after the original issuance date of this Warrant:
4.1 Stock Splits And Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of Common Stock, this Warrant shall,
after that subdivision or combination, evidence the night to purchase the number
of shares of Common Stock that would have been issuable as a result of that
change with respect to the Shares which were purchasable under this Warrant
immediately before that subdivision or combination. If the Company shall at any
time subdivide the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that subdivision shall be proportionately decreased,
and, if the Company shall at any time combine the outstanding shares of Common
Stock, the Warrant Price then in effect immediately before that combination
shall be proportionately increased. Any adjustment under this Section shall
become effective at the time that such subdivision or combination becomes
effective.
4.2 Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a subdivision
or combination of shares provided for above), the Holder of this Warrant shall,
on its exercise, be entitled to purchase for the same aggregate consideration,
in lieu of the Common Stock which the Holder would have become entitled to
purchase but for such change, the number of shares of such other class or
classes of stock equivalent to the number of shares of Common Stock that would
have been subject to purchase by the Holder on exercise of this Warrant
immediately before that change.
4.3 Reorganizations, Mergers, Consolidations Or Sale Of Assets. If at
any time there shall be a capital reorganization of the Common Stock (other than
a combination, reclassification, exchange, or subdivision of shares provided for
elsewhere above) then, as a part of such reorganization, lawful provision shall
be made so that the Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified in this
Warrant and upon payment of the Warrant Price then in effect, the number of
shares of Common Stock or other securities or property of the Company to which a
holder of the Common Stock deliverable upon exercise of this Warrant would have
been entitled in such capital reorganization if this Warrant had been exercised
immediately before that capital reorganization. In any such case, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder of this Warrant after the
reorganization to the end that the provisions of this Warrant (including
adjustment of the Warrant Price then in effect and number of Shares purchasable
upon exercise of this Warrant) shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
-3-
<PAGE> 4
4.4 Common Stock Dividends, Distributions. In the event the Company
should at any time prior to the expiration of this Warrant fix a record date for
the determination of the holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as the "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or Common
Stock Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such distribution, split or subdivision if no record date is fixed), the Warrant
Price shall be appropriately decreased and the number of shares of Common Stock
issuable upon exercise of the Warrant shall be appropriately increased in
proportion to such increase of outstanding shares.
4.5 Adjustments of Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4.4, then, in each
such case for the purpose of this subsection 4.5, upon exercise of this Warrant
the Holder hereof shall be entitled to a proportionate share of any such
distribution as though such Holder was the holder of the number of shares of
Common Stock into which this Warrant may be exercised as of the record date
fixed for the determination of the holders of Common Stock entitled to receive
such distribution.
4.6 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the arrant Price pursuant to this Section 4, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based,
to be delivered to the Holder of this Warrant. The Company will, upon the
written request at any time of the Holder of this Warrant, furnish or cause to
be furnished to such older a certificate setting forth: (a) such adjustments and
readjustments; (b) the Warrant Price at he time in effect; and (c) the number of
shares of Common Stock issuable upon exercise of the arrant and the amount, if
any, of other property at the time receivable upon the exercise of the Warrant.
4.7 Reservation of Stock Issuable Upon Exercise. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the exercise of this Warrant
such number of shares of Common Stock as shall from time to time be sufficient
to effect the exercise of this Warrant and if at any time the number of
authorized but issued shares of Common Stock shall not be sufficient to effect
the exercise of this Warrant, in addition to such other remedies as shall be
available to the Holder of this Warrant, the Company will use its best efforts
to take such corporate action as may, in the opinion of its counsel, be
necessary to Increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
-4-
<PAGE> 5
5. RIGHTS PRIOR TO EXERCISE OF WARRANT
This Warrant does not entitle the Holder to any of the rights of a
stockholder of the Company. If, however, at any time prior to the expiration of
this Warrant and prior to its exercise, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities upon the
shares of Common Stock or make any distribution (other than a cash dividend) to
the holders of shares of Common Stock; (b) the Company shall offer to all of the
holders of shares of Common Stock any additional shares of Common Stock or
securities convertible into or exchangeable for shares of Common Stock or any
right to subscribe for or purchase any thereof, or (c) a dissolution,
liquidation or winding up of the Company (other than in connection with a
consolidation, merger, sale, transfer or lease of all or substantially all of
its property, assets, and business as an entirety) shall be proposed and action
by the Company with respect thereto has been approved by the Company's Board of
Directors (each, a "Material Action"), the Company shall give notice in writing
of such Material Action to the Holder at its last address as it shall appear on
the Company's records at least twenty (20) days' prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividends, distribution, or subscription
rights, or for the determination of stockholders entitled to vote on the
Material Action. Such notice shall specify such record date or the date of
closing the transfer books, as the case may be. Failure to publish, mail or
receive such notice or any defect therein or in the publication or mailing
thereof shall not affect the validity of the Material Action.
Each person in whose name any certificate for Shares is to be issued
shall for all purposes be deemed to have become the holder of record of such
Shares on the date on which this instrument was surrendered and payment of the
Warrant Price was made, irrespective of the date of delivery of such stock
certificate, except that, if the date of such surrender and payment is a date
when the stock transfer books of the Company are closed, such person shall be
deemed to have become the holder of such Shares at the close of business on the
next succeeding date on which the stock transfer books are open.
6. SUCCESSORS AND ASSIGNS; TRANSFEREES
The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and the holder thereof and their respective
successors and permitted assigns and other transferees. Any successor, assign or
other transferee of this Warrant, by its acceptance thereof, agrees to be bound
by the terms of this Warrant with the same force and effect as if a signatory
thereto.
7. RESTRICTED SECURITIES
In order to enable the Company to comply with the Securities Act and
applicable state laws, the Company may require the Holder as a condition of the
transfer or exercise of this Warrant, to give written assurance satisfactory to
the Company that the Warrant, or in the case of an exercise hereof the Shares
subject to this Warrant, are being acquired for his or her own account, for
investment only, with no view to the distribution of the same, and that any
disposition of all or any
-5-
<PAGE> 6
portion of this Warrant or the Shares issuable upon the due exercise of this
Warrant shall not be made, unless made in compliance with reg requirements of
the Act and applicable securities laws of any State or other jurisdiction.
Holder acknowledges that this Warrant is, and each of the shares of Common Stock
issuable upon the due exercise hereof will be, a restricted security, and that
the certificates evidencing securities issued to the Holder upon exercise of
this Warrant will bear a legend substantially similar to the legend set forth on
the front page of this Warrant.
8. LOSS OR MUTILATION
Upon receipt by the Company of satisfactory evidence of the ownership,
and the loss, theft, destruction, or mutilation, of any Warrant, arid (i) in the
case of loss, theft, or destruction, upon receipt by the Company of indemnity
satisfactory to it, or (ii) in the case of mutilation, upon receipt of such
Warrant and upon surrender and cancellation of such Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant representing the right to
purchase an equal number of shares of Common Stock.
9. NOTICES
All notices, requests, demands and other communications under this
Warrant shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the date of mailing if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepaid, and properly
addressed as follows: if to the Holder, at his address as shown in the Company
records; and if to the Company, at its New Mexico office, attention: Chief
Financial Officer. Any party may change its address for purposes of this Section
by giving the other party written notice of the new address in the manner set
forth above.
10. GOVERNING LAW
This Warrant and any dispute, disagreement or issue of construction of
interpretation arising hereunder whether relating to its execution, its
validity, the obligations provided herein or performance shall be governed or
interpreted according to the internal laws of the State of Delaware without
regard to conflicts of law.
DATED: , 1999
-------------------------- --------
MOBILITY ELECTRONICS, INC.
By:
--------------------------------
Charles R. Mollo,
Chief Executive Officer
-6-
<PAGE> 7
SUBSCRIPTION
MOBILITY ELECTRONICS, INC.
Attn: Chief Executive Officer
5528 Eubank Blvd., N.E.
Suite 3
Albuquerque, New Mexico 87111
Ladies and Gentlemen:
The undersigned, __________________________________, hereby elects to purchase,
pursuant to the provisions of the foregoing Warrant held by the undersigned,
___________ shares (the "Shares") of the common stock, par value $0.01 per share
(the "Common Stock"), of Mobility Electronics, Inc., a Delaware corporation.
Payment of the purchase price for the Shares being purchased, as required under
such Warrant, accompanies this subscription.
The undersigned hereby represents and warrants that the undersigned is acquiring
the Shares for the account of the undersigned and not for resale or with a view
to distribution of such Shares or any part hereof; that the undersigned is fully
aware of the transfer restrictions affecting restricted securities under the
pertinent securities laws; and the undersigned understands that the Shares
purchased hereby are restricted securities and that the certificate or
certificates evidencing the same will bear a legend to that effect.
DATED: .
-----------------------------
Signature:
-------------------------
Printed:
---------------------------
Address:
---------------------------
<PAGE> 1
EXHIBIT 4.25
MOBILITY ELECTRONICS, INC.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (the "Agreement") is made as of the 20th
day of April, 1999, by and among Mobility Electronics, Inc., a Delaware
corporation ("Mobility"), and the purchasers of Series C Preferred Stock listed
on Exhibit A attached hereto (the "Investors" or each an "Investor").
RECITALS
WHEREAS, the Company and the Investors have entered into a Series C
Preferred Stock Purchase Agreement, of even date herewith (the "Purchase
Agreement"), pursuant to which, among other things, the Company agreed to sell
to the Investors, and the Investors agreed to purchase from the Company, shares
of the Company's Series C Preferred Stock, par value $0.01 per share (the
"Series C Preferred Stock"); and
WHEREAS, a condition of the Investors' obligations under the Purchase
Agreement is that the Company and the Investors enter into this Agreement in
order to provide the Investors with (i) certain rights to register shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), upon
conversion of the Series C Preferred Stock held by the Investors, and (ii)
certain rights to receive or inspect information pertaining to the Company;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein , and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Registration Rights. The Company and the Investors covenant and agree as
follows:
1.1 Definitions. For purposes of this Section 1 and Section 2 below:
(a) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.11 hereof.
(b) The term "IPO" means a firm commitment underwritten public offering
by the Company of shares of Common Stock pursuant to a registration
statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as
amended (the "Act").
(c) The term "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended.
(d) The term "Public Company" means a corporation which has a class of
equity securities registered pursuant to Section 12 of the 1934 Act, or
which is required to file periodic reports pursuant to Section 15(d) of the
1934 Act.
<PAGE> 2
(e) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended
(the "Act"), and the declaration or ordering of effectiveness of such
registration statement or document.
(f) The term "Registrable Securities" means (i) the shares of Common
Stock issued or issuable upon the conversion of shares of Series C
Preferred Stock issued pursuant to the Purchase Agreement, and (ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the
shares referenced in (i) above, excluding in all cases, however, any
Registrable Securities (I) sold by a Holder in a transaction in which such
Holder's rights under this Section 1 are not assigned, or (II) registered
under the Act, the registration statement in connection therewith has been
declared effective, and such shares have been disposed by such Holder
pursuant to such registration statement; provided, however, that in either
case of (i) or (ii) above, any such securities shall cease to be
Registrable Securities if the registration rights granted hereunder are not
transferred in accordance with the provisions of Section 1.11 below.
(g) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock issued or
issuable upon conversion of the shares of Series C Preferred Stock issued
pursuant to the Purchase Agreement which are Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Demand Registration.
(a) From and after January 1, 2001, the Holders of at least 66 2/3% of
the then outstanding Registrable Securities may notify the Company in
writing that such Holders desire for the Company to cause all or a portion
of such notifying Holders' Registrable Securities to be registered for sale
to the public under the Act. Upon receipt of such written request, the
Company will promptly notify in writing all other Holders of Registrable
Securities of such request, which Holders shall within twenty days
following such notice from the Company notify the Company in writing
whether such persons desire to have Registrable Securities held by them
included in such offering. The Company will, promptly following the
expiration of such twenty day period, prepare and file subject to the
provisions of this Section 1, and use its best efforts to prosecute to
effectiveness, an appropriate filing with the SEC of a registration
statement covering such Registrable Securities and the proposed sale or
distribution thereof under the Act.
(b) Notwithstanding anything in this Section 1.2 to the contrary, the
Company shall not be obligated to prepare or file any registration
statement pursuant to this Section 1.2 or to prepare or file any amendment
or supplement thereto, at any time when the Company delivers a certificate
signed by the Company's Chief Executive Officer or Chairman of the Board
stating that in the good faith judgment of the Board of Directors of the
Company that
<PAGE> 3
the filing thereof at the time requested, or the offering of securities
pursuant thereto (i) would materially adversely affect a pending or
proposed public offering of the Company's securities, or an acquisition,
merger, recapitalization, consolidation, reorganization or similar
transaction, negotiations, discussions or pending proposals with respect
thereto or (ii) would materially adversely affect the business or prospects
of the Company in view of the disclosures that may be required thereby of
information about the business, assets, liabilities or operations of the
Company not theretofore disclosed; provided, however, that the filing of a
registration statement, or any supplement or amendment thereto, by the
Company may be deferred pursuant to this Section 1.2 for no longer than 180
days (but only once in every twelve month period) after the delivery of
such demand notice.
(c) Notwithstanding anything in this Section 1.2 to the contrary: (i)
the Company shall not be required to effect the registration of the
Registrable Securities pursuant to this Section 1.2 more than one time in
any twelve month period and no more than three times in the aggregate; and
(ii) the Company shall not be required to effect any such registration
unless at least $5 million of Registrable Securities are to be sold in such
registration (with such amount being determined based on the market price
of the Common Stock on the date of the initiating Holder(s) request). If
any registration pursuant to this Section 1.2 is in the form of an
underwritten offering, the Company will select and obtain the investment
banker or investment bankers and manager or managers that will administer
the offering, which investment bankers must offer terms which are
reasonably competitive in the marketplace for similar size companies and
similar offerings. The Company shall (together with all Holders proposing
to distribute Registrable Securities through such underwriting) enter into
an underwriting agreement, containing usual and customary terms, with the
managing underwriter selected for such underwriting. If any holder of
Registrable Securities disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company and
the managing underwriter. The Registrable Securities so withdrawn shall
also be withdrawn from registration.
(d) If any registration statement under this Section 1.2 is not
declared effective (except as a result of Holders withdrawing Registrable
Securities), then the holders of Registrable Securities may request an
additional registration under this Section 1.2.
(e) No registrations effected under this Section 1.2 shall relieve the
Company of its obligations to effect any registrations under, and pursuant
to the terms of, Sections 1.3 and 1.4 hereof.
<PAGE> 4
1.3 S-3 Registrations.
(a) Once the Company is eligible to effect a registration of its
securities under Form S-3 (or successor form), the Holders will have the
right to request and have effected (but only one registration per twelve
month period) registrations of Registrable Securities on Form S-3 as long
as the aggregate proposed offering price is not less $3 million for any
such registration. Upon written request of Holders holding at least $3
million of Registrable Securities, the Company will promptly notify in
writing all other Holders of Registrable Securities of such request, which
Holders shall within twenty days following such notice from the Company
notify the Company in writing whether such persons desire to have
Registrable Securities held by them included in such offering. Following
the expiration of such twenty day period, the Company will use all
reasonable efforts to cause the registration of all Registrable Securities
proposed to be included in the offering on Form S-3 or such successor form
to the extent so requested. Notwithstanding the above, the Company shall
not be required under this Section 1.3 to include any of the Holders'
Registrable Securities in any offering on Form S-3 which involves an
underwriting unless such Holders accept the terms of such underwriting as
agreed upon between the Company and the underwriters selected by it.
Registrations effected pursuant to this Section 1.3 shall not be counted as
requests for registration effected pursuant to Sections 1.2.
(b) Notwithstanding anything in this Section 1.3 to the contrary, the
Company shall not be obligated to prepare or file any registration
statement pursuant to this Section 1.3 or to prepare or file any amendment
or supplement thereto, at any time when the Company delivers a certificate
signed by the Company's Chief Executive Officer or Chairman of the Board
stating that in the good faith judgment of the Board of Directors of the
Company that the filing thereof at the time requested, or the offering of
securities pursuant thereto (i) would materially adversely affect a pending
or proposed public offering of the Company's securities, or an acquisition,
merger, recapitalization, consolidation, reorganization or similar
transaction, negotiations, discussions or pending proposals with respect
thereto or (ii) would materially adversely affect the business or prospects
of the Company in view of the disclosures that may be required thereby of
information about the business, assets, liabilities or operations of the
Company not theretofore disclosed; provided, however, that the filing of a
registration statement, or any supplement or amendment thereto, by the
Company may be deferred pursuant to this Section 1.3 for no longer than 180
days (but only once in every twelve month period) after the delivery of
such demand notice.
1.4 Piggyback Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any Common Stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than an initial public offering, registration
relating solely to the sale of securities to participants in a Company stock
option, stock purchase or similar employee benefit plan, a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities (including Form S-4 or any form substitution thereof) or
a registration in which the only Common Stock being registered is Common Stock
issuable upon
<PAGE> 5
conversion of debt securities which are also being registered or a SEC Rule 145
transaction), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty days after mailing of such notice by the Company, the Company
shall, subject to the provisions of Section 1.8, use all reasonable efforts to
cause to be registered under the Act and any applicable state securities laws
all of the Registrable Securities that each such Holder has requested to be
registered.
1.5 Obligations of the Company. Whenever under this Section 1 the Company
effects the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible,:
(a) Prepare and file with the SEC on any appropriate form a
registration statement with respect to the Registrable Securities proposed
to be registered and use its best efforts to cause such registration
statement to become effective, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty
(120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) Unless such registration is a firm commitment underwriting, prepare
and file with the SEC such amendments (including post-effective amendments)
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Act with
respect to the disposition of all Registrable Securities and other
securities covered by such registration statement for a period of 180 days.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or "blue sky" laws of such jurisdictions as the
underwriter or such sellers shall reasonably request and do any and all
other acts and things as may be reasonably necessary to consummate the
disposition in such jurisdictions of the Registrable Securities covered by
such registration statement, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in respect of doing business in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction.
<PAGE> 6
(e) Immediately notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Act, of the happening of any event as
a result of which the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing or if it is necessary, in the opinion of
counsel to the Company, to amend or supplement such prospectus to comply
with law, and at the request of any such seller prepare and to send such
seller a reasonable number of copies of a supplement to or any amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and
shall otherwise comply in all material respects with law and so that such
prospectus, as amended or supplemented, will comply with law.
(f) Otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, any make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering the period
of at least twelve (12) months, beginning with the first month of the first
fiscal quarter after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11 (a) of
the Act.
(g) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(h) Cause all such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange or automated trading system on
which similar securities issued by the Company are then listed.
(i) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of
such registration.
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
<PAGE> 7
1.7 Expenses of Registration. All expenses incurred in connection with
registrations, filings or qualifications pursuant to this Section 1 in
connection with one demand registration, all piggyback registrations and all S-3
registrations including, without limitation, all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and expenses of one counsel for
the selling Holders (as a group) (but excluding underwriter's commissions and
fees and any fees of others employed by a selling Holder) shall be borne by the
Company.
1.8 Underwriting Requirements; Cut-backs.
(a) In connection with any offering involving an underwriting of
shares of the Company's capital stock, the Company shall not be required to
include any Holders' Registrable Securities in such underwriting unless
they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled
to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not materially
jeopardize or in any way reduce the success of the offering by the Company
(with the securities being eliminated as provided in (b) below).
(b) The Company has previously granted "piggyback" registration rights
to certain of its securityholders (the "Other Holders"). Notwithstanding
anything in this Section 1 to the contrary, in the event of any request for
registration hereunder, the Company shall provide each Other Holder the
notice required with respect to their registration rights and will allow
such Other Holders to participate in any such registration to the extent of
such registration rights; it being acknowledged and agreed that if the
total amount of securities, including Registrable Securities, requested by
Holders and Other Holders to be included in such offering exceeds the
amount of securities that the underwriters determine in their sole
discretion is compatible with the success of the offering (excluding any
securities to be offered by the Company), then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters determine in their
sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders
and Other Holders according to the total amount of securities entitled to
be included therein owned by each selling Holder and Other Holder or in
such other proportions as shall mutually be agreed to by such selling
Holders and Other Holders).
1.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration by the
Company of any securities as a result of any controversy that might arise with
respect to the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any,
<PAGE> 8
who controls such Holder or underwriter within the meaning of the Act or
the 1934 Act against any losses, claims, damages, or liabilities, joint or
several) to which they may become subject under the Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) 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 (iii) any violation or
alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the, the 1934
Act or any state securities law; and, subject to subsection 1.10 (c) below,
the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Company (which
consent shall not be reasonably delayed or withheld), nor shall the Company
be liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any
such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, and any agent
of the Company, against any losses, claims, damages, or liabilities joint
or several) to which any of the foregoing persons may become subject, under
the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be reasonably withheld; provided, that, in no event shall any
indemnity under this subsection 1.10(b) exceed the net proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any
governmental action), such
<PAGE> 9
indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.10, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
receiving similar notice, to assume the defense thereof with counsel
reasonably satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified party which may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding; otherwise,
the indemnified party shall be responsible for the fees and expenses of its
counsel. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 1.10 with respect to such action, but not with respect to any other
action.
(d) Except as provided in the last sentence of subsection 1.10(c)
above, if the indemnification provided for in this Section 1.10 is held by
a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim,
damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense
as well as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities
pursuant to a registration statement under this Section 1.
1.11 Reports Under the 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act ("Rule 144") and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without
<PAGE> 10
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days after
the effective date of the IPO;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, promptly upon request (i) a written statement by the Company that it
has complied with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company), the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC that permits the selling of any such
securities without registration or pursuant to such form.
1.12 Assignment of Registration Rights. The registration rights of the
Holders under this Section 1 may be assigned (but only with all related
obligations) by a Holder to a transferee or assignee of such securities who
purchases from such Holder at least 10,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1. 13 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
1.13 Lock-up Agreement. Each Holder hereby agrees that if requested by the
Company or the underwriters in any underwritten offering, such Holder shall not,
for the period of not more than 180 days (as specified by the managing
underwriter) after the effective date of an IPO (or any other underwritten
public offering of shares of Common Stock, if requested by the managing
underwriter), without the prior written approval of the Company or such
underwriters (as the case may be), directly or indirectly, sell, offer to sell,
contract to sell (including without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any shares of Common
Stock underlying the Series C Preferred Stock legally or beneficially owned by
such Holder; provided, however, in the event of an initial public offering of
Common Stock, no request shall be necessary, with the consent of such Holder to
the above provisions in this Section 1.13 being hereby granted and accepted,
provided that if the managing underwriter in such initial public offering
requests that Holder execute and deliver a lock-up letter, Holder agrees to do
so, which lock-up letter shall be in such managing underwriter's customary form.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and
<PAGE> 11
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period. Notwithstanding the foregoing, the
provisions of this Section 1.13 shall only be applicable to the Holders if all
officers and directors and greater than two percent (2%) stockholders of the
Company enter into similar agreements.
1.14 Termination of Registration Rights. Notwithstanding anything in this
Section 1 to the contrary, no Holder shall be entitled to exercise any right
provided for in this Section 1: (i) at any time more than four (4) years
following the date of the Company's IPO or (ii) at such time as such Holder is
able to sell all of such Holder's Registrable Securities in a single three-month
period in compliance with Rule 144.
1.15 Limitations on Subsequent Registration Rights. From and after the date
of this Agreement and until Holder's registration rights terminate pursuant to
Section 1.14 above, the Company shall not, without the prior written consent of
the Holders of a majority of the Registerable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would grant to such holder or prospective holder registration rights which
are superior to those granted to the Holders hereunder (although pari passu
rights will be permissible).
2. Covenants of the Company
2.1 Delivery of Financial Statements. The Company shall deliver to each
Holder of a least 20,000 shares Registrable Securities (other than a Holder
reasonably deemed by the Company to be a competitor of the Company):
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash
flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by an independent public
accounting form of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited income statement, statement of cash flows
for such fiscal quarter and an unaudited balance sheet as of the end of
such fiscal quarter;
(c) within thirty (30) days of the end of each month, an unaudited
income statement and a statement of cash flows and balance sheet for and as
of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30) days prior to
the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets, income
statements and statements of cash flows for such months, and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
<PAGE> 12
(e) with respect to the financial statements called for in subsections
(b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer, Chief Executive Officer or President of the Company
certifying that such financials were prepared in accordance with GAAP
consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by GAAP) and fairly present the
financial condition of the Company and its results of operation for the
period specified, subject to year-end audit adjustment. provided that the
foregoing shall not restrict the right of the Company to change its
accounting principles consistent with GAAP, if the Board of Directors
determines that it is in the best interest of the Company to do so.
2.2 Inspection. The Company shall permit each Holder of at least 20,000
shares of Registrable Securities, except for a Holder reasonably deemed by the
Company to be a competitor of the Company, at such Holder's expense, to visit
and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by such Holder;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
2.3 Termination of Covenants. The covenants set forth in Section 2.1 and
Section 2.2 above shall terminate as to each Holder and be of no further force
or effect on the earlier of (a) immediately prior to the consummation of an IPO
or (b) when the Company first becomes subject to the periodic reporting
requirements of Sections 13 or 15(d) of the Exchange Act.
2.4 Subsequent Issuances of Preferred Stock. The Company shall not issue
any shares of Series A Preferred Stock or Series B Preferred Stock, or other
securities or rights convertible in Series A Preferred Stock or Series B
Preferred Stock, as the case may be.
3. Miscellaneous
3.1 Successors and Assigns. Except as otherwise provided in this Agreement,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective permitted successors and assigns of the parties
(including transferees of any Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Amendments and Waivers. Any term of this Agreement may be amended or
waived in writing and only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this Section shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities and the Company.
3.3 Notices. Unless otherwise provided, any notice required or permitted by
this
<PAGE> 13
Agreement shall be in writing and shall be deemed sufficient upon delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth below or on Exhibit A hereto, or as
subsequently modified by written notice.
3.4 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, the (a) such provision
shall be excluded from this Agreement, (b) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (c) the balance of the
Agreement shall be enforceable in accordance with its terms.
3.5 Governing Law. This Agreement and all acts and transactions pursuant
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Delaware, without giving effect to principles of conflicts of
laws.
3.6 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
3.7 Aggregation of Stock. All shares of Series C Preferred Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
3.8 Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, cost and necessary disbursements in addition to any
other relief to which such party may be entitled.
3.9 Entire Agreement. This Agreement (including the Exhibits hereto, if
any) constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.
3.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 14
The parties have executed this Investors' Rights Agreement as of the date
first above written.
COMPANY:
MOBILITY ELECTRONICS, INC.
By: /s/ Richard W. Winterich
-------------------------------------
Richard W. Winterich
Chief Financial Officer
Address: 15990 Greenway-Hayden
Suite 500
Scottsdale, Arizona 85260
<PAGE> 15
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The undersigned has executed this Investors' Rights Agreement as of the
date first written above.
VLSI TECHNOLOGY, INC.
By: /s/ Robert P. Dilworth
-------------------------------------
Name: Robert P. Dilworth
-----------------------------------
Title: Sr. Vice President
----------------------------------
Address: VLSI Technology, Inc.
--------------------------------
1109 McKay Drive
-------------------------------
San Jose, CA 95131
--------------------------------
<PAGE> 16
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The undersigned has executed this Investors' Rights Agreement as of the
date first written above.
SELIGMAN COMMUNICATIONS AND
INFORMATION FUND, INC.
BY: J. & W. SELIGMAN & CO. INCORPORATED,
ITS INVESTMENT ADVISOR
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address: 125 University Ave.
Palo Alto, CA 94301
(650) 470-2670
<PAGE> 17
EXHIBIT A
INVESTORS
<TABLE>
<CAPTION>
Name Address
- ---- -------
<S> <C>
VLSI Technology, Inc.
Seligman Communications and Information Fund, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 4.26
EXHIBIT E
REGISTRATION RIGHTS
1. Registration Rights. Mobility Electronics, Inc., a Delaware corporation (the
"Company"), covenants and agrees with you as follows:
1.1 Definitions. For purposes of this Exhibit E:
The term "Act" means the Securities Act of 1933, as amended.
The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.11 hereof.
The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
The term "Public Company" means a corporation which has a
class of equity securities registered pursuant to Section 12 of the
1934 Act, or which is required to file periodic reports pursuant to
Section 15(d) of the 1934 Act.
The term "register," "registered," and "registration" refer to
a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement
or document.
The term "Registrable Securities" means (i) the shares of
Common Stock issued or issuable upon the conversion of the Series D
Stock and (ii) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of the shares referenced in (i) above,
excluding in all cases, however, any Registrable Securities (I) sold by
a person in a transaction in which his rights under this Section 1 are
not assigned (II) registered under the Act, the registration statement
in connection therewith has been declared effective, and such shares
have been disposed by such holder pursuant to such registration
statement; provided, however, that in either case of (i) or (ii) above,
any such securities shall cease to be Registrable Securities if the
registration rights granted hereunder are not transferred in accordance
with the provisions of Section 1.11 below.
The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common
Stock issued or issuable upon conversion of the Series D Stock.
The term "SEC" shall mean the Securities and Exchange
Commission.
The term "Series D Stock" means the Series D Preferred Stock,
par value $0.01 per share, of the Company.
All other capitalized terms used herein which are not defined
herein shall have the meaning given elsewhere in this Agreement.
1.2 Demand Registration.
(a) From and after March 1, 2001, the Holders of at least 66
2/3% of the then outstanding Registrable Securities may notify the
Company in writing that such Holders desire for the Company to cause
all or a portion of such notifying Holders' Registrable Securities to
be registered for sale to the public under the Act. Upon receipt of
such written request, the Company will promptly notify in writing all
other Holders of Registrable Securities of such request, which Holders
shall within twenty days following such notice from the Company, notify
the Company in writing whether such persons desire to have Registrable
Securities held by them included in such offering. The Company will,
promptly following the expiration of
A-1
<PAGE> 2
such twenty day period, prepare and file subject to the provisions of
this Section 1, and use its best efforts to prosecute to effectiveness,
an appropriate filing with the SEC of a registration statement covering
such Registrable Securities and the proposed sale or distribution
thereof under the Act.
(b) Notwithstanding anything in this Section 1.2 to the
contrary, the Company shall not be obligated to prepare or file any
registration statement pursuant to this Section 1.2, or to prepare or
file any amendment or supplement thereto, at any time when the Company,
in the good faith judgment of its Board of Directors, reasonably
believes that the filing thereof at the time requested, or the offering
of securities pursuant thereto, (i) would materially adversely affect a
pending or proposed public offering of the Company's securities, or an
acquisition, merger, recapitalization, consolidation, reorganization or
similar transaction, negotiations, discussions or pending proposals
with respect thereto or (ii) would materially adversely affect the
business or prospects of the Company in view of the disclosures that
may be required thereby of information about the business, assets,
liabilities or operations of the Company not theretofore disclosed;
provided, however, that the filing of a registration statement, or any
supplement or amendment thereto, by the Company may be deferred
pursuant to this Section 1.2 for no longer than 180 days (but only once
in every twelve month period) after the delivery of such demand notice.
(c) Notwithstanding anything in this Section 1.2 to the
contrary: (i) the Company shall not be required to effect the
registration of the Registrable Securities pursuant to this Section 1.2
more than one time; and (ii) the Company shall not be required to
effect any such registration unless at least $5 million of Registrable
Securities are to be sold in such registration (with such amount being
determined based on the market price of the Common Stock on the date of
the initiating Holder(s) request). If any registration pursuant to this
Section 1.2 is in the form of an underwritten offering, the Company
will select and obtain the investment banker or investment bankers and
manager or managers that will administer the offering, which investment
bankers must offer terms which are reasonably competitive in the
marketplace for similar size companies and similar offerings. The
Company shall (together with all Holders proposing to distribute
Registrable Securities through such underwriting) enter into an
underwriting agreement, containing usual and customary terms, with the
managing underwriter selected for such underwriting. If any holder of
Registrable Securities disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
(d) If any registration statement under this Section 1.2 is
not declared effective (except for the reasons specified in Section 1.9
below and except as a result of Holders withdrawing Registrable
Securities), then the holders of Registrable Securities may request an
additional registration under this Section 1.2.
(e) No registrations effected under this Section 1.2 shall
relieve the Company of its obligations to effect any registrations
under, and pursuant to the terms of, Sections 1.3 and 1.4 hereof.
1.3 S-3 Registrations.
(a) Once the Company is eligible to effect a registration of
its securities under Form S-3 (or successor form), the Holders will
have the right to request and have effected (but only one registration
per twelve month period) registrations of Registrable Securities on
Form S-3 as long as the aggregate proposed offering price is not less
$3 million for any such registration. Upon written request of Holders
holding at least $3 million of Registrable Securities, the Company will
promptly notify in writing all other Holders of Registrable Securities
of such request, which Holders shall within twenty days following such
notice from the Company, notify the Company in writing whether such
persons desire to have Registrable Securities held by them included in
such offering. Following the expiration of such twenty day period, the
Company will use all reasonable efforts to cause the registration of
all Registrable Securities proposed to be included in the offering on
Form S-3 or such successor form to the extent so requested.
Notwithstanding the above, the Company shall not be required under this
Section 1.3 to include any of the Holders' Registrable Securities in
any offering on Form S-3 which involves an underwriting unless such
Holders accept the terms of such underwriting as agreed upon between
the Company and the underwriters selected by it.
A-2
<PAGE> 3
(b) Notwithstanding anything in this Section 1.3 to the
contrary, the Company shall not be obligated to prepare or file any
registration statement pursuant to this Section 1.3 or to prepare or
file any amendment or supplement thereto, at any time when the Company,
in the good faith judgment of its Board of Directors, reasonably
believes that the filing thereof at the time requested, or the offering
of securities pursuant thereto, (i) would materially adversely affect a
pending or proposed public offering of the Company's securities, or an
acquisition, merger, recapitalization, consolidation, reorganization or
similar transaction, negotiations, discussions or pending proposals
with respect thereto or (ii) would materially adversely affect the
business or prospects of the Company in view of the disclosures that
may be required thereby of information about the business, assets,
liabilities or operations of the Company not theretofore disclosed;
provided, however, that the filing of a registration statement, or any
supplement or amendment thereto, by the Company may be deferred
pursuant to this Section 1.3 for no longer than 180 days (but only once
in every twelve month period) after the delivery of such demand notice.
1.4 Piggyback Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
Common Stock or other securities under the Act in connection with the public
offering of such securities solely for cash (other than an initial public
offering, registration relating solely to the sale of securities to participants
in a Company stock option, stock purchase or similar employee benefit plan, a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities (including Form S-4 or any form
substitution thereof) or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered or a SEC Rule 145 transaction), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty days after mailing of such
notice by the Company, the Company shall, subject to the provisions of Section
1.8, use all reasonable efforts to cause to be registered under the Act and any
applicable state securities laws all of the Registrable Securities that each
such Holder has requested to be registered.
1.5 Obligations of the Company. Whenever under this Section 1 the
Company effects the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC on any appropriate form a
registration statement with respect to the Registrable Securities
proposed to be registered and use its best efforts to cause such
registration statement to become effective;
(b) Unless such registration is a firm commitment
underwriting, prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Act with respect to the disposition of all
Registrable Securities and other securities covered by such
registration statement for a period of 180 days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or "blue sky" laws
of such jurisdictions as the underwriter or such sellers (not to exceed
ten jurisdictions) shall reasonably request and do any and all other
acts and things as may be reasonably necessary to consummate the
disposition in such jurisdictions of the Registrable Securities covered
by such registration statement, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified,
or to subject itself to taxation in respect of doing business in any
such jurisdiction, or to consent to general service of process in any
such jurisdiction.
(e) Immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in
such registration statement, as then
A-3
<PAGE> 4
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing or if it is necessary, in the opinion of
counsel to the Company, to amend or supplement such prospectus to
comply with law, and at the request of any such seller prepare and
deliver to such seller a reasonable number of copies of a supplement to
or any amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing and shall otherwise comply in all
material respects with law and so that such prospectus, as amended or
supplemented, will comply with law.
(f) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, any make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve (12) months, beginning
with the first month of the first fiscal quarter after the effective
date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11 (a) of the Act.
(g) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(h) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of
any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(i) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or automated trading
system on which similar securities issued by the Company are then
listed.
(j) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective
date of such registration.
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.7 Expenses of Registration. All expenses incurred in connection with
registrations, filings or qualifications pursuant to this Section 1, in
connection with one demand registration, all piggyback registrations and all S-3
registrations including, without limitation, all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company (but excluding underwriter's commissions and fees and
any fees of others employed by a selling Holder) shall be borne by the Company.
1.8 Underwriting Requirements; Cut-backs.
(a) In connection with any offering involving an underwriting
of shares of the Company's capital stock, the Company shall not be
required to include any Holders' Registrable Securities in such
underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in
A-4
<PAGE> 5
such quantity as the underwriters determine in their sole discretion
will not materially jeopardize or in any way reduce the success of the
offering by the Company.
(b) The Company has previously granted "piggyback"
registration rights to certain of its security holders (the "Other
Holders"). Notwithstanding any thing in this Section 1 to the contrary,
in the event of any request for registration hereunder, the Company
shall provide each Other Holder the notice required with respect to
their registration rights and will allow such Other Holders to
participate in any such registration to the extent of such registration
rights; it being acknowledged and agreed that if the total amount of
securities, including Registrable Securities, requested by security
holders to be included in such offering exceeds the amount of
securities that the underwriters determine in their sole discretion is
compatible with the success of the offering (excluding any securities
to be offered by the Company), then the Company shall be required to
include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling
security holders (including Holders) according to the total amount of
securities entitled to be included therein owned by each selling
shareholder (including Holders) or in such other proportions as shall
mutually be agreed to by such selling shareholders (including
Holders)).
1.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the 1934 Act against any
losses, claims, damages, or liabilities, joint or several) to which
they may become subject under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company of the Act, the
1934 Act, any state securities law or any rule or regulation
promulgated under the 1934 Act or any state securities law; and,
subject to subsection 1.10(c) below, the Company will pay to each such
Holder, underwriter or controlling person, as incurred, any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in
this subsection 1.10(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which
consent shall not be reasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, and any agent of the Company, against any losses, claims,
damages, or liabilities joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection
A-5
<PAGE> 6
with such registration; and each such Holder will pay, as incurred, any
legal or other expenses reasonably incurred by any person intended to
be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in
this subsection 1.10(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement
is effected without the consent of the Holder, which consent shall not
be reasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.10(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 1.10, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party receiving similar notice, to
assume the defense thereof with counsel reasonably satisfactory to the
parties; provided, however, that an indemnified party (together with
all other indemnified party which may be represented without conflict
by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding; otherwise, the
indemnified party shall be responsible for the fees and expenses of its
counsel. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 1.10.
(d) Except as provided in the last sentence of subsection
1.10(c) above, if the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage,
or expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability,
claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of
Registrable Securities pursuant to a registration statement under this
Section 1.
1.11 Assignment of Registration Rights. The registration rights of the
Holders under this Section 1 may be assigned (but only with all related
obligations) by a Holder to a transferee or assignee of such securities who
purchases from such Holder at least 10,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is promptly
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
document, including without limitation the provisions of Section 1.12 below; and
(c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
A-6
<PAGE> 7
1.12 Lock-up Agreement. Each Holder hereby agrees that if requested by
the Company or the underwriters in any underwritten offering, such Holder shall
not, for the period of 180 days after the effective date of an underwritten
public offering of shares of Common Stock, without the prior written approval of
the Company or such underwriters (as the case may be), directly or indirectly,
sell, offer to sell, contract to sell (including without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of any
shares of Common Stock legally or beneficially owned by such Holder; provided,
however, in the event of an initial public offering of Common Stock, no request
shall be necessary, with the consent of such Holder to the above provisions in
this Section 1.12 being hereby granted and accepted, provided that if the
managing underwriter in such initial public offering requests that Holder
execute and deliver a lock-up letter, Holder agrees to do so, which lock-up
letter shall be in such managing underwriter's customary form. In order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
1.13 Termination of Registration Rights. Notwithstanding anything in
this Section 1 to the contrary, no Holder shall be entitled to exercise any
right provided for in this Section 1: (i) at any time more than four (4) years
following the date after the Company becomes a Public Company or (ii) at such
time as such Holder is able to sell all of such Holder's Registrable Securities
in a single three-month period in compliance with Rule 144.
1.14 Amendments and Waivers. Any term or provision of the registration
rights stated in this Section 1 may be amended and the observance of any term of
such rights may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of the
Company and the holders of at least a majority of the Registrable Securities
then outstanding. Any amendment or waiver effected in accordance with this
Section 1.14 shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of any Registrable Securities, and the
Company.
A-7
<PAGE> 1
OFFICE LEASE
by and between
SUN LIFE ASSURANCE COMPANY OF CANADA
a Canadian corporation
"Landlord"
and
ELECTRONIC ACCESSORY SPECIALISTS
INTERNATIONAL, INC.
a Delaware corporation
doing business as
MOBILITY ELECTRONICS
"Tenant"
July 3, 1998
Scottsdale Executive Office Center
16100 North Greenway-Hayden Loop
Scottsdale, Arizona 85260
<PAGE> 2
OFFICE LEASE
1. BASIC PROVISIONS
1.1 Date: July 3, 1998
1.2 Landlord: SUN LIFE ASSURANCE COMPANY OF CANADA,
a Canadian corporation
1.3 Landlord's Address: c/o Trammell Crow Company
3800 North Central Avenue, Suite 900
Phoenix, Arizona 85012
1.4 Tenant: ELECTRONIC ACCESSORY SPECIALISTS
INTERNATIONAL, INC., a Delaware corporation,
doing business as MOBILITY ELECTRONICS
1.5 Tenant's Address
(a) Prior to Commencement Date: c/o B-H Enterprises of Arizona, Inc.
7950 East Redfield Road
Suite 280
Scottsdale, Arizona 85260
Attn: Mr. Randy Shell
(b) Subsequent to Commencement Date: 16100 North Greenway-Hayden Loop
Suite 500
Scottsdale, Arizona 85260
1.6 Property: The parcel of real estate located in Scottsdale, Maricopa
County, Arizona, depicted on the Site Plan attached hereto as Exhibit
"A" and legally described on Exhibit "B" attached hereto and
incorporated herein by this reference, together with the office
buildings now or hereafter situated thereon, the landscaping, parking
facilities and all other improvements and appurtenances thereto.
1.7 Building: That certain office building known as Scottsdale Executive
Office Center, located at 16100 North Greenway-Hayden Loop Road,
Scottsdale, Maricopa County, Arizona 85260, and situated on the
Property.
1.8 Leased Premises: Approximately 5,047 rentable square feet of office
space commonly known as Suite 500, as outlined on the Floor Plan
attached hereto as Exhibit "C".
1.9 Permitted Use: General business office purposes; not including storage,
machine, computer or vehicle repair or refurbishing, telemarketing,
credit or loan processing, or multi-level marketing.
1.10 Lease Term: Four (4) years after the date of substantial completion of
the Tenant Improvements (as defined and determined in accordance with
the Work Letter attached as Exhibit "H" hereto).
1.11 Scheduled Commencement Date and Expiration Date: The Commencement Date
shall be date of substantial completion of the Tenant Improvements to
the Leased Premises and shall expire on that date that is the last day
of the fourth (4th) year after such substantial completion of the
Tenant Improvements. Landlord, however, shall permit Tenant to occupy
the portion of the Leased Premises as depicted on Exhibit "C"
comprising approximately 2,500 rentable square feet ("Early Occupancy
Space") prior to the completion of the Tenant Improvements, but subject
to all of the terms and conditions of this Lease including, without
limitation, the obligation to pay Annual Basic Rent and obtain the
insurance required in Article 9 below.
1.12 Annual Basic Rent: For and during the initial twenty-four (24) months
of the Lease Term, Annual Basic Rent shall be $73,181.50 per annum,
plus tax, and $6,098.46 per month, plus tax, based upon a rental rate
of $14.50 per rentable square foot; provided, however, that for and
during the period in which Tenant occupies the Early Occupancy Space to
and including the date of substantial completion of the Tenant
Improvements to the Leased Premises, Tenant's monthly installments of
Annual Basic Rent shall be $3,020.83, per month, plus tax, based upon
the $14.50 per rentable square foot rate. Tenant shall pay a prorated
amount of the monthly installments of Annual Basic Rent for
1-
<PAGE> 3
any partial month of the Lease Term. For and during the period
commencing on the first (1st) day of the twenty-fifth (25th) month of
the Lease Term and continuing through and including the Expiration
Date, Annual Basic Rent shall be $75,705.00 per annum plus tax, and
$6,308.75 per month, plus tax, based upon a rental rate of $15.00 per
rentable square foot.
1.13 Security Deposit: $6,308.75.
1.14 Building Hours: 7:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00
a.m. to 12:00 p.m. on Saturday excluding recognized federal, state or
local holidays, or as otherwise requested by Tenant and reasonably
approved by Landlord.
1.15 Parking Spaces: Five (5) reserved, covered parking spaces, and one (1)
additional reserved, covered parking space (the "Additional Space")
subject to availability and offered on a first come, first served
basis, all subject to the terms and conditions of Exhibit "E" attached
hereto.
1.16 Parking Charge: $25.00, plus tax, per each of the five (5)
reserved/covered parking spaces and the market rate from time to time
established by Landlord for the Additional Space.
1.17 Guarantors: N/A
1.18 Brokers: Trammell Crow Company (Landlord) and B-H Enterprises of
Arizona, Ltd. (Tenant)
1.19 Exhibits:
A = Site Plan
B = Legal Description of the Property
C = Floor Plan
D = Memorandum of Commencement Date
E = Reserved Covered Parking License
F = Reserved
G = Reserved
H = Work Letter
I = Building Rules and Regulations
1.20 Riders: 1= Additional Security Deposit
2. LEASED PREMISES: ADJUSTMENTS
2.1 Leased Premises. Landlord hereby leases to Tenant, and Tenant hereby
leases and accepts from Landlord, the Leased Premises, upon the terms
and conditions set forth in this Lease and any modifications,
supplements or addenda hereto (the "Lease"), including the Basic
Provisions of Article 1 which are incorporated herein by this
reference, together with the nonexclusive right to use, in common with
Landlord and others, the Building Common Areas (defined below). For the
purposes of this Lease, the term "Building Common Areas" means common
hallways, corridors, walkways and footpaths, foyers and lobbies,
bathrooms and janitorial closets, electrical and telephone closets,
landscaped areas, and such other areas within or adjacent to the
Building which are subject to or are designed intended solely for the
common enjoyment, use and/or benefits of the tenants of the Building.
2.2 Adjustments. The Annual Basic Rent at the Commencement date (as
hereinafter defined) is based on the Leased Premises containing the
rentable square footage set forth in Article 1.8 above. If the actual
rentable square footage of the Leased Premises is hereafter calculated
to be more or less than the square footage set forth in Article 1.8
above (to be computed, at Landlord's sole option, after completion of
the Leased Premises, by an architect designated by Landlord and
licensed to practice in the State of Arizona), the Annual Basic Rent
shall be increased or decreased in accordance with the rental rate set
forth in Article 1.12 above. All references to "rentable" or "useable"
square feet, footage or area, shall be deemed measured, as the case may
be, in accordance with American National Standard Z65. 1-1996, as
published by BOMA International. For the purpose of this Lease,
Landlord and Tenant agree that the RU ratio shall be 1.10.
2-
<PAGE> 4
3. LEASE TERM: COMMENCEMENT DATE
3.1 Lease Term. The Lease Term shall begin on the Commencement Date and
shall be for the period set forth in Article 1.10 above, plus any
period of less than one (1) month between the Commencement Date and the
first day of the next succeeding calendar month, unless sooner
terminated in accordance with the further provisions of this Lease.
3.2 Commencement Date. The Commencement Date shall mean the date of
substantial completion of the Tenant Improvements to the Leased
Promises.
3.3 Memorandum of Commencement Dale. Landlord and Tenant shall, within ten
(10) days after the Commencement Date, execute a declaration in the
form of Exhibit "D" attached hereto specifying the Commencement Date
should the Commencement Date be a date other than the Scheduled
Commencement Date.
3.4 Delay in Commencement Date. In the event Landlord shall be unable, for
any reason, to deliver possession of the Leased Premises to Tenant on
the Scheduled Commencement Date, Landlord shall not be liable for any
loss or damage occasioned thereby, nor shall such inability affect the
validity of this Lease or the obligations of Tenant. In such event,
Tenant shall not be obligated to pay Annual Basic Rent or Additional
Rent until the Commencement Date. In the event Landlord shall not have
delivered possession of the Leased Premises to Tenant within ninety
(90) days after the Scheduled Commencement Date, and if such failure to
deliver possession was (a) caused solely by the fault or neglect of
Landlord, and its contractors or agents (b) not caused by any fault or
neglect of Tenant or due to additional time required to plan for and
install other work for Tenant beyond the amount of time which would
have been required if only building standard Improvements had been
installed, then, as its sole and exclusive remedy for Landlord's
failure to deliver possession of the Leased Premises in a timely
manner, Tenant shall have the right to terminate this Lease by
delivering written notice of termination to Landlord at any time within
thirty (30) days after the expiration of such ninety (90) day period.
Such termination shall be effective upon delivery to Landlord of
Tenant's written notice of termination. Tenant's failure to deliver the
termination notice within such thirty (30) day period shall
conclusively be deemed to be Tenant's election not to terminate this
Lease and this Lease shall continue in full force and effect, subject
to the additional terms of this Article 3.4. In addition, if the
Commencement Date does not occur within twelve (12) months after the
Date of this Lease as set forth in Article 1.1 other than as a result
of the breach or default by Landlord, Landlord may elect, by delivering
written notice to Tenant, to terminate this Lease, which termination
shall be effective upon delivery of written notice of such termination
by Landlord to Tenant. Upon a termination of this Lease pursuant to the
provisions of this Article 3.4 the parties shall have no further
obligations or liabilities to the other and Landlord shall promptly
return any monies previously deposited or paid by Tenant.
4. SECURITY DEPOSIT
Tenant shall pay to Landlord, upon the execution of this Lease, the
Security Deposit set forth in Article 1.13 as above as security for the
performance by Tenant of its obligations under this Lease which amount
shall be returned to Tenant after the expiration or earlier termination
of this Lease provided that Tenant shall have fully performed all of
its obligations contained in this Lease. The Security Deposit, at the
election of Landlord, may be retained by Landlord as and for its full
damages or may be applied in reduction of any loss and/or damage
sustained by Landlord by reason of the occurrence of any breach,
nonperformance or default by Tenant under this Lease without the waiver
of any other right or remedy available to Landlord at law, in equity or
under the terms of this Lease. If any portion of tile Security Deposit
is so used or applied, tenant shall, within five (5) days after written
notice from Landlord, deposit with Landlord immediately available funds
in an amount sufficient to restore the Security Deposit to its original
amount, and Tenant's failure to do so shall be a breach of this Lease.
Tenant acknowledges and agrees that in the event Tenant shall file a
voluntary petition pursuant to the Bankruptcy Code or any successor
thereto (unless the same is dismissed within sixty (60) days
thereafter, or if an involuntary petition is filed against Tenant
pursuant to the Bankruptcy Code or any successor thereto, then Landlord
may apply the Security Deposit towards those obligations of Tenant to
Landlord which accrued prior to the filing of such petition. Tenant
acknowledges further that the Security Deposit may be commingled with
Landlord's other funds and that Landlord shall be entitled to retain
any interest earnings thereon. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer the Security
Deposit to Landlord's successor
3-
<PAGE> 5
in interest, whereupon Landlord shall be released from liability by
Tenant for the return of such deposit or the accounting therefore.
5. RENT: RENT TAX: ADDITIONAL RENT
5.1 Payment of Rent. Tenant shall pay to Landlord the Annual Basic Rent set
forth in Article 1.12 above, subject to adjustment as provided herein.
The Annual Basic Rent shall be paid in equal monthly installments, on
or before the first day of each anti every calendar month, during the
Lease Term, in advance, without notice or demand and without abatement,
deduction or set-off. If the Commencement Date is other than the first
day of a calendar month, the payment for the partial month following
the Commencement Date shall be prorated and shall be payable on the
first day of the first full calendar month of the Lease Term. The
Annual Basic Rent for the first full month of the Lease Term shall be
paid upon the execution of this Lease. All payments requiring proration
including Additional Rent (as set forth in Article 5.3) shall be
prorated on the basis of the actual number of days in each calendar
month. In addition, all payments to be made under this Lease shall be
paid in lawful money of the United States of America to Landlord or its
agent at the address set forth in Article 1.3 above, or to such other
person or at such other place as Landlord may from time to time
designate in writing.
5.2 Rent Tax. In addition to the Annual Basic Rent and Additional Rent,
Tenant shall pay to Landlord, together with the monthly installments of
Annual Basic Rent and payments of Additional Rent, an amount equal to
any governmental taxes, including, without limitation, any sales,
rental, occupancy, excise, use or transactional privilege taxes
assessed or levied upon Landlord with respect to the amounts paid by
Tenant to Landlord hereunder, as well as all taxes assessed or imposed
upon Landlord's gross receipts or gross income from leasing the Leased
Premises to Tenant, including, without limitation, transaction
privilege taxes, education excise taxes, any tax now or hereafter
imposed by the City of Scottsdale, the State of Arizona, any other
governmental body, and any taxes assessed or imposed in lieu of or in
substitution of any of the foregoing taxes. Such taxes shall not,
however, include any franchise, gift, estate, inheritance, conveyance,
transfer or net income tax assessed against Landlord.
5.3 Additional Rent. In addition to Annual Basic Rent, all other amounts to
be paid, by Tenant to Landlord pursuant to this Lease (including
amounts to be paid by Tenant pursuant to Article 6 below and parking
charges to be paid by Tenant pursuant to Exhibit "E"), if any, shall be
deemed to be Additional Rent, whether or not designated as such, and
shall be due and payable within five (5) days after receipt by Tenant
of Landlord's statement or together with the next succeeding
installment of Annual Basic Rent, whichever shall first occur. Landlord
shall have the same remedies for the failure to pay Additional Rent as
for the nonpayment of Annual Basic Rent.
6. OPERATING COSTS
6.1 Tenant's Obligation. The annual Basic Rent does not include amounts
attributable to any Taxes (defined below) or amounts attributable to
the cost of the use, management, repair service, insurance, condition,
operation and maintenance of the Building and the Property. Therefore,
in order that the Annual Basic Rent payable throughout the Lease Term
shall reflect any such amounts, Tenant shall pay to Landlord, in
accordance with the further provisions of this Article 6 an amount per
rentable square foot of the Leased Premises equal to the Operating
Costs (as hereinafter defined) per rentable square foot.
6.2 Landlord's Estimate. Landlord shall furnish Tenant an estimate of the
Operating Costs per rentable square foot for each calendar year
commencing with the Commencement Date. In addition, Landlord may, from
time to time, but in no event more than twice in a calendar year
furnish Tenant a revised estimate of Operating Costs should Landlord
anticipate any increase in Operating Costs from that set forth in a
prior estimate. Commencing with the first month to which an estimate
applies, Tenant shall pay, in addition to the monthly installments of
Annual Basic Rent, an amount equal to one-twelfth (1/12th) of the
product of the rentable square footage of the Leased Premises
multiplied by the Operating Costs per square foot, however, if less
than ninety-five percent (95%) of the rentable area of the Building
shall be occupied by tenants during the period covered by such
estimate, the estimated Operating Costs for such period shall be, for
the purposes of this Article 6 increased to an amount reasonably
determined by Landlord to be equivalent to the Operating Costs that
would be incurred if occupancy would be at least ninety-five percent
(95%) during the entire period. Within one hundred twenty (120) days
after the expiration of each calendar year or such longer period of
4-
<PAGE> 6
time as may be necessary to compile such statement, Landlord shall
deliver to Tenant a statement of the actual Operating Costs for such
calendar year showing the method of calculating Tenant's proportionate
share. If the actual Operating Costs for such calendar year are more or
less than the estimated Operating Costs, a proper adjustment shall be
made; provided, however, if less than ninety-five percent (95%) of tile
rentable area of the Building shall have been occupied by tenants at
any time during such period, the actual Operating Costs for such period
shall be, for the purposes of this Article 6, increased to an amount
reasonably determined by Landlord to be equivalent to the Operating
Costs that would have been incurred had such occupancy been at least
ninety-five (95%) during the entire period. Any excess amounts paid by
Tenant shall be refunded to Tenant with such statement or, at
Landlord's option, may be applied to any amounts then payable by Tenant
to Landlord or to the next maturing monthly installment of Annual Basic
Rent or Additional Rent. Any deficiency between the estimated and
actual Operating Costs shall be paid by Tenant to Landlord concurrently
with the monthly installment of Annual Basic Rent next due. Any amount
owing for a fractional calendar year in the first or final year of the
Lease Term shall be prorated.
6.3 Operating Costs - Defined. For the purposes of this Lease, "Operating
Costs" shall mean all costs and expenses accrued, paid or incurred by
Landlord, or on Landlord's behalf, in respect of the use, management,
repair, service, insurance, condition, operation and maintenance of the
Building and the Property, including but not limited to the following:
(a) Salaries, wages and benefits of all persons who perform duties
in connection with landscaping, parking, janitorial and general
cleaning services, reasonable security services and any and all other
employees engaged by or on behalf of Landlord;
(b) Payroll taxes, workmen's compensation, uniforms and related
expenses for such employees;
(c) The cost of all charges for oil, gas, steam, electricity, any
alternate source of energy, heat, ventilation, air-conditioning,
refrigeration, water, sewer service, trash collection, pest control and
all other utilities, together with any taxes on such utilities;
(d) The cost of painting non-tenant space, including the Building
Common Areas and the cost for replacement of (i) exterior perimeter
window draperies or blinds provided by Landlord, and (ii) carpeting and
wall coverings in the Building Common Areas;
(e) The cost of all charges for rent, casualty, liability,
fidelity and other insurance maintained by Landlord, including any
deductible amounts incurred with respect to an insured loss;
(f) The cost of all supplies (including cleaning supplies), tools,
materials, equipment and personal property, the rental thereof and
sales, transaction privilege, excise and other taxes thereon;
(g) Depreciation of hand tools and other moveable equipment;
(h) The cost of all charges for window and other cleaning,
janitorial, security, refuse, lot sweeping and pest control services;
(i) The cost of charges for independent contractors;
(j) The cost of repairs and replacements made by Landlord at its
expense and the fees and other charges for maintenance and service
agreements;
(k) The cost of exterior and interior landscaping;
(1) Costs relating to the operation and maintenance of all real
property and improvements appurtenant to the Property, including,
without limitation, all parking areas, service areas, walkways and
landscaping;
(m) The cost of alterations and improvements made by reason of the
laws and requirements of any public authorities or the requirements of
insurance bodies;
(n) All management fees and other charges for management services
and overhead costs (including travel and related expenses), whether
provided by an independent management company,
5-
<PAGE> 7
Landlord or an affiliate of Landlord, not to exceed fifteen percent
(15%) of the total scheduled Annual Basic Rent received or to be
received from all leaseable space at the Property;
(o) The cost of any capital improvements or additions which
improve the comfort or amenities available to tenants of the Building,
provided, however, that any such costs shall be amortized with interest
over the useful life of the improvement or addition;
(p) The cost of any capital improvements or additions which are
intended to enhance the safety of the Property or reduce (or avoid
increases in) Operating Costs, provided, however, that any such costs
shall be amortized with interest over the useful life of the
improvement or addition;
(q) The cost of licenses and permits, inspection fees necessary to
manage and operate the Property and reasonable legal, accounting and
other professional fees and expenses;
(r) Taxes (as hereinafter defined);
(s) Costs relating to the use, management, repair, service,
insurance, condition, operation and maintenance of the Building Common
Areas;
(t) Costs of monitoring and maintaining good internal air quality
in the Building and regularly inspecting, monitoring, maintaining and
repairing the Building's air quality systems, hiring outside
consultants to investigate and identify the sources of any suspected
internal air quality problems that may be identified, remedying any
such problems, modifying, renovating or encapsulating any portion of
the Building, or systems or components thereof reasonably required in
order to continuously and efficiently maintain reasonably acceptable
internal air quality in the Building and comply with any and all local,
state and federal regulations, or real estate industry standards
relating to internal air quality;
(u) Costs of operating and maintaining an on-site property
management office; and
(v) All other charges properly allocable to the use, management,
repair, service, insurance, condition, operation and maintenance of the
Property in accordance with generally accepted accounting principles.
6.4 Operating Costs - Exclusions. Excluded from Operating Costs shall be
the following: (a) depreciation, except to the extent expressly
included pursuant to Article 6.3 above; (b) interest on and
amortization of debts, except to the extent expressly included pursuant
to Article 6.3 above; (c) leasehold improvements, including
redecorating made for tenants of the Building; (d) brokerage
commissions and advertising expenses for procuring tenants for the
Building or the Property; (e) refinancing costs; (f) the cost of any
repair, replacement or addition which would be required to be
capitalized under general accepted accounting principles, except to the
extent expressly included pursuant to Article 6.3 above; and (g) the
cost of any item included in Operating Costs under Article 6.3 above to
the extent that such cost is reimbursed or paid directly by an
insurance company, condemnor, a tenant of the Building or any other
party; (h) legal fees in connection with leasing, tenant disputes or
enforcement of leases; (i) penalties incurred by Landlord due to
Landlord's failure to pay taxes or any other obligation when due
related to the Property and not resulting from a default hereunder by
Tenant, (j) money Landlord must pay if it defaults under or Lease or
other agreement and not result from a default hereunder by Tenant; (k)
costs of negotiations or enforcing leases of other tenants; (l) any
amounts reimbursed from equipment warranties, and Landlord
subcontractor warranties.
6.5 Right of Audit. Tenant may once in any calendar year during regular
business hours and upon two (2) business days' prior notice to
Landlord, cause an audit to be made of Landlord's books and records
relating to the Operating Costs for the immediately previous year only,
such audit to be initially made by Tenant's qualified employees or
accountants and at Tenant's expense. If such an audit suggests that the
statement of Operating Costs previously delivered to Tenant by Landlord
for the calendar year in question sets forth a higher amount of
Tenant's share of Operating Costs than the amount determined through
Tenant's audit, Tenant may notify Landlord by delivering the records
and results of such audit to Landlord along with Tenant's written
statement describing in detail any discrepancy Tenant believes it has
found. Landlord shall have sixty (60) days thereafter within which to
dispute the results of Tenant's audit. If Landlord disputes the results
of Tenant's audit, then Landlord and Tenant shall attempt in good faith
to resolve such dispute. If the parties are unable to resolve such
dispute within twenty (20) days after Landlord gives notice of its
dispute of such Tenant's audit, then
6-
<PAGE> 8
the parties shall select a mutually agreeable accounting firm
consisting of one of the six largest accounting firms in Arizona (the
"big six" accounting firms) who shall audit the same books and records
and establish Tenant's share of Operating Costs according to the
accounting principles and theories normally employed by Landlord in
such calculations for the calendar year in dispute and such
determination shall be binding upon Landlord and Tenant. If the parties
are unable to agree upon which of the "big six" accounting firms shall
perform such audit, then the names of all six of such firms shall be
placed into a hat and Landlord shall draw at random from such hat the
names of one of such "big six" accounting firms and such firm shall be
the designated auditor. If the audit by the "big six" accounting firm
determines that the statement of Operating Costs previously delivered
to Tenant for the calendar year in question overstated Tenant's share
of Operating Costs by more than six percent (6%), then Landlord shall
pay the cost of the audit by such "big six" accounting firm. Otherwise,
Tenant shall pay the cost of the audit by such "big six" accounting
firm. Once the determination of the amount of Tenant's share of
Operating Costs is made, appropriate adjustments shall be made and
either Landlord shall give a credit or a reimbursement to Tenant for
any overpayment, or Tenant shall promptly pay Landlord the full amount
of any underpayment.
6.6 Taxes - Defined. For the purposes of this Lease, "Taxes" shall mean and
include all real property taxes and personal property taxes, general
and special assessments, assessments under any covenants, conditions
and restrictions encumbering the Property, foreseen as well as
unforeseen, which are levied or assessed upon or with respect to the
Property, any improvements, fixtures, equipment and other property of
Landlord, real or personal, located on the Property and used in
connection with the operation of all or any portion of the Property, as
well as any tax, surcharge or assessment which shall be levied or
assessed in addition to or in lieu of such real or personal property
taxes and assessments. Taxes shall also include any expenses incurred
by Landlord in contesting the amount or validity of any real or
personal property taxes and assessments. Taxes shall not, however,
include any franchise, gift, estate, inheritance, conveyance, transfer
or income tax assessed against Landlord.
6.7 No Waiver. The failure by Landlord to furnish Tenant with a statement
of Operating Costs shall not constitute a waiver by Landlord of its
right to require Tenant to pay excess Operating Costs per rentable
square foot.
7. CONDITION, REPAIRS AND ALTERATIONS
7.1 Condition. The respective obligations of Landlord and Tenant with
respect to the condition of the Leased Premises are set forth on
Exhibit "H" to this Lease.
7.2 Alterations and Improvements. Tenant may place partitions and fixtures
and may make improvements and other alterations to the interior of the
Leased Premises at Tenant's expense, provided, however, that prior to
commencing any such work, Tenant shall first obtain the written consent
of Landlord to the proposed work, including the plans, specifications,
the proposed architect and/or contractor(s) for such alterations and/or
improvements and the materials used in connection with such
alterations, including, without limitation, paint, carpeting, wall or
window coverings and the use of carpet glues and other chemicals for
installation of such materials. Landlord's consent to Tenant's request
shall not be unreasonably withheld or delayed. At least ten (10) days
prior to the commencement of any construction in the Leased Premises,
Tenant shall deliver to Landlord copies of the plans and specifications
for the contemplated work and shall identify the contractor(s) selected
by Tenant to perform such work. Landlord may require that the work be
done by Landlord's own employees, its construction contractors, or
under Landlord's direction, but at the expense of Tenant, and Landlord
may, as a condition to consenting to such work, require that Tenant
provide security adequate in Landlord's judgment so that the
improvements or other alterations to the Leased Premises will be
completed in a good, workmanlike and lien free manner. Landlord may
also require that any work done to the interior of the Leased Premises
be subject to the supervision of Landlord or its designee, and Tenant
shall pay to Landlord, upon completion of such work, a supervision fee
in an amount equal to ten percent (10%) of the cost of such work. All
such improvements or alterations must conform to and be in substantial
accordance in quality and appearance with the quality and appearance of
improvements in a first-class, Class A, institutional grade office
building. All such improvements shall be the property of Landlord. In
the event Landlord consents to the use by Tenant of its own architect
and/or contractor for the installation of any such alterations or
improvements, prior to the commencement of such work, Tenant shall
provide Landlord with evidence that Tenant's contractor has procured
worker's compensation, liability and property damage insurance (naming
Landlord as an additional insured) in a form and in an amount approved
by Landlord, and evidence
7-
<PAGE> 9
that Tenant's architect and/or contractor has procured the necessary
permits, certificates and approvals from the appropriate governmental
authorities. Tenant acknowledges and agrees that any review by Landlord
of Tenant's plans and specifications and/or right of approval exercised
by Landlord with respect to Tenant's architect and/or contractor is for
Landlord's benefit only and Landlord shall not, by virtue of such
review or right of approval, be deemed to make any representation,
warranty or acknowledgment to Tenant or to any other person or entity
as to the adequacy of Tenant's plans and specifications or as to the
ability, capability or reputation of Tenant's architect and/or
contractor.
7.3 Tenant's Obligations. Tenant shall, at Tenant's sole cost and expense,
maintain the Leased Premises in a clean, neat and sanitary condition
and shall keep the Leased Premises and every part thereof in good
condition and repair except where the same is required to be done by
Landlord. Tenant hereby waives all rights to make repairs at the
expense of Landlord as provided by any law, statute or ordinance now or
hereafter in effect. All of Tenant's alterations and/or improvements
are the property of the Landlord, and Tenant shall, upon the expiration
or earlier termination of the Lease Term, surrender the Leased
Premises, including Tenant's alterations and/or improvements, to
Landlord, janitorial clean and in the same condition as when received,
ordinary wear and tear excepted. Except as set forth in Article 7.4
below, Landlord has no obligation to construct, remodel, improve,
repair, decorate or paint the Leased Premises or any improvement
thereon or part thereof. Tenant shall pay for the cost of all repairs
to the Leased Premises not required to be made by Landlord and shall be
responsible for any redecorating, remodeling, alteration and painting
during the Lease Term as Tenant deems necessary. Tenant shall pay for
any repairs to the Leased Premises, the Building and the Property made
necessary by any negligence or carelessness of Tenant, its employees or
invitees.
7.4 Landlord's Obligations. Landlord shall (a) make all necessary repairs
to the exterior walls, exterior doors, windows and corridors of the
Building, (b) keep the Building and the Building Common Areas in a
clean, neat and attractive condition, and (c) keep the Building
equipment such as elevators, plumbing, heating, air conditioning and
similar Building equipment in good repair, but Landlord shall not be
liable or responsible for breakdowns or interruptions in service when
reasonable efforts are made to restore such service.
7.5 Removal of Alterations. Upon the expiration or earlier termination of
this Lease, Tenant shall remove from the Leased Premises all movable
trade fixtures and other movable personal property, and shall promptly
repair any damage to the Leased Premises, the Building and/or the
Property caused by such removal. All such removal and repair shall be
entirely at Tenant's sole cost and expense. At any time within fifteen
(15) days prior to the scheduled expiration of the Lease Term or
immediately upon any termination of this Lease, Landlord may require
that Tenant remove from the Leased Premises any alterations, additions,
improvements, trade fixtures, equipment, shelving, cabinet units or
movable furniture (and other personal property) designated by Landlord
to be removed. In such event, Tenant shall, in accordance with the
provisions of Article 7.2 above, complete such removal (including the
repair of any damage caused thereby) entirely at its own expense and
within fifteen (15) days after notice from Landlord. All repairs
required of Tenant pursuant to the provisions of this Article 7.5 shall
be performed in a manner satisfactory to Landlord, and shall include,
but not be limited to, repairing plumbing, electrical wiring and holes
in walls, restoring damaged floor and/or ceiling tiles, repairing any
other cosmetic damage, and cleaning the Leased Premises.
7.6 No Abatement. Except as provided herein, Landlord shall have no
liability to Tenant, nor shall Tenant's covenants and obligations under
this Lease, including without limitation, Tenant's obligation to pay
Annual Basic Rent and Additional Rent, be reduced or abated in any
manner whatsoever by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord's making any
repairs or changes which Landlord is required by law to be made in and
to any portion of the Leased Premises, the Building or the Property.
Landlord shall, nevertheless, use reasonable efforts to minimize any
interference with Tenant's business in the Leased Premises.
8. SERVICES
8.1 Climate Control. Landlord shall provide reasonable climate control to
the Building Common Areas during the Building Hours as is suitable, in
Landlord's judgment, for the comfortable use and occupation of the
Building Common Areas.
8-
<PAGE> 10
8.2 Janitorial Services. Landlord shall make janitorial and cleaning
services available to the Building Common Areas and the Project Common
Areas. Tenant shall be responsible and shall procure janitorial and
cleaning services for the Leased Promises.
8.3 Electricity. Electricity shall be separately metered and Tenant shall
be solely responsible for the cost of all electric current furnished to
the Leased Premises. Tenant's use of electric energy in the Leased
Premises shall not at any time exceed the capacity of any of the
risers, piping, electrical conductors and other equipment in or serving
the Leased Premises. In order to insure that such capacity is not
exceeded and to avert any possible adverse effect on the Building's
electric system, Tenant shall not, without Landlord's prior written
consent in each instance, connect appliances, machines using current in
excess of 120 volts or heavy-duty equipment other than ordinary office
equipment to the Building's electric system or make any alterations or
additions to the Building's electric system. Should Landlord grant such
consent, all additional risers, piping and electrical conductors and
other equipment therefor shall be provided by Landlord and the cost
thereof shall be paid by Tenant within ten (10) days after receipt of
Landlord's bill.
8.4 Water., Landlord shall furnish cold and heated water for drinking and
lavatory purposes to the Building Common Areas.
8.5 Heat Generating Equipment. Whenever heat generating machines or
equipment used in the Leased Premises affect the temperature otherwise
maintained by the climate control system, Landlord shall have the right
to install supplementary air-conditioning units in the Leased Premises
and the cost thereof, including the cost of installation, operation and
maintenance shall be paid by Tenant to Landlord within five (5) days
after receipt by Tenant of Landlord's statement.
8.6 Separate Meters. Landlord has installed separate meters for the Leased
Premises to register the usage of the utilities serving the Leased
Premises. Tenant shall be solely responsible for arranging for and
timely paying to the appropriate service provider, before delinquent,
all charges (including deposits and set-up charges) associated with
such metered services.
8.7 Intentionally Omitted.
8.8 Interruptions in Service. Landlord does not warrant that nay of the
foregoing services or any other services which Landlord may supply will
be free from interruption. Tenant acknowledges that any one or more of
such services may be suspended by reason of accident, repairs,
inspections, alterations or improvements necessary to be made, or by
strikes or lockouts, or by reason of operation of law, or by causes
beyond the reasonable control of Landlord. Landlord shall not be liable
for and Tenant shall not be entitled to any abatement or reduction of
Annual Basic Rent or Additional Rent by reason of any disruption of the
services to be provided by Landlord pursuant to this Lease.
9. LIABILITY AND PROPERTY INSURANCE
9.1 Liability Insurance. Tenant shall, during the Lease Term, keep in full
force and effect, a policy or policies of commercial general liability
insurance for personal injury (including wrongful death) and damage to
property covering (a) any occurrence in the Leased Premises, (b) any
act or omission by Tenant, by any subtenant of tenant, or by any of
their respective invitees, agents, servants or employees anywhere in
the Leased Premises and the Property, (c) the business operated by
Tenant and by any subtenant of Tenant in the Leased Premises, and (d)
the contractual liability of Tenant to Landlord pursuant to the
indemnification provisions of Article 16.1 below, which coverage shall
not be less than Three Million and No/100 Dollars ($3,000,000.00) per
occurrence and Three Million and No/100 Dollars ($3,000,000.00)
combined single limit. If Landlord shall so request, Tenant shall
increase the amount of such liability insurance to the amount then
customary for premises and uses similar to the Leased Premises and
Tenant's use thereof. The liability policy or policies shall contain an
endorsement naming Landlord, its partners, members or shareholders (as
applicable), Landlord's lender and management agent and any persons,
firms or corporations designated by Landlord as additional insureds,
and shall provide that the insurance carrier shall have the duty to
defend and/or settle any legal proceeding filed against Landlord
seeking damages based upon bodily injury or property damage liability
even if any of the allegations of such legal proceedings are
groundless, false or fraudulent.
9.2 Property Insurance. Tenant shall, during the Lease Term, keep in full
force and effect, a policy or policies of insurance with "Special Form
Coverage," including coverage for vandalism or malicious mischief,
insuring Tenant's alterations and/or improvements made pursuant to
Article 7.2 above and
9-
<PAGE> 11
Tenant's stock in trade, furniture, personal property, fixtures,
equipment and other items in the Leased Premises, with coverage in an
amount equal to the full replacement cost thereof.
9.3 Worker's Compensation Insurance. Tenant shall, during the Lease Term,
keep in full force and effect, a policy or policies of worker's
compensation insurance with an insurance carrier and in amounts
approved by the Industrial Commission of the State of Arizona.
9.4 Business Interruption Insurance. Tenant shall, during the Lease Term,
keep in full force and effect, a policy or policies of business
interruption insurance in an amount equal to twelve (12) monthly
installments of Annual Basic Rent and Additional Rent payable to
Landlord, together with the taxes thereon, insuring Tenant against
losses sustained by Tenant as a result of any cessation or interruption
of Tenant's business in the Leased Premises for any reason.
9.5 Insurance Requirements. Each insurance policy and certificate thereof
obtained by Tenant pursuant to this Lease shall contain a clause that
the insurer will provide Landlord, its members, partners and any
persons, firms or corporations designated by Landlord with at least
thirty (30) days prior written notice of any material change,
non-renewal or cancellation of the policy. Each such insurance policy
shall be with an insurance company authorized to do business in the
State of Arizona and rated not less than A VIII in the then most
current edition of "Best's Key Rating Guide". Certified copies of all
insurance policies evidencing the coverage under each such policy, as
well as a certified copy of the required additional insured
endorsement(s) shall be delivered to Landlord prior to commencement of
the Lease Term. Each such policy shall provide that any loss payable
thereunder shall be payable notwithstanding (a) any act, omission or
neglect by Tenant or by any subtenant of Tenant, or (b) any occupation
or use of the Leased Premises or any portion thereof by Tenant or by
any subtenant of Tenant for purposes more hazardous than permitted by
the terms of such policy or policies, or (c) any foreclosure or other
action or proceeding taken by any mortgagee or trustee pursuant to any
provision of any mortgage deed of trust covering the Leased Premises,
the Building or the Property, or (d) any change in title or ownership
of the Property. All insurance policies required pursuant to this
Article 9 shall be written as primary policies, not contributing with
or in excess of any coverage which Landlord may carry. Tenant shall
procure and maintain all policies entirely at its own expense and
shall, at least twenty (20) days prior to the expiration of such
policies, furnish Landlord with certified copies of replacement
policies or renewal certificates for existing policies in conformance
with Accord Form No. 27 (March 1993). Tenant shall not do or permit to
be done anything inconsistent with its permitted use or the terms of
this Lease which shall invalidate the insurance policies maintained by
Landlord or the insurance policies required pursuant to this Article 9
or the coverage thereunder. If Tenant or any subtenant of Tenant does
or permits to be done anything which shall increase the cost of any
insurance policies maintained by Landlord, then Tenant shall reimburse
Landlord for any additional premiums attributable to any act or
omission or operation of Tenant or any subtenant of Tenant causing such
increase in the cost of insurance. Any such amount shall be payable as
Additional Rent within five (5) days after receipt by Tenant of a bill
from Landlord. All policies of insurance (other than the policy of
property insurance described in Article 9.2 shall name both Landlord
and Tenant (and/or such other party or parties as Landlord may require)
as insureds and shall be endorsed to indicate that the coverage
provided shall not be invalid due to any act or omission on the part of
Landlord. In addition, the policy of property insurance described in
Article 12 shall name Landlord (and Landlord's Lender, if Landlord
shall so require) as a co-loss payee.
9.6 Co-Insurance. If on account of the failure of Tenant to comply with the
provisions of this Article 9 Landlord is deemed a co-insurer by its
insurance carrier, then any loss or damage which Landlord shall sustain
by reason thereof shall be borne by Tenant, and shall be paid by Tenant
within five (5) days after receipt of a bill therefor.
9.7 Adequacy of Insurance. Landlord makes no representation or warranty to
Tenant that the amount of insurance to be carried by Tenant under the
terms of this Lease is adequate to fully protect Tenant's interests. If
Tenant believes that the amount of any such insurance is insufficient,
Tenant is encouraged to obtain, at its sole cost and expense, such
additional insurance as Tenant may deem desirable or adequate. Tenant
acknowledges that Landlord shall not, by the fact of approving,
disapproving, waiving, accepting, or obtaining any insurance, incur any
liability for or with respect to the amount of insurance carried, the
form or legal sufficiency of such insurance, the solvency of any
insurance companies or the payment or defense of any lawsuit in
connection with such insurance coverage, and Tenant hereby expressly
assumes full responsibility therefor and all liability, if any, with
respect thereto.
10-
<PAGE> 12
10. RECONSTRUCTION
10.1 Insured Damage. In the event the Leased Promises are damaged during the
Lease Term by fire or other perils covered by Landlord's insurance,
Landlord shall:
(a) Subject to Force Majeure, within a period of ninety (90) days
after receipt by Landlord of insurance proceeds and the adjustment of
the loss with the Superior Mortgagee and/or the Superior Lessor, as the
case may be, and its insurer, and provided there is not then in
existence of an Event of Default, commence repair, reconstruction and
restoration of the Leased Premises and prosecute the same diligently to
completion, in which event this Lease shall continue in full force and
effect.
(b) In the event of a partial or total destruction of either the
Leased Premises, the Building, or the Property during the last two (2)
years of the Lease Term, Landlord shall have the option to terminate
this Lease upon giving written notice to Tenant within sixty (60) days
after such destruction. For purposes of this Article 10, "partial
destruction" shall be deemed destruction to an extent of at least
thirty-three and one-third percent (33.33%) of the then full
replacement cost of the Leased Premises, the Building, or the Property
as of the date of destruction.
(c) In the event that Superior Mortgagee shall require that
insurance proceeds be applied against the principal balance due on the
Superior Mortgage (defined below), then Landlord may, at Landlord's
option and upon sixty (60) days written notice to Tenant, elect to
terminate this Lease.
10.2 Uninsured Damage In the event and upon Landlord's determination that
the Leased Premises, the Building or the Property shall have been
damaged as a result of any casualty not covered by Landlord's
insurance, to any extent whatsoever, Landlord shall within sixty (60)
days after such determination notify Tenant that Landlord is unwilling
or unable to repair, reconstruct and restore the Leased Premises,
Building or Property within one hundred eighty (180) days following the
date of the casualty, in which event Landlord or Tenant may terminate
this Lease by giving written notice to the other party within ten (10)
days after receipt of such notice which shall be effective upon the
date of receipt of such notice, and neither Landlord nor Tenant shall
have any other or further liability hereunder except for any liability
or obligation which expressly survives the termination of this Lease as
set forth herein. The failure to give such notice within the ten (10)
day period shall be deemed to be the agreement of the parties to have
this Lease continue in full force and effect, subject to Landlord's
completion of the repairs, reconstruction and restoration within the
one hundred eighty (180) day period after the casualty, subject to
Force Majeure.
10.3 Reconstruction. In the event of any reconstruction of the Leased
Premises, the Building; or the Property pursuant to this Article 10,
such reconstruction shall be in conformity with all city, county,
state and federal ordinances, rules and regulations then in existence,
as the same may be interpreted and enforced. Notwithstanding that all
reconstruction work shall be performed by Landlord's contractor unless
Landlord shall otherwise agree in writing, Landlord's obligation to
reconstruct the Leased Premises shall be only to the comparable
condition of the Leased Premises immediately prior to the Commencement
Date. Landlord's obligation to repair and reconstruct the Leased
Premises shall be limited to the amount of net proceeds of insurance
received by Landlord, subject to reduction pursuant to Article 10.1
(c) above. Any extra expenses incurred by Landlord in the
reconstruction of the Leased Premises, the Building or any other
portion of the Property as a result of the violation by Tenant of the
terms and conditions set forth in Article 34 below shall be borne by
Tenant. Tenant, at Tenant's sole cost and expense, shall be responsible
for the repair and restoration of all items of the Tenant Improvements
or Tenant's improvements and/or alterations installed pursuant to
Article 7.2 and the replacement of Tenant's stock in trade, trade
fixtures, furniture, furnishings and equipment. Tenant shall commence
the installation of fixtures, equipment and merchandise promptly upon
delivery to Tenant of possession of the Leased Premises and shall
diligently prosecute such installation to completion.
10.4 Termination. Upon any termination of this Lease under any of the
provisions of this Article 10, Landlord and Tenant each shall be
released without further obligations to the other coincident with the
surrender of possession of the Leased Premises to Landlord, except for
items which have previously accrued and remain unpaid. In the event of
termination, all proceeds from Tenant's property insurance coverage and
covering the Tenant Improvements or Tenant's improvements and/or
alterations installed pursuant to Article 7.2, but excluding proceeds
for trade fixtures, merchandise, signs and other removable personal
property, shall be disbursed and paid to Landlord.
11-
<PAGE> 13
10.5 Abatement. In the event of repair, reconstruction and restoration of
the Leased Premises, the Minimum Annual Rental and Additional Rent
shall be abated proportionately with the degree to which Tenant's use
of the Leased Premises is impaired commencing from the date of
destruction and continuing during the period of such repair,
reconstruction or restoration. Tenant shall continue the operation of
Tenant's business at the Leased Premises during any such period to the
extent reasonably practicable from the standpoint of prudent business
management. Tenant shall not be entitled to any compensation or damages
from Landlord for loss of the use of the whole or any part of the
Leased Premises, or the building of which the Leased Premises are a
part, Tenant's personal property or for any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
10.6 Waiver. Tenant hereby waives any statutory and common law rights of
termination which may arise by reason of any partial or total
destruction of the Leased Premises which Landlord is obligated to
restore or may restore under any of the provisions of this Lease,
including the provisions of A.R.S. Section 33-343.
11. WAIVER OF SUBROGATION
Tenant hereby waives its rights and the subrogation rights of its
insurer against Landlord and any other tenants of space in the Building or the
Property, as well as their respective members, officers, employees, agents,
authorized representatives and invitees, with respect to any claims including,
but not limited to, claims for injury to any persons, and/or damage to the
Leased Premises and/or any fixtures, equipment, personal property, furniture,
improvements and/or alterations in or to the Leased Premises, which are caused
by or result from (a) risks or damages required to be insured against under this
Lease, or (b) risks and damages which are insured against by insurance policies
maintained by Tenant from time to time. Tenant shall obtain for Landlord from
its insurers under each policy required by this Lease a waiver of all rights of
subrogation which such insurers of Tenant might otherwise have against Landlord.
12. LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any abatement of Annual Basic Rent or
Additional Rent. If Tenant shall fail to pay any sum of money, other
than Annual Basic Rent, required to be paid by it hereunder, or shall
fail to perform any other act on its part to be performed hereunder,
and such failure shall continue for five (5) days after notice thereof
by Landlord (or such shorter period of time as may be reasonable
following oral notice to Tenant's personnel in the Leased Premises),
Landlord may (but shall not be obligated to do so) without waiving or
releasing Tenant from any of Tenant's obligations, make any such
payment or perform any such other act on behalf of Tenant. All sums so
paid by Landlord and all necessary incidental costs, together with
interest thereon at the greater of (a) eighteen percent (18%) per annum
or (b) the rate of interest per annum publicly announced, quoted or
published, from time to time, by Bank of America, at its Phoenix,
Arizona office as its "reference rate" plus four (4) percentage points,
from the date of such payment by Landlord until reimbursement in full
by Tenant (the "Default Rate"), shall be payable to Landlord as
Additional Rent with the next monthly installment of Annual Basic Rent;
provided, however, in no event shall the Default Rate exceed the
maximum rate (if any) permitted by applicable law.
13. DEFAULT AND REMEDIES
13.1 Event of Default. The occurrence of any one or more of the following
events will constitute an "Event of Default" on the part of Tenant:
(a) Failure to pay any installment of Annual Basic Rent, any Additional
Rent or any other sum required to be paid by Tenant under this Lease,
and such failure shall continue for five (5) days after written notice
to Tenant;
(b) Failure to perform any of the other covenants or conditions which
Tenant is required to observe and perform (except failure in the
payment of Annual Basic Rent, Additional Rent or any other monetary
obligation contained in this Lease) and such failure shall continue for
thirty (30) days (or such shorter period of time as may be specified by
Landlord in the event of an emergency) after written notice thereof by
Landlord to Tenant, provided that if such default is other than the
payment of money and cannot be cured within such thirty (30) day
period, then an Event of Default shall not have occurred if Tenant,
within such thirty (30) day period, commences curing of such failure
and
12-
<PAGE> 14
diligently in good faith prosecutes the same to completion and
furnishes evidence thereof to Landlord within thirty (30) days
thereafter,
(c) If any warranty, representation or statement made by Tenant to
Landlord in connection with this Lease is or was materially false or
misleading when made or furnished;
(d) The occurrence of an Event of Default under any other agreement
between Landlord and Tenant;
(e) Failure to conduct business operations within the Leased Premises
for five (5) consecutive days;
(f) If Tenant makes a bulk sale of its goods or moves or commences,
attempts or threatens to move its goods, equipment and personal
property out of the Leased Premises;
(g) The levy of a writ of attachment or execution or other judicial
seizure of substantially all of Tenant's assets or its interest in this
Lease, such attachment, execution or other seizure remaining
undismissed or discharged for a period of thirty (30) days after the
levy thereof;
(h) The filing of any petition by or against Tenant or any Guarantor to
declare Tenant or any Guarantor a bankrupt or to delay, reduce or
modify Tenant's or any Guarantor's debts or obligations, which petition
is not discharged within forty five (45) days after the date of filing;
(i) The filing of any petition or other action taken to reorganize or
modify Tenant's or any Guarantor's capital structure, which petition is
not discharged within forty five (45) days after the date of filing;
(j) If Tenant or any Guarantor shall be declared insolvent according to
law;
(k) A general assignment by Tenant or any Guarantor for the benefit of
creditors;
(1) The appointment of a receiver or trustee for Tenant or any
Guarantor or all or any of their respective property, which appointment
is not discharged within forty five (45) days after the date of filing;
(m) The filing by Tenant or any Guarantor of a voluntary petition
pursuant to the Bankruptcy Code or any successor thereto or the filing
of an involuntary petition against Tenant or any Guarantor pursuant to
the Bankruptcy Code or any successor legislation, which petition is not
discharged within forty five (45) days after the date of filing; or
(n) The occurrence of an Event of Default under the other provisions of
this Lease.
13.2 Remedies. Upon the occurrence of an Event of Default under this Lease
by Tenant, Landlord may, without prejudice to any other rights and
remedies available to a landlord at law, in equity or by statute, but
subject to the requirements at law to reasonably mitigate a landlord's
damages, Landlord may exercise one or more of the following remedies,
all of which shall be construed and held to be cumulative and
non-exclusive: (a) Terminate this Lease and re-enter and take
possession of the Leased Premises, in which event, Landlord is
authorized to make such repairs, redecorating, refurbishments or
improvements to the Leased Premises as may be necessary in the
reasonable opinion of Landlord acting in good faith for the purposes of
reletting the Leased Premises and the costs and expenses incurred in
respect of such repairs, redecorating and refurbishments and the
expenses of such reletting (including brokerage commissions) shall be
paid by Tenant to Landlord within five (5) days after receipt of
Landlord's statement; or (b) Without terminating this Lease, re-enter
and take possession of the Leased Premises; or (c) Without such
re-entry, recover possession of the Leased Premises in the manner
prescribed by any statute relating to summary process, and any demand
for Annual Basic Rent, re-entry for condition broken, and any and all
notices to quit, or other formalities of any nature to which Tenant may
be entitled, are hereby specifically waived to the extent permitted by
law; or (d) Without terminating this Lease, Landlord may relet the
Leased Premises as Landlord may see fit without thereby avoiding or
terminating this Lease, and for the purposes of such reletting,
Landlord is authorized to make such repairs, redecorating,
refurbishments or improvements to the Leased Premises as may be
necessary in the reasonable opinion of Landlord acting in good faith
for the purpose of such reletting, and if a sufficient sum is not
realized from such
13-
<PAGE> 15
reletting (after payment of all costs and expenses of such repairs,
redecorating and refurbishments and expenses of such reletting
(including brokerage commissions) and the collection of rent accruing
therefrom) each month to equal the Annual Basic Rent and Additional
Rent payable hereunder, then Tenant shall pay such deficiency each
month within five (5) days after receipt of Landlord's statement; or
(e) Landlord may declare immediately due and payable all the remaining
installments of Annual Basic Rent and Additional Rent, and such amount,
less the fair rental value of the Leased Premises for the remainder of
the Lease Term shall be paid by Tenant within five (5) days after
receipt of Landlord's statement. Landlord shall not by re-entry or any
other act, be deemed to have terminated this Lease, or the liability of
Tenant for the total Annual Basic Rent and Additional Rent reserved
hereunder or for any installment thereof then due or thereafter
accruing, or for damages, unless Landlord notifies Tenant in writing
that Landlord has so elected to terminate this Lease. After the
occurrence of an Event of Default, the acceptance of Annual Basic Rent
or Additional Rent, or the failure to re-enter by Landlord shall not
be deemed to be a waiver of Landlord's right to thereafter terminate
this Lease and exercise any other rights and remedies available to it,
and Landlord may re-enter and take possession of the Leased Premises as
if no Annual Basic Rent or Additional Rent had been accepted after the
occurrence of an Event of Default. Upon an Event of Default, Tenant
shall also pay to Landlord all costs and expenses incurred by Landlord,
including court costs and attorneys' fees, in retaking or otherwise
obtaining possession of the Leased Premises, removing and storing all
equipment, fixtures and personal property on the Leased Premises and
otherwise enforcing any of Landlord's rights, remedies or recourses
arising as a result of an Event of Default.
13.3 Additional Remedies. All of the remedies given to Landlord in this
Lease in the event Tenant commits an Event of Default are in addition
to all other rights or remedies available to a landlord at law, in
equity or by statute, including, without limitation, the right to seize
and sell all goods, equipment and personal property of Tenant located
in the Leased Premises and apply the proceeds thereof to all due and
unpaid Annual Basic Rent, Additional Rent and other amounts owing under
the Lease. All rights, options and remedies available to Landlord shall
be construed and held to be cumulative, and no one of them shall be
exclusive of the other. Upon the occurrence of an Event of Default, all
rights, privileges and contingencies which may be exercised by Tenant
under the Lease, including, without limitation, options to renew,
extend and expand, as well as relocation rights, contraction rights and
any other rights which may be exercised by Tenant during the Lease
Term, shall be void and of no further force and effect.
13.4 Interest on Past Due Amounts. In addition to the late charge described
in Article 14 below, if any installment of Annual Basic Rent or
Additional Rent is not paid promptly when due, it shall bear interest
at the Default Rate; provided, however, this provision shall not
relieve Tenant from any default in the making of any payment at the
time and in the manner required by this Lease; and provided, further,
in no event shall the Default Rate exceed the maximum rate (if any)
permitted by applicable law.
13.5 Landlord Default. In the event Landlord should neglect or fail to
perform or observe any of the covenants, provisions or conditions
contained in this Lease on its part to be performed or observed, and
such failure continues for thirty (30) days after written notice of
default (or if more than thirty (30) days shall be required because of
the nature of the default, if Landlord shall fail to commence the
curing of such default within such thirty (30) day period and proceed
diligently thereafter), then Landlord shall be responsible to Tenant
for any actual damages sustained by Tenant as a result of Landlord's
breach, but not special or consequential damages. Should Tenant give
written notice to Landlord to correct any default, Tenant shall give
similar notice to the holder of any mortgages or deeds of trust against
the Building or the lessor of any ground lease, and prior to any
cancellation of this Lease, the holder of such mortgage or deed of
trust and/or the lessor under such ground lease shall be given a
reasonable period of time to correct or remedy such default. If and
when such holder of such mortgage or deed of trust and/or the lessor
under any such ground lease has made performance on behalf of Landlord,
the default of Landlord shall be deemed cured.
14. LATE PAYMENTS
Tenant hereby acknowledges that the late payment by Tenant to
Landlord of any monthly installment of Annual Basic Rent, any Additional Rent or
any other sums due hereunder will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult and
impracticable to ascertain. Such costs include but are not limited to
processing, administrative and accounting costs. Accordingly, if any monthly
installment of Annual Basic Rent, any Additional Rent or any other sum due from
Tenant shall not be received by Landlord within five (5) business days after the
date when due, Tenant
14-
<PAGE> 16
shall pay to Landlord a late charge equal to five percent (5%) of such overdue
amount or Two Hundred and No/100 Dollars ($200.00), whichever is greater.
Tenant acknowledges that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payments by Tenant.
Neither assessment nor acceptance of a late charge by Landlord shall constitute
a waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies available to
Landlord. Nothing contained in this Article 14 shall be deemed to condone,
authorize, sanction or grant to Tenant an option for the late payment of Annual
Basic Rent, Additional Rent or any other sum due hereunder.
15. ABANDONMENT AND SURRENDER
15.1 Abandonment. Tenant shall not vacate or abandon the Leased Premises at
any time during the Lease Term. No act or thing done by Landlord or by
any agent or employee of Landlord during the Lease Term shall be deemed
an acceptance of a surrender of the Leased Premises unless such
acceptance is expressed in writing and duly executed by Landlord.
Unless Landlord so agrees in writing, the delivery of the key to the
Leased Premises to any employee or agent of Landlord shall not operate
as a termination of this Lease or as a surrender of the Leased
Premises.
15.2 Surrender. Tenant shall, upon the expiration or earlier termination of
this Lease, peaceably surrender the Leased Premises, including any
Tenant Improvements and Tenant's improvements and/or alterations
installed pursuant to Article 7.2, in a janitorial clean condition and
otherwise in as good condition as when Tenant took possession, except
for (i) reasonable wear and tear subsequent to the last repair,
replacement, restoration, alteration or renewal; (ii) loss by fire or
other casualty, and (iii) loss by condemnation. If Tenant shall
abandon, vacate or surrender the Leased Premises, or be dispossessed by
process of law or otherwise, any personal property and fixtures
belonging to Tenant and left in the Leased Premises shall be deemed
abandoned and, at Landlord's option, title shall pass to Landlord under
this Lease as by a bill of sale. Landlord may, however, if it so
elects, remove all or any part of such personal property from the
Leased Premises and the costs incurred by Landlord in connection with
such removal, including storage costs and the cost of repairing any
damage to the Leased Premises, the Building and/or the Property caused
by such removal shall be paid by Tenant within five (5) days after
receipt of Landlord's statement. Upon the expiration or earlier
termination of this Lease, Tenant shall surrender to Landlord all keys
to the Leased Premises and shall inform Landlord of the combination of
any vaults, locks and safes left on the Leased Premises. The
obligations of Tenant under this Article 15.2 shall survive the
expiration or earlier termination of this Lease. Tenant shall indemnify
Landlord against any loss or liability resulting from delay by Tenant
in so surrendering the Premises, including, without limitation, any
claims made by any succeeding Tenant founded on such delay. Tenant
shall give written notice to Landlord at least thirty (30) days prior
to vacating the Leased Premises for the express purpose of arranging a
meeting with Landlord for a joint inspection of the Leased Premises. In
the event of Tenant's failure to give such notice or to participate in
such joint inspection, Landlord's inspection at or after Tenant's
vacation of the Leased Premises shall be conclusively deemed correct
for purposes of determining Tenant's liability for repairs and
restoration hereunder.
16. INDEMNIFICATION AND EXCULPATION
16.1 Indemnification. Tenant shall indemnify, protect, defend and hold
Landlord harmless from and against, and shall be responsible for, all
claims, damages, losses, costs, liens, encumbrances, liabilities and
expenses, including reasonable attorneys', accountants' and
investigators' fees and court costs (collectively, the "Claims"),
however caused, arising in whole or in part from Tenant's use of all or
any part of the Leased Premises, the Building and/or the Property or
the conduct of Tenant's business or from any activity, work or thing
done, permitted or suffered by Tenant or by any invitee, servant,
agent, employee or subtenant of Tenant in the Leased Premises, the
Building and/or the Property, and shall further indemnify, protect,
defend and hold Landlord harmless from and against, and shall be
responsible for, all Claims arising in whole or in part from any breach
or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease or arising in whole or in part
from any act, neglect, fault or omission by Tenant or by any invitee,
servant, agent, employee or subtenant of Tenant anywhere in the Leased
Premises, the Building and/or the Property. In case any action or
proceeding is brought against Landlord to which this indemnification
shall be applicable, Tenant shall pay all Claims resulting therefrom
and shall defend such action or proceeding, if Landlord shall so
request, at Tenant's sole cost and expense, by counsel reasonably
satisfactory to Landlord. The obligations of Tenant under this Article
16.1 shall survive the expiration or earlier termination of this Lease.
15-
<PAGE> 17
16.2 Exculpation. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property, injury and
death to persons and all claims of any other nature resulting from
Tenant's use of all or any part of the Leased Premises, the Building
and/or the Property, and Tenant hereby waives all claims in respect
thereof against Landlord. Neither Landlord nor its agents or employees
shall be liable for any damaged property of Tenant entrusted to any
employee or agent of Landlord or for loss of or damage to any property
of Tenant by theft or otherwise. Landlord shall not be liable for any
injury or damage to persons or property resulting from any cause,
including, but not limited to, fire, explosion, falling plaster, steam,
gas, electricity, sewage, odor, noise, water or rain which may leak
from any part of the Building or from the pipes, appliances or plumbing
works therein, or from the roof of any structure on the Property, or
from any streets or subsurfaces on or adjacent to the Building or the
Property, or from any other place or resulting from dampness or any
other causes whatsoever, unless caused solely by the gross negligence
or willful misconduct of Landlord. Neither Landlord nor its employees
or agents shall be liable for any defects in the Leased Premises, the
Building and/or the Property, nor shall Landlord be liable for the
negligence or misconduct, including, but not limited to, criminal acts,
by maintenance or other personnel or contractors serving the Leased
Premises, the Building and/or the Property, other tenants or third
parties, unless Landlord is grossly negligent or guilty of willful
misconduct. All property of Tenant kept or stored on the Property shall
be so kept or stored at the risk of Tenant only, and Tenant shall
indemnify, defend and hold Landlord harmless from and against, and
shall be responsible for, any Claims arising out of damage to the same,
including subrogation claims by Tenant's insurance carriers, unless
such damage shall be caused by the willful act or gross neglect of
Landlord and through no fault of Tenant. None of the events or
conditions set forth in this Article 16 shall be deemed a constructive
or actual eviction or result in a termination of this Lease, nor shall
Tenant be entitled to any abatement or reduction of Annual Basic Rent
or Additional Rent by reason thereof. Tenant shall give prompt notice
to Landlord with respect to any defects, fires or accidents which
Tenant observes in the Leased Premises, the Building and/or the
Property.
17. ENTRY BY LANDLORD
Landlord reserves and shall have the right at any and all times during
Tenant's usual business hours or at any other times upon twenty-four
(24) hours' notice (except in case of emergency for which Landlord may
enter at any time without notice) to enter the Leased Premises, to
inspect the same, to supply janitorial service (unless otherwise
provided by Tenant) and other services to be provided by Landlord to
Tenant hereunder, to submit the Leased Premises to prospective
purchasers or tenants, to post notices of non-responsibility, and to
alter, improve or repair the Leased Premises and any portion of the
Building of which the Leased Premises are a part, without abatement of
Annual Basic Rent or Additional Rent, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by
the character of the work to be performed, always providing that access
into the Leased Premises shall not be blocked thereby, and further
providing that the business of Tenant shall not be interfered with
unreasonably. Tenant hereby waives any claim for damages for any injury
or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Leased Premises or any loss
occasioned thereby. For each of the aforesaid purposes, Landlord shall
at all times have and retain a key with which to unlock all the doors
in, upon or about the Leased Premises, excluding Tenant's vaults and
safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open such doors in any emergency in
order to obtain entry to the Leased Premises, and any entry to the
Leased Premises obtained by Landlord by any such means or otherwise
shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Leased Premises
or an eviction of Tenant from all or any portion of the Leased
Premises. Nothing in this Article 17 shall be construed as obligating
Landlord to perform any repairs, alterations or maintenance except as
otherwise expressly required elsewhere in this Lease.
18. SUBSTITUTE PREMISES
18.1 Relocation of Leased Premises. Landlord may, before or after the
Commencement Date, elect by notice to Tenant, to substitute for the
Leased Premises other office space in the Building (the "Substitute
Premises") designated by Landlord, provided that the Substitute
Premises shall contain at least the same useable area as the Leased
Premises and have a configuration substantially similar to the Leased
Premises. Landlord's notice shall be accompanied by a plan of the
Substitute Premises. Tenant shall vacate and surrender the Leased
Premises and shall occupy the Substitute Premises promptly (and, in any
event, not later than fifteen ( 15) days) after Landlord has
substantially completed the work to be performed by Landlord in the
Substitute Premises pursuant to Article 18.2
16-
<PAGE> 18
below. Tenant shall pay the same Annual Basic Rent and Additional Rent
with respect to the Substitute Premises as was payable with respect to
the Leased Premises. This Lease shall remain in full force and effect
and the Substitute Premises shall thereafter be deemed to be the Leased
Premises. Tenant acknowledges that Landlord reserves the right to
determine the nature and location of the businesses in the Building.
Tenant further acknowledges that a material consideration to Landlord
entering into this Lease is Tenant's agreement to the terms of
this Article 18. The failure by Tenant to comply with the terms of this
Article 18 will result in Landlord suffering irreparable harm and
therefore, in addition to the other rights and remedies available to
Landlord under this Lease, Landlord may seek to specifically enforce
Tenant's breach of this Article 18.
18.2 Compensation to Tenant. In the event Landlord shall elect to relocate
Tenant to Substitute Premises, Tenant shall not be entitled to any
compensation for any inconvenience or interference with Tenant's
business, nor any abatement or reduction of Annual Basic Rent or
Additional Rent, but Landlord shall, at Landlord's expense perform the
following:
(a) Furnish and install in the Substitute Premises fixtures, equipment,
improvements, appurtenances and leasehold improvements at least equal
in kind and quality to those contained or to be contained in the
Leased Premises at the time such notices of substitution is given by
Landlord;
(b) Provide personnel to perform, under Tenant's direction, the moving
of Tenant's personal property and trade fixtures from the Leased
Premises to the Substitute Premises;
(c) Promptly reimburse Tenant for Tenant's actual and reasonable
out-of-pocket costs incurred in connection with the relocation of any
telephone or other communications equipment from the Leased Premises to
the Substitute Premises; and
(d) Promptly reimburse Tenant for any other actual and reasonable
out-of-pocket costs incurred by Tenant in connection with Tenant's move
from Leased Premises to the Substitute Premises, provided such costs
are approved by Landlord in advance which approval shall not be
unreasonably withheld.
Tenant shall cooperate with Landlord so as to facilitate the
performance by Landlord of its obligations under this Article 18.2 and the
prompt surrender by Tenant of the Leased Premises. Without limiting the
generality of the preceding sentence, Tenant shall provide Landlord promptly any
approvals or instructions and any plans or specifications or any other
information reasonably requested by Landlord, and Tenant shall perform promptly
in the Substitute Premises any work to be performed therein by Tenant to prepare
the same for Tenant's occupancy.
19. ASSIGNMENT AND SUBLETTING
19.1 Consent of Landlord Required. Tenant shall not transfer or assign this
Lease or any right or interest hereunder, or sublet the Leased Premises
or any part thereof, without first obtaining Landlord's prior written
consent, which consent shall not be unreasonably withheld. No transfer
or assignment (whether voluntary or involuntary, by operation of law or
otherwise) or subletting shall be valid or effective without such prior
written consent. Should Tenant attempt to make or allow to be made any
such transfer, assignment or subletting, except as aforesaid, or should
any of Tenant's rights under this Lease be sold or otherwise
transferred by or under court order or legal process or otherwise,
then, and in any of the foregoing events Landlord may, at its option,
treat such act as an Event of Default by Tenant. Should Landlord
consent to a transfer, assignment or subletting, such consent shall not
constitute a waiver of any of the restrictions or prohibitions of this
Article 19, and such restrictions or prohibitions shall apply to each
successive transfer, assignment or subletting hereunder, if any.
19.2 Deemed Transfers. For the purposes of this Article 19, an assignment
shall be deemed to include the following: (a) if Tenant is a
partnership, a withdrawal or change (voluntary, involuntary, by
operation of law or otherwise) of any of the partners thereof, a
purported assignment, transfer, mortgage or encumbrance (voluntary,
involuntary, by operation of law or otherwise) by any partner thereof
of such partner's interest in Tenant, or the dissolution of the
partnership; (b) if Tenant consists of more than one person, a
purported assignment, transfer, mortgage or encumbrance (voluntary,
involuntary, by operation of law or otherwise) from one person unto the
other or others; (c) if Tenant (or a constituent partner of Tenant) is
a corporation, any dissolution, merger, consolidation or reorganization
of Tenant (or such constituent partner), or any change in the ownership
(voluntary, involuntary, by operation of law, creation of new stock or
otherwise) of twenty percent (20%) or
17-
<PAGE> 19
more of its capital stock from the ownership existing on the date set
forth in Article 1.1 above, provided that a change in domiciliary alone
shall not constitute an assignment hereunder; (d) if Tenant is an
unincorporated association, a purported assignment, transfer, mortgage
or encumbrance (voluntary, involuntary, by operation of law or
otherwise) of any interest in such unincorporated association; or (e)
if Tenant is a limited liability company, a withdrawal or change of any
of the members thereof, a purported assignment, transfer, mortgage or
encumbrance (voluntary, involuntary, by operation of law or otherwise)
by any member of such member's interest in Tenant, or the dissolution
of the limited liability company; or (f) the sale of twenty percent
(20%) or more in value of the assets of Tenant.
19.3 Delivery of information. If Tenant wishes at any time to assign this
Lease or sublet the Leased Premises or any portion thereof, it shall
first notify Landlord of its desire to do so and shall submit in
writing to Landlord: (a) the name of the proposed subtenant or
assignee; (b) the nature of the proposed subtenant's or assignee's
business to be carried on in the Leased Premises; (c) the terms and the
provisions of the proposed sublease or assignment; and (d) such
financial information as Landlord may reasonably request concerning the
proposed subtenant or assignee. Tenant's failure to comply with the
provisions of this Article 19.3 shall entitle Landlord to withhold its
consent to the proposed assignment or subletting.
19.4 Recapture. If Tenant proposes to assign its interest in this Lease or
sublet all or any part of the Leased Premises, Landlord may, at its
option, upon written notice to Tenant within thirty (30) days after
Landlord's receipt of the information specified in Article 19.3 above,
elect to recapture all or any portion of the Leased Premises, and
within sixty (60) days after notice of such election has been given to
Tenant, this Lease shall terminate as to the portion of the Leased
Premises recaptured. If all or a portion of the Leased Premises is
recaptured by Landlord pursuant to this Article 19.4, Tenant shall
promptly execute and deliver to Landlord a termination agreement
setting forth the termination date with respect to the Leased Premises
or the recaptured portion thereof, and prorating the Annual Basic Rent,
Additional Rent and other charges payable hereunder to such date. If
Landlord does not elect to recapture as set forth above, Tenant may
thereafter enter into a valid assignment or sublease with respect to
the Leased Premises, provided that Landlord consents thereto pursuant
to this Article 19, and provided further, that (a) such assignment or
sublease is executed within ninety (90) days after Landlord has given
its consent, (b) Tenant pays all amounts then owed to Landlord under
this Lease, (c) there is not in existence an Event of Default as of the
effective date of the assignment or sublease, (d) there have been no
material changes with respect to the financial condition of the
proposed subtenant or assignee or the business such party intends to
conduct in the Leased Premises, and (e) a fully executed original of
such assignment or sublease providing for an express assumption by the
assignee or subtenant of all of the terms, covenants and conditions of
this Lease is promptly delivered to Landlord.
19.5 Adjustment to Rental. In the event Tenant assigns it interest in this
Lease or sublets the Leased Premises, the Annual Basic Rent set forth
in Article 1.12 above, as adjusted, shall be increased effective as of
the date of such assignment or subletting to the rent and other
consideration payable by any such assignee or sublessee pursuant to
such assignment or sublease if such assignee or sublessee is paying
rent in excess of the Annual Basic Rent as adjusted. Notwithstanding
the foregoing, in no event shall the Annual Basic Rent after any such
assignment or subletting be less than the Annual Basic Rent specified
in Article 1.12 above, as adjusted.
19.6 No Release from Liability. Landlord may collect Annual Basic Rent and
Additional Rent from the assignee, subtenant, occupant or other
transferee, and apply the amount so collected, first to the monthly
installments of Annual Basic Rent, then to any Additional Rent and
other sums due and payable to Landlord, and the balance, if any, to
Landlord, but no such assignment, subletting, occupancy, transfer or
collection shall be deemed a waiver of Landlord's rights under this
Article 19, or the acceptance of the proposed assignee, subtenant,
occupant or transferee. Notwithstanding any assignment, sublease or
other transfer (with or without the consent of Landlord), Tenant shall
remain primarily liable under this Lease and shall not be released
from performance of any of the terms, covenants and conditions of this
Lease.
19.7 Landlord's Expenses. If Landlord consents to an assignment, sublease or
other transfer by Tenant of all or any portion of Tenant's interest
under this Lease, Tenant shall pay or cause to be paid to Landlord, a
transfer fee in an amount not more than Five Hundred and No/100 Dollars
($500.00) to reimburse Landlord for administrative expenses and for
legal, accounting and other out of pocket expenses incurred by
Landlord.
18-
<PAGE> 20
19.8 Assumption Agreement. If Landlord consents to an assignment, sublease
or other transfer by Tenant of all or any portion of Tenant's interest
under this Lease, Tenant shall execute and deliver to Landlord, and
cause the transferee to execute and deliver to Landlord, an instrument
in the form and substance acceptable to Landlord in which (a) the
transferee adopts this Lease and assumes and agrees to perform, jointly
and severally with Tenant, all of the obligations of Tenant hereunder,
(b) Tenant acknowledges that it remains primarily liable for tile
payment of Annual Basic Rent, Additional Rent and other obligations
under this Lease, (c) Tenant subordinates to Landlord's statutory lien,
contract lien and security interest, any liens, security interests or
other rights which Tenant may claim with respect to any property of
transferee and (d) the transferee agrees to use and occupy the Leased
Premises solely for the purpose specified in Article 20, and otherwise
in strict accordance with this Lease.
20. USE OF LEASED PREMISES AND RUBBISH REMOVAL
20.1 The Leased Premises are leased to Tenant solely for the Permitted Use
set forth in Article 1.9 above and for no other purpose whatsoever.
Tenant shall not use or occupy or permit the Leased Premises to be used
or occupied, nor shall Tenant do or permit anything to be done in or
about the Leased Premises nor bring or keep anything therein which will
in any way increase the existing rate of or affect any casualty or
other insurance on the Building or the Property, or any of their
respective contents, or make void or voidable or cause a cancellation
of any insurance policy covering the Building or the Property, or any
part thereof or any of their respective contents. Tenant shall not do
or permit anything to be done in or about the Leased Premises, the
Building and/or the Property which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building
or the Property or injure or annoy them. Tenant shall not use or allow
the Leased Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Leased Premises, the Building and/or the
Property. In addition, Tenant shall not commit or suffer to be
committed any waste in or upon the Leased Premises, the Building and/or
the Property. Tenant shall not use the Leased Premises, the Building
and/or the Property or permit anything to be done in or about the
Leased Premises, the Building and/or the Property which will in any way
conflict with any matters of record, or any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be
enacted or promulgated, and shall, at its sole cost and expense,
promptly comply with all matters of record and all laws, statutes,
ordinances and governmental rules, regulations and requirements now in
force or which may hereafter be in force and with the requirements of
any Board of Fire Underwriters or other similar body now or hereafter
constituted, foreseen or unforeseen, ordinary as well as extraordinary,
relating to or affecting the condition, use or occupancy of the
Property, excluding structural changes not relating to or affected by
Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission by Tenant in any action against Tenant,
whether Landlord be a party thereto or not, that Tenant has violated
any matters of record, or any law, statute, ordinance or governmental
rule, regulation or requirement, shall be conclusive of that fact
between Landlord and Tenant. In addition, Tenant shall not place a load
upon any floor of the Leased Premises which exceeds the load per square
foot which the floor was designed to carry, nor shall Tenant install
business machines or other mechanical equipment in the Leased Premises
which cause noise or vibration that may be transmitted to the structure
of the Building.
20.2 Rubbish Removal. Tenant shall keep the Leased Premises clean, both
inside and outside, subject, however, to Landlord's obligation as set
forth in Article 8.2 above. Tenant shall not burn any materials or
rubbish of any description upon the Leased Premises. Tenant shall keep
all accumulated rubbish in covered containers. In the event Tenant
fails to keep the Leased Premises in the proper condition, Landlord may
cause the same to be done for Tenant and Tenant shall pay the expenses
incurred by Landlord on demand, together with interest at the Default
Rate, as Additional Rent. Tenant shall, at its sole cost and expense,
comply with all present and future laws, orders and regulations of all
state, county, federal, municipal governments, departments, commissions
and boards regarding the collection, sorting, separation, and recycling
of waste products, garbage, refuse and trash. Tenant shall sort and
separate such waste products, garbage, refuse and trash into such
categories as provided by law. Each separately sorted category of waste
products, garbage, refuse and trash shall be placed in separate
receptacles reasonably approved by Landlord. Such separate receptacles
may, at Landlord's option, be removed from the Leased Premises in
accordance with a collection schedule prescribed by law. Landlord
reserves the right to refuse to collect or accept from Tenant any waste
products, garbage, refuse or trash that is not separated and sorted as
required by law, and to require Tenant to arrange for such collection
at Tenant's sole cost and expense using a
19-
<PAGE> 21
contractor satisfactory to Landlord. Tenant shall pay all costs,
expenses, fines, penalties or damages that may be imposed on Landlord
or Tenant by reason of Tenant's failure to comply with the provisions
of this Article 20.2, and, at Tenant's sole cost and expense, Tenant
shall indemnify, defend and hold Landlord and Landlord's agents and
employees harmless (including legal fees and expenses) from and
against, and shall be responsible for, all actions, claims, liabilities
and suits arising from such noncompliance, utilizing counsel reasonably
satisfactory to Landlord.
21. SUBORDINATION AND ATTORNMENT
21.1 Subordination. This Lease and all rights of Tenant hereunder shall be,
at the option of Landlord, subordinate to (a) all matters of record,
(b) all ground leases, overriding leases and underlying leases
(collectively referred to as the "leases") of the Building or the
Property now or hereafter existing, (c) all mortgages and deeds of
trust (collectively referred to as the "mortgages") which may now or
hereafter encumber or affect the Building or the Property, and (d) all
renewals, modifications, amendments, replacements and extensions of
leases and mortgages and to spreaders and consolidations of the
mortgages, whether or not leases or mortgages shall also cover other
lands, buildings or leases. The provisions of this Article 21.1 shall
be self-operative and no further instruments of subordination shall be
required. In confirmation of such subordination, Tenant shall promptly
execute, acknowledge and deliver any instrument that Landlord, the
lessor under any lease or the holder of any mortgage or any of their
respective assigns or successors in interest may reasonably request to
evidence such subordination provided that Landlord shall diligently
attempt to obtain from such party an agreement not to disturb Tenant's
occupancy so long as Tenant is not in default hereunder, on a form
customarily used by, or otherwise reasonably acceptable to, such party.
Any lease to which this Lease is subject and subordinate is called a
"Superior Lease" and the lessor under a Superior Lease or its assigns
or successors in interest is called a "Superior Lessor". Any mortgage
to which this Lease is subject and subordinate is called a "Superior
Mortgage " and the holder of a Superior Mortgage is called a "Superior
Mortgagee". If Landlord, a Superior Lessor or a Superior Mortgagee
requires that such instruments be executed by Tenant, Tenant's failure
to do so within ten (10) days after request therefor shall be deemed an
Event of Default under this Lease. Tenant waives any right to terminate
this Lease because of any foreclosure proceedings. Tenant hereby
irrevocably constitutes and appoints Landlord (and any successor
Landlord) as Tenant's attorney-in-fact, with full power of substitution
coupled with an interest, to execute and deliver to any Superior Lessor
or Superior Mortgagee any documents required to be executed by Tenant
for and on behalf of Tenant if Tenant shall have failed to do so within
ten (10) days after request therefore.
21.2 Attornment. if any Superior Lessor or Superior Mortgagee (or any
purchaser at a foreclosure sale) succeeds to the rights of Landlord
under this Lease, whether through possession or foreclosure action, or
the delivery of a new lease or deed (a "Successor Landlord"), Tenant
shall attorn to and recognize such Successor Landlord as Tenant's
landlord under this Lease and shall promptly execute and deliver any
instrument that such Successor Landlord may reasonably request to
evidence such attornment.
22. ESTOPPEL CERTIFICATE
Tenant shall, upon requested by Landlord, within ten (10) days after
written request by Landlord, execute, acknowledge and deliver to
Landlord a statement in writing certifying: (a) that this Lease is
unmodified and in full force and effect, (or, if modified, stating the
nature of such modification and certifying that this Lease, as so
modified, is in full force and effect); (b) the dates to which Annual
Basic Rent, Additional Rent and other charges are paid in advance, if
any; (c) that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder or specifying such defaults
if any are claimed; (d) that Tenant has paid Landlord the Security
Deposit, (e) the Commencement Date and the scheduled expiration date of
the Lease Term, (f) the rights (if any) of Tenant to extend or renew
this Lease or to expand the Leased Premises and (g) the amount of
Annual Basic Rent, Additional Rent and other charges currently payable
under this Lease. In addition, such statement shall provide such other
information and facts Landlord may reasonably require. Any such
statement may be relied upon by any prospective or existing purchaser,
ground lessee or mortgagee of all or any portion of the Property, as
well as by any other assignee of Landlord's interest in this Lease.
Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant (i) that this Lease is in full force and effect,
without modification except as may be represented by Landlord; (ii)
that there are no uncured defaults in Landlord's performance hereunder;
(iii) that Tenant has paid to Landlord the Security Deposit; (iv) that
not more than one month's installment or Annual Basic Rent or
Additional Rent has been paid in advance; (v) that the Commencement
Date and the scheduled expiration date of the Lease Term are as stated
therein, (vi) that Tenant has no rights to
20-
<PAGE> 22
extend or renew this Lease or to expand the Leased Premises, (vii) that
the Annual Basic Rent, Additional Rent and other charges are as set
forth therein and (viii) that the other information and facts set forth
therein are true and correct.
23. SIGNS
Landlord shall retain absolute control over the exterior appearance of
the Building and the exterior appearance of the Leased Premises as
viewed from the public halls. Tenant shall not install, or permit to be
installed, any drapes, shutters, signs, lettering, advertising, or any
items that will in any way, in the sole opinion of Landlord, adversely
alter the exterior appearance of the Building or the exterior
appearance of the Leased Premises as viewed from the public halls or
the exterior of the Building. In no event may Tenant utilize trucks,
automobiles or other vehicles on the Property for signage purposes.
Notwithstanding the foregoing, Landlord shall install, at Tenant's sole
cost and expense, letters or numerals at or near the entryway to the
Leased Premises provided Tenant obtains Landlord's prior written
consent as to size, color, design and location. All such letters or
numerals shall be in accordance With the criteria established by
Landlord for the Building.
24. PARKING
24.1 Parking Facility. Landlord shall provide, operate and maintain parking
accommodations (the "Parking Accommodations"), together with necessary
access, having a capacity adequate in Landlord's opinion to accommodate
the requirements of the Building and the Property. No storage of
vehicles or parking for more than twenty-four (24) hours shall be
allowed without Landlord's prior written consent. Tenant acknowledges
and agrees that Landlord shall not be liable for damage, loss or theft
of property or injury to persons in, upon or about the Parking
Accommodations from any cause whatsoever. Landlord shall have the right
to establish, and from time to time change, alter and amend, and to
enforce against all users of the Parking Accommodations, such
reasonable requirements and restrictions as Landlord deems necessary
and advisable for the proper operation and maintenance of the Parking
Accommodations, including without limitation, designation of particular
areas for reserved, visitor and/or employee parking, and establishment
of a reasonable rental charge for the use of the Parking Accommodations
by tenants of the Building and/or the general public, as a part of the
Rules and Regulations of the Building referenced in Article 31 hereof.
24.2 Parking Passes, Tenant is hereby allocated the number of reserved
covered and unreserved parking passes designated in Article 1.15
hereof, entitling holders to park in either reserved covered or
unreserved parking spaces, as the case may be, located in the Parking
Accommodations as designated by Landlord from time to time for use by
Tenant, its employees and licensees, and for which Tenant shall pay the
monthly charges set forth in Article 1.16 hereof Landlord and Tenant
shall execute, prior to the Commencement Date a Reserved Covered
Parking License in the form attached hereto as Exhibit "E". The
unreserved parking spaces shall be available to Tenant, its employees
and licensees on a "first come, first serve" basis. Landlord reserves
the right to increase the parking charges set forth in Article 1.16, in
such reasonable amounts as Landlord deems necessary based upon
increased costs of operating and maintaining the Parking
Accommodations. Holders of parking passes shall not be entitled to park
in visitor parking spaces so designated by Landlord, or in any other
parking spaces other than those designated by Landlord for use by
holders of parking passes.
25. LIENS
Tenant shall keep the Leased Premises free and clear of all mechanic's
and materialmen's liens. If, because of any act or omission (or alleged
act or omission) of Tenant, any mechanics', materialmen's or other
lien, charge or order for the payment of money shall be filed or
recorded against the Leased Premises, the Property or the Building, or
against any other property of Landlord (whether or not such lien,
charge or order is valid or enforceable as such), Tenant shall, at its
own expense, cause the same to be canceled or discharged of record
within thirty (30) days after Tenant shall have received written notice
of the filing thereof, or Tenant may, within such thirty (30) day
period, furnish to Landlord, a bond pursuant to A.R.S. Section 33-1004
(or any successor statute) and satisfactory to Landlord and all
Superior Lessors and Superior Mortgagees against the lien, charge or
order, in which case Tenant shall have the right to contest, in good
faith, the validity or amount thereof.
21-
<PAGE> 23
26. HOLDING OVER
It is agreed that the date of termination of this Lease and the right
of Landlord to recover immediate possession of the Leased Premises
thereupon is an important and material matter affecting the parties
hereto and the rights of third parties, all of which have been
specifically considered by Landlord and Tenant. In the event of any
continued occupancy or holding over of the Leased Premises without the
express written consent of Landlord beyond the expiration or earlier
termination of this Lease or of Tenants right to occupy the Leased
Premises, whether in whole or in part, or by leaving property on the
Leased Premises or otherwise, this Lease shall be deemed a monthly
tenancy and Tenant shall pay one hundred fifty percent (150%) the
greater of (a) Annual Basic Rent then in effect, or (b) the then
prevailing monthly rental rate within the Building, in advance at the
beginning of the hold-over month(s), plus any Additional Rent or other
charges or payments contemplated in this Lease, and any other costs,
expenses, damages, liabilities and attorneys' fees incurred by Landlord
on account of Tenant's holding over.
27. ATTORNEYS' FEES
Tenant shall pay to Landlord all amounts for costs (including
reasonable attorneys' fees) incurred by Landlord in connection with any breach
or default by Tenant under this Lease or incurred in order to enforce or if
requested by Tenant, costs associated with the interpretation of the terms or
provisions of this Lease. Such amount shall be payable within five (5) days
after receipt by Tenant of Landlord's statement. In addition, if any action
shall be instituted by either of the parties hereto for the enforcement or
interpretation of any of their respective rights or remedies in or under this
Lease, the prevailing party shall be entitled to recover from the losing party
all costs incurred by the prevailing party in such action and any appeal
therefrom, including reasonable attorneys' fees to be fixed by the court.
Further, should Landlord be made a party to any litigation between Tenant and
any third party, then Tenant shall pay all costs and attorneys' fees incurred by
or imposed upon Landlord in connection with such litigation.
28. RESERVED RIGHTS OF LANDLORD
Landlord reserves the following rights, exercisable without liability
to Tenant for damage or injury to property, persons or business and
without effecting an eviction, constructive or actual, or disturbance
of Tenant's use or possession or giving rise to any claim:
(a) To name the Building and the Property and to change the name or
street address of the Building or the Property;
(b) To install and maintain all signs on the exterior and interior of
the Building and the Property;
(c) To designate all sources furnishing sign painting and lettering;
(d) During the last ninety (90) days of the Lease Term, if Tenant has
vacated the Leased Premises, to decorate, remodel, repair, alter or
otherwise prepare the Leased Premises for re-occupancy, without
affecting Tenant's obligation to pay Annual Basic Rent;
(e) To have pass keys to the Leased Premises and all doors therein,
excluding Tenant's vaults and safes;
(f) On reasonable prior notice to Tenant, to exhibit the Leased
Premises to any prospective purchaser, mortgagee, or assignee of any
mortgage on the Building or the Property and to others having interest
therein at any time during the Lease Tenn, and to prospective Tenants
during the last six (6) months of the Lease Term;
(g) To take any and all measures, including entering the Leased
Premises for the purposes of making inspections, repairs, alterations,
additions and improvements to the Leased Premises or to the Building
(including, for the purposes of checking, calibrating, adjusting and
balancing controls and other parts of the Building systems) as may be
necessary or desirable for the operation, improvement, safety,
protection or preservation of the Leased Premises or the Building, or
in order to comply with all laws, orders and requirements of
governmental or other authorities, or as may otherwise be permitted or
required by this Lease; provided, however, that Landlord shall endeavor
(except in an emergency) to minimize interference with Tenant's
business in the Leased Premises;
22-
<PAGE> 24
(h) To relocate various facilities within the Building and on the
Property if Landlord shall determine such relocation to be in the best interest
of the development of the Building and the Property, provided, that such
relocation shall not materially restrict access to the Leased Premises;
(i) To change the nature, extent, arrangement, use and location of the
Building Common Areas;
(j)To make alterations or additions to and to build additional stories
on the Building and to build additional buildings or improvements on the
Property; and
(k) To install vending machines of all kinds in the Leased Premises and
the Building, and to receive all of the revenue derived therefrom, provided,
however, that no vending machines shall be installed by Landlord in the Leased
Premises unless Tenant so requests.
Landlord further reserves the exclusive right to the roof of the
Building. No easement for light, air, or view is included in the leasing of the
Leased Premises to Tenant. Accordingly, any diminution or shutting off of light,
air or view by any structure which may be erected on the property or other
properties in the vicinity of the Building shall in no way affect this Lease or
impose any liability upon Landlord.
29. EMINENT DOMAIN
29.1 Taking. If the whole of the Building is lawfully and permanently taken
by condemnation or any other manner for any public or quasi-public
purpose, or by deed in lieu thereof, this Lease shall terminate as of
the date of vesting of title in such condemning authority and the
Annual Basic Rent and Additional Rent shall be pro rated to such date.
If (a) any part of the Building or Property is so taken, or if the
whole of the Building is taken, but not permanently, then Landlord or
Tenant may terminate this Lease by notice to the other within ninety
(90) days after entry of an order for immediate possession, and (b) if
twenty percent (20%) or more of the Leased Premises shall be
permanently taken and the remaining portion of the Leased Premises
shall not be reasonably sufficient for Tenant to continue operation of
its business, Tenant may terminate this Lease by notice to Landlord
within ninety (90) days after the date of entry of an order of an
immediate possession. This Lease shall terminate on the date such
possession is so taken, by which date Tenant shall vacate and surrender
the Leased Premises to Landlord. The Annual Basic Rent and Additional
Rent shall be pro rated to the earlier of the termination of this Lease
or such date as Tenant is required to vacate the Leased Premises by
reason of the taking. If this Lease is not terminated as a result of a
partial taking of the Leased Premises, the Annual Basic Rent and
Additional Rent shall be equitably adjusted according to the rentable
area of the Leased Premises and Building remaining.
29.2 Award: In the event of a taking of all or any part of the Building or
the Property, all of the proceeds or the award, judgment, settlement or
damages payable by the condemning authority shall be and remain the
sole and exclusive property of Landlord, and Tenant hereby assigns all
of its right, title and interest in and to any such award, judgment,
settlement or damages to Landlord except that Tenant shall have the
right to file any separate claim available to Tenant for a temporary
taking of the leasehold; provided such award is separately payable to
Tenant and does not diminish the award available to Landlord. Tenant
shall, however, have the right, to the extent that the same shall not
reduce or prejudice amounts available to Landlord, to claim from the
condemning authority, but not from Landlord, such compensation as may
be recoverable by Tenant in its own right for relocation benefits,
moving expenses, and damage to Tenant's personal property and trade
fixtures.
30. NOTICES
Any notice or communication given under the terms of this Lease shall
be in writing and shall be delivered in person, sent by any public or
private express delivery service or deposited with the United States
Postal Service or a successor agency, certified or registered mail,
return receipt requested, postage pre-paid, addressed as set forth in
the Basic Provisions, or at such other address as a party may from time
to time designate by notice hereunder. Notice shall be effective upon
delivery. The inability to deliver a notice because of a changed
address of which no notice was given or a rejection or other refusal to
accept any notice shall be deemed to be the receipt of the notice as of
the date of such inability to deliver or rejection or refusal to
accept. Any notice to be given by Landlord may be given by the legal
counsel and/or the authorized agent of Landlord.
23-
<PAGE> 25
31. RULES AND REGULATIONS
Tenant shall abide by all rules and regulations (the "Rules and
Regulations") of the Building and the Property imposed by Landlord, as
attached hereto as Exhibit "I" or as may hereafter be issued by Landlord.
Such Rules and Regulations are imposed to enhance the cleanliness,
appearance, maintenance, order and use of the Leased Premises, the
Building and the Property, and the proper enjoyment of the Building and
the Property by all tenants and their clients, customers and employees.
The Rules and Regulations may be changed from time to time upon ten (10)
days notice to Tenant. Breach of the Rules and Regulations, by Tenant
shall constitute an Event of Default if such breach is not fully cured
within ten (10) days after written notice to Tenant by Landlord. Landlord
shall not be responsible to Tenant for nonperformance by any other
tenant, occupant or invitee of the Building or the Property of any Rules
or Regulations.
32. ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly installment of Annual Base Rent and Additional Rent (jointly
called "Rent" in this Article 32), shall be deemed to be other than on
account of the earliest stipulated Rent due and not yet paid, nor shall
any endorsement or statement on any check or any letter accompanying any
check or payment as Rent be deemed an accord and satisfaction. Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance of such Rent or to pursue any other remedy in this
Lease. No receipt of money by Landlord from Tenant after the termination
of this Lease, after the service of any notice relating to the
termination of this Lease, after the commencement of any suit, or after
final judgment for possession of the Leased Premises, shall reinstate,
continue or extend the Lease Term or affect any such notice, demand, suit
judgement.
33. BANKRUPTCY OF TENANT
33.1 Chapter 7. If a petition is filed by, or an order for relief is entered
against Tenant under Chapter 7 of the Bankruptcy Code (which action is
not dismissed within sixty (60) days) and the trustee of Tenant elects to
assume this Lease for the purpose of assigning it, the election or
assignment, or both, may be made only if all of the terms and conditions
of Articles 33.2 and 33.4 below are satisfied. If the trustee fails to
elect to assume this Lease for the purpose of assigning it within sixty
(60) days after appointment, this Lease will be deemed to have been
rejected. To be effective, an election to assume this Lease must be in
writing and addressed to Landlord and, in Landlord's business judgment,
all of the conditions hereinafter stated, which Landlord and Tenant
acknowledge to be commercially reasonable, must have been satisfied.
Landlord shall then immediately be entitled to possession of the Premises
without further obligation to Tenant or the trustee, and this Lease will
be terminated. Landlord's right to be compensated for damages in the
bankruptcy proceeding, however, shall survive.
33.2 Chapters 11 and 13. If Tenant files a petition for reorganization under
Chapters 11 or 13 of the Bankruptcy Code or a proceeding that is filed
by or against Tenant under any other chapter of the Bankruptcy Code is
converted to a Chapter 11 or 13 proceeding and Tenant's trustee or Tenant
as a debtor-in-possession fails to assume this Lease within sixty (60)
days from the date of the filing of the petition or the conversion, the
trustee or the debtor-in-possession will be deemed to have rejected this
Lease. To be effective, an election to assume this Lease must be in
writing and addressed to Landlord and, in Landlord's business judgment,
all of the following conditions, which Landlord and Tenant acknowledge to
be commercially reasonable, must have been satisfied:
(a) The trustee or the debtor-in-possession has cured or has provided to
Landlord adequate assurance, as defined in this Article 33.2 that;
(1) The trustee will cure all monetary defaults under this
Lease within ten (10) days from the date of the assumption;
and
(2) The trustee will cure all non-monetary defaults under this
Lease within thirty (30) days from the date of the
assumption.
(b) The trustee or the debtor-in-possession has compensated Landlord, or
has provided to Landlord adequate assurance, as defined in this Article 33.2,
that within ten (10) days from the date of the assumption Landlord will be
compensated for any pecuniary loss it incurred arising from the
24-
<PAGE> 26
default of Tenant, the trustee, or the debtor-in-possession as recited in
Landlord's written statement of pecuniary loss sent to the trustee or the
debtor-in-possession. For purposes of this Lease, pecuniary loss shall include
all attorneys' fees and court costs incurred by Landlord in connection with any
bankruptcy proceeding filed by or against Tenant.
(c) The trustee or the debtor-in-possession has provided Landlord with
adequate assurance of the future performance of each of Tenant's obligations
under the Lease; provided, however, that:
(1) The trustee or debtor-in-possession will also deposit with
Landlord as security for the timely payment of Annual Basic
Rent and Additional Rent, an amount equal to three months
Annual Basic Rent and Additional Rent accruing under this
Lease.
(2) If not otherwise required by the terms of this Lease, the
trustee or the debtor-in-possession will also pay in
advance, on each day that the Annual Basic Rent is payable,
one-twelfth of Tenant's estimated annual obligations under
the Lease for the Additional Rent.
(3) From and after the date of the assumption of this Lease,
the trustee or the debtor-in-possession will pay the Annual
Basic Rent and Additional Rent as provided in Article 5
above.
(4) The obligations imposed upon the trustee or the
debtor-in-possession will continue for Tenant after the
completion of bankruptcy proceedings.
(d) Landlord has determined that the assumption of the Lease will not:
(1) Breach any provisions in any other lease, mortgage,
financing agreement, or other agreement by which Landlord
is bound relating to the Property; or
(2) Disrupt, in Landlord's judgment, the tenant mix of the
Building or any other attempt by Landlord to provide a
specific variety of Tenants in the Building that, in
Landlord's judgment, would be most beneficial to all of the
tenants of the Building and would enhance the image,
reputation, and profitability of the Building.
(e) For purposes of this Article 33.2 "adequate assurance" means that:
(1) Landlord will determine that the trustee or the
debtor-in-possession has, and will continue to have,
sufficient unencumbered assets after the payment of all
secured obligations and administrative expenses to assure
Landlord that the trustee or the debtor-in-possession will
have sufficient funds to fulfill Tenant's obligations under
this Lease and to keep the Leased Premises properly staffed
with sufficient employees to conduct a fully operational,
actively promoted business on the Leased Premises; and
(2) An order will have been entered segregating sufficient cash
payable to Landlord and/or a valid and perfected first lien
and security interest will have been granted in property of
Tenant, trustee, or debtor-in-possession that is acceptable
for value and kind to Landlord, to secure to Landlord the
obligation of the trustee or debtor-in-possession to cure
the monetary or non-monetary defaults under this Lease
within the time periods set forth above.
33.3 Landlord's Right to Terminate. In the event that this Lease is assumed by
a trustee appointed for Tenant or by Tenant as debtor-in-possession under
the provisions of Article 33.2 above and, thereafter, Tenant is either
adjudicated a bankrupt or files a subsequent petition for arrangement
under chapter 11 of the Bankruptcy Code, then Landlord may terminate, at
its option, this Lease and all Tenant's rights under it, by giving
written notice of Landlord's election to terminate.
33.4 Adequate Assurance. For the purposes of this Article 33 "adequate
assurance of future performance" means that Landlord has ascertained that
each of the following conditions as been satisfied:
25-
<PAGE> 27
(1) The assignee has submitted a current financial statement, audited
by a certified public accountant, that shows a net worth and
working capital in amounts determined by Landlord to be sufficient
to assure the future performance by the assignee of Tenants
obligations under this Lease;
(2) If requested by Landlord, the assignee will obtain guarantees, in
form and substance satisfactory to Landlord from one or more
persons who satisfy Landlord's standards of creditworthiness;
(3) Landlord has obtained all consents or waivers from any third party
required under any lease, mortgage, financing arrangement or other
agreement by which Landlord is bound, to enable Landlord to permit
the assignment;
(4) When, pursuant to the Bankruptcy Code, the trustee or the
debtor-in-possession is obligated to pay reasonable use and
occupancy charges for the use of all or part of the Leased
Premises, the charges will not be less than the Annual Basic Rent
and Additional Rent.
33.5 Consent of Landlord. Neither Tenant's interest in the Lease nor any
estate of Tenant created in the tease will pass to any trustee, receiver,
assignee for the benefit of creditors, or any other person or entity, or
otherwise by operation of law under the laws of any state having
jurisdiction of the person or property of Tenant unless Landlord consents
in writing to the transfer. Landlord's acceptance of Annual Basic Rent or
Additional Rent or any other payments from any trustee, receiver,
assignee, person, or other entity will not be deemed to have waived, or
waive, the need to obtain Landlord's consent or Landlord's right to
terminate this Lease for any transfer of Tenant's interest under this
Lease without that consent.
34. HAZARDOUS MATERIAL
34.1 "Hazardous Materials Laws" "Hazardous Materials Laws" means any and all
federal, state or local laws, ordinances, rules decrees orders
regulations or court decisions (including the so-called "common-laws")
relating to hazardous substances, hazardous materials, hazardous waste,
toxic substances, environmental conditions on, under or about the
Premises, or soil and ground water conditions, including, but not limited
to, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), as amended, 42 U.S.C. Section 9601, et seq., the
Resource Conversation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901,
et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., any amendments to the foregoing, and any similar federal,
state or local laws, ordinances, rules, decrees, orders or regulations.
34.2 Hazardous Materials. "Hazardous Materials" means any chemical, compound,
material, substance or other matter that: (I) is a flammable explosive,
asbestos, radioactive material, nuclear medicine material, drug, vaccine,
bacteria, virus, hazardous waste, toxic substance, petroleum product, or
related injurious or potentially injurious material, whether injurious or
potentially injurious by itself or in combination with other materials;
(ii) is controlled, designated in or governed by any Hazardous Materials
Law; (iii) gives rise to any reporting, notice or publication
requirements under any Hazardous Materials Law; or (iv) gives rise to any
liability, responsibility or duty on the part of Tenant or Landlord with
respect to any third person under any Hazardous Materials Law.
34.3 Use. Tenant shall not allow any Hazardous Material to be used, generated,
released, stored or disposed of on, under or about, or transported from,
the Leased Premises, the Building or the Property, unless: (i) (except
for any such materials in normal and customary amounts used in connection
with general office uses (e.g., glue, correction fluid, copy machine
toner.) such use is specifically disclosed to and approved by Landlord in
writing prior to such use; and (ii) such use is conducted in compliance
with the provisions of this Article 34. Landlord may approve such use
subject to reasonable conditions to protect the Leased Premises, the
Building or the Property, and Landlord's interests. Landlord may withhold
approval if Landlord determines that such proposed use involves a
material risk of a release or discharge of Hazardous Materials or a
violation of any Hazardous Materials Laws or that Tenant has not provided
reasonable assurances of its ability to remedy such a violation and
fulfill its obligations under this Article 34.
34.4 Compliance With Laws. Tenant shall strictly comply with, and shall
maintain the Leased Premises in compliance with, all Hazardous Materials
Laws. Tenant shall obtain and maintain in full force and
26-
<PAGE> 28
effect all permits, licenses and other governmental approvals required
for Tenants operations on the Leased Premises under any Hazardous
Materials Laws and shall comply with all terms and conditions thereof. At
Landlord's request, Tenant shall deliver copies of, or allow Landlord to
inspect, all such permits, licenses and approvals. Tenant shall perform
any monitoring, investigation, clean-up, removal and other remedial work
(collectively, "Remedial Work") required as a result of any release or
discharge of Hazardous Materials affecting the Leased Premises, the
Building or the Property, or any violation of Hazardous Materials Laws
by Tenant or any assignee or sublessee of Tenant or their respective
agents, contractors, employees, licensees, or invitees. Landlord shall
have the right to intervene in any governmental action or proceeding
involving any Remedial Work, and to approve performance of the work, in
order to protect Landlord's interests.
34.5 Compliance With Insurance Requirements. Tenant shall comply with the
requirements of Landlord's and Tenant's respective insurers regarding
Hazardous Materials and with such insurers' recommendations based upon
prudent industry practices regarding management of Hazardous Materials.
34.6 Notice: Reporting. Tenant shall notify Landlord, in writing, as soon as
reasonably possible, but in no event later than two (2) days after any of
the following: (a) a release or discharge of any Hazardous Material,
whether or not the release or discharge is in quantities that would
otherwise be reportable to a public agency; (b) Tenant's receipt of any
order of a governmental agency requiring any Remedial Work pursuant to
any Hazardous Materials Laws; (c) Tenant's receipt of any warning, notice
of inspection, notice of violation or alleged violation, or Tenant's
receipt of notice or knowledge of any proceeding, investigation of
enforcement action, pursuant to any Hazardous Materials Laws; or (d)
Tenant's receipt of notice or knowledge of any claims made or threatened
by any third party against Tenant or the Leased Premises, the Building or
the Property, relating to any loss or injury resulting from Hazardous
Materials. Tenant shall deliver to Landlord copies of all test results,
reports and business or management plans required to be filed with any
governmental agency pursuant to any Hazardous Materials Laws.
34.7 Termination: Expiration. Upon the termination or expiration of this
Lease, Tenant shall remove any equipment, improvements or storage
facilities utilized in connection with any Hazardous Materials and shall,
clean up, detoxify, repair and otherwise restore the Leased Premises to a
condition free of Hazardous Materials.
34.8 Indemnity. Tenant shall protect, indemnify, defend and hold Landlord
harmless from and against, and shall be responsible for, any and all
claims, costs, expenses, suits, judgments, actions, investigations,
proceedings and liabilities arising out of or in connection with any
breach of any provisions of this Article 34 or directly or indirectly
arising out of the use, generation, storage, release, disposal or
transportation of Hazardous Materials by Tenant or any sublessee or
assignee of Tenant, or their respective agents, contractors, employees,
licensees, or invitees, on, under or about the Leased Premises, the
Building or the Property during the Lease Term or Tenant's occupancy of
the Leased Premises, including, but not limited to, all foreseeable and
unforeseeable consequential damages and the cost of any Remedial Work.
Neither the consent by Landlord to the use, generation, storage, release,
disposal or transportation of Hazardous Materials nor the strict
compliance with all Hazardous Material Laws shall excuse Tenant from
Tenant's indemnification obligations pursuant to this Article 34. The
foregoing indemnity shall be in addition to and not a limitation of the
indemnification provisions of Article 16 of this Lease. Tenant's
obligations pursuant to this Article 34 shall survive the termination or
expiration of this Lease.
34.9 Assignment: Subletting. If Landlord's consent is required for an
assignment of this Lease or a subletting of the Leased Premises, Landlord
shall have the right to refuse such consent if the possibility of a
release of Hazardous Materials is materially increased as a result of the
assignment or sublease or if Landlord does not receive reasonable
assurances that the new tenant has the experience and the financial
ability to remedy a violation of the Hazardous Materials Laws and fulfill
its obligations under this Article 34.
34.10 Entry and Inspection: Cure. Landlord and its agents, employees and
contractors, shall have the right, but not the obligation, to enter the
Leased Premises at all reasonable times during Tenant's regular business
hours to inspect the Leased Premises and Tenant's compliance with the
terms and conditions of this Article 34, or to conduct investigations and
tests. No prior notice to Tenant and no particular hours of entry shall
be required in the event of an emergency, or if Landlord has reasonable
cause to believe that violations of this Article 34 have occurred, or if
Tenant consents at the time of entry. In
27-
<PAGE> 29
all other cases, Landlord shall give at least twenty-four (24) hours prior
notice to Tenant. Landlord shall have the right, but not the obligation, to
remedy any violation by Tenant of the provisions of this Article 34 or to
perform any Remedial Work which is necessary or appropriate as a result of any
governmental order, investigation or proceeding. Tenant shall pay, upon demand,
as Additional Rent, all costs incurred by Landlord in remedying such violations
or performing all Remedial Work, plus interest thereon at the Default Rate from
the date of demand until the date received by Landlord.
34.11 Event of Default, The release or discharge of any Hazardous Material or
the violation of any Hazardous Materials Law shall constitute an Event of
Default by Tenant under this Lease. In addition to and not in lieu of the
remedies available under this Lease as a result of such Event of Default,
Landlord shall have the right, without terminating this Lease, to require
Tenant to suspend its operations and activities on the Leased Premises
until Landlord is satisfied that appropriate Remedial Work has been or is
being adequately performed and Landlord's election of this remedy shall
not constitute a waiver of Landlord's right thereafter to pursue the
other remedies set forth in this Lease.
35. MISCELLANEOUS
35.1 Entire Agreement, Amendments. This Lease and any Exhibits and Riders
attached hereto and forming a part hereof, set forth all of the
covenants, promises, agreements, conditions and understandings between
Landlord and Tenant concerning the Leased Premises and there are no
covenants, promises, agreements, representations, warranties, conditions
or understandings either oral or written between them other than as
contained in this Lease. Except as otherwise provided in this Lease, no
subsequent alteration, amendment, change or addition to this Lease shall
be binding unless it is in writing and signed by both Landlord and
Tenant.
35.2 Time of the Essence. Time is of the essence of each and every term,
covenant and condition of this Lease.
35.3 Binding Effect. The covenants and conditions of this Lease shall, subject
to the restrictions on assignment and subletting, apply to and bind the
heirs, executors, administrators, personal representatives, successors
and assigns of the parties hereto.
35.4 Recordation. Neither this Lease nor any memorandum hereof shall be
recorded by Tenant. At the sole option of Landlord, Tenant and Landlord
shall execute, and Landlord may record, a short form memorandum of this
Lease in form and substance satisfactory to Landlord.
35.5 Governing Law. This Lease and all the terms and conditions thereof shall
be governed by and construed in accordance with the laws of the State of
Arizona.
35.6 Defined terms and Paragraph Headings. The words "Landlord" and "Tenant"
as used in this Lease shall include the plural as well as the singular.
Words used in masculine gender include the feminine and neuter. If there
is more than one Tenant, the obligations in this Lease imposed upon
Tenant shall be joint and several. The paragraph headings and titles to
the paragraphs of this Lease are not a part of this Lease and shall have
no effect upon the construction or interpretation of any part hereof.
35.7 Representations and Warranties of Tenant. Tenant represents and warrants
to Landlord as follows:
(a) Tenant has been duly organized, is validly existing, and is in good
standing under the laws of its state of Delaware and is qualified to
transact business in Arizona. All necessary action on the part of Tenant
has been taken to authorize the execution, delivery and performance of
this Lease and of the other documents, instruments and agreements, if
any, provided for herein. The persons who have executed this Lease on
behalf of Tenant are duly authorized to do so;
(b) This Lease constitutes the legal, valid and binding obligation of
Tenant, enforceable against Tenant in accordance with its terms, subject,
however, to bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, general principles of equity, whether enforceability
is considered in a proceeding in equity or at law, and to the
qualification that certain waivers, procedures, remedies and other
provisions of this Lease may be unenforceable under or limited by
applicable law, however, none of the foregoing shall prevent the
practical realization to Landlord of the benefits intended by this Lease;
28-
<PAGE> 30
(c) To the best of its knowledge, there are no suits, actions,
proceedings or investigations pending, or to the best of its knowledge,
threatened against or involving Tenant before any court, arbitrator or
administrative or governmental body which might reasonably result in any
material adverse change in the contemplated business, condition or
operations of Tenant;
(d) To the best of its knowledge, Tenant is not, and the execution,
delivery and performance of this Lease and the documents, instruments and
agreements, if any, provided for herein will not result in any breach of
or default under any other document, instrument or agreement to which
Tenant is a party or by which Tenant is subject or bound;
(e) To the best of its knowledge, Tenant has obtained all required
licenses and permits, both governmental and private, to use and operate
the Leased Premises in the manner intended by this Lease; and
(f) All financial statements, tax returns and other financial information
delivered by Tenant to Landlord prior to the execution of this Lease is
true, correct and complete in all material respects and all financial
statements, tax returns or other financial information to be delivered by
Tenant to Landlord subsequent to the execution of this Lease shall be
true, correct and complete in all material respects.
35.8 No Waiver. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the
obligations of this Lease, or to exercise any election herein contained,
shall not be construed as a waiver or relinquishment for the future of
the performance of such one or more obligations of this Lease or the
right to exercise such election, but the same shall continue and remain
in full force and effect with respect to any subsequent breach, act or
omission.
35.9 Severability. If any clause or provision of this Lease is or becomes
illegal or unenforceable because of any present or future law or
regulation of any governmental body or entity effective during the Lease
Term, the intention of the parties is that the remaining provisions of
this Lease shall not be affected thereby.
35.10 Exhibits. If any provision contained in an Exhibit, Rider or Addenda to
this Lease is inconsistent with any other provision of this Lease, the
provision contained in this Lease shall supersede the provisions
contained in such Exhibit, Rider or Addenda, unless otherwise provided.
35.11 Fair Meaning. The language of this Lease shall be construed to its normal
and usual meaning and not strictly for or against either Landlord or
Tenant. Landlord and Tenant acknowledge and agree that each party has
reviewed and revised this lease and that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party
shall not apply to the interpretation of this Lease, or any Exhibits,
Riders or amendments hereto.
35.12 No Merger. The voluntary or other surrender of this Lease by Tenant or a
mutual cancellation of this Lease shall not work as a merger and shall,
at Landlord's option, either terminate any or all existing subleases or
subtenancies, or operate as an assignment to Landlord of any or all of
such subleases or subtenancies.
35.13 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or
materials for reasonable substitutes therefor, governmental restrictions,
regulations or controls, judicial orders, enemy or hostile government
actions, civil commotion, fire or other casualty and other causes beyond
the reasonable control of Landlord shall excuse the Landlord's
performance hereunder for the period of any such prevention, delay, or
stoppage.
35.14 Government Energy or Utility Controls. In the event of the imposition of
federal, state or local governmental controls, rules, regulations or
restrictions on the use or consumption of energy or other utilities
during the Lease Term, both Landlord and Tenant shall be bound thereby.
In the event of a difference in interpretation of any governmental
control, rule, regulation or restriction between Landlord and Tenant, the
interpretation of Landlord shall prevail, and Landlord shall have the
right to enforce compliance, including the right of entry into the Leased
Premises to effect compliance.
35.15 Shoring. If any excavation or construction is made adjacent to, upon or
within the Building, or any part thereof, Tenant shall afford to any and
all persons causing or authorized to cause such excavation
29-
<PAGE> 31
or construction license to enter onto the Leased Premises for the purpose
of doing such work as such persons shall deem necessary to preserve the
Building or any portion thereof from injury or damage and to support the
same by proper foundations, braces and supports without any claim for
damages, indemnity or abatement of Annual Basic Rent or Additional Rent
or for a constructive or actual eviction of Tenant.
35.16 Transfer of Landlord's Interest. The term "Landlord" as used in this
Lease, insofar as the covenants or agreements on the part of the Landlord
are concerned, shall be limited to mean and include only the owner or
owners of Landlord's interest in this Lease at the time in question.
Upon any transfer or transfers of such interest, the Landlord herein
named (and in the case of any subsequent transfer, the then transferor)
shall thereafter be relieved of all liability for the performance of any
covenants or agreements on the part of the Landlord contained in this
Lease.
35.17 Limitation on Landlord's Liability. If Landlord becomes obligated to pay
Tenant any judgment arising out of any failure by the Landlord to perform
or observe any of the terms, covenants, conditions or provisions to be
performed or observed by Landlord under this Lease, Tenant shall be
limited in the satisfaction of such judgment solely to Landlord's
interest in the Building and the Property or any insurance proceeds or
proceeds arising from the sale thereof and no other property or assets of
Landlord or the individual partners, directors, officers or shareholders
of Landlord or its constituent partners shall be subject to levy,
execution or other enforcement procedure whatsoever for the satisfaction
of any such money judgment.
35.18 Brokerage Fees. Tenant warrants and represents that it has not dealt with
any Realtor, broker or agent in connection with this Lease except the
Broker identified in Article 1.18 above. Tenant shall indemnify, defend
and hold Landlord harmless from and against, and shall be responsible
for, any cost, expense or liability (including the cost of suit and
reasonable attorneys' fees) for any compensation, commission or charges
claimed by any other Realtor, broker or agent in connection with this
Lease or by reason of any act of Tenant.
35.19 Intentionally Omitted.
35.20 Continuing Obligations. All obligations of Tenant hereunder not fully
performed as of the expiration or earlier termination of this Lease shall
survive the expiration or earlier termination of this Lease, including,
without limitation, all payment obligations with respect to Annual Basic
Rent, Additional Rent and all obligations concerning the condition of the
Premises.
35.21 Financial Statements. If Landlord shall so request, Tenant shall, within
thirty (30) days after receipt of such request, deliver to Landlord its
most current annual financial statements including a balance sheet, a
statement of income and expenses, and a statement of cash flows, all in
reasonable detail and prepared according to generally accepted accounting
principles, consistently applied. Year-end statements shall be reviewed
by an independent certified public accountant and interim statements
shall be certified by Tenant, if Tenant is an individual, by the chief
financial officer of Tenant, if Tenant is a corporation, by the manager
or a member of Tenant if Tenant is a limited liability company or by a
general partner of Tenant, if Tenant is a partnership. Tenant shall
supply Landlord with audited financial statements if Tenant prepares
audited financial statements in tile ordinary course of its business.
30-
<PAGE> 32
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date and year first above written.
LANDLORD: TENANT:
SUN LIFE ASSURANCE COMPANY OF ELECTRONIC ACCESSORY SPECIALISTS
CANADA, a Canadian corporation INTERNATIONAL, INC., a Delaware
corporation dba Mobility Electronics
By: /s/ George M. Collins
---------------------- By: /s/ J. LaMont Hall
----------------------
Name: George M. Collins J. LaMont Hall
---------------------- Controller
Its: for PRESIDENT
----------------------
By: /s/ John G. Muluihil
----------------------
Name John G. Muluihil
----------------------
Its: for SECRETARY
----------------------
If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president and tile secretary or assistant
secretary, unless the bylaws or a resolution of the board of directors shall
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.
31-
<PAGE> 33
RIDER "1"
RIDER 1 TO LEASE DATED JUNE 22,1998,
BY AND BETWEEN
SUN LIFE ASSURANCE COMPANY OF CANADA,
-A CANADIAN CORPORATION,
AND
ELECTRONIC ACCESSORY SPECIALISTS
INTERNATIONAL, INC., A DELAWARE CORPORATION,
dba MOBILITY INSURANCE
Supplementing Article 4 hereof, in addition to the Security Deposit set
forth in Article 1.13 above, upon the execution of this Lease, Tenant shall
deposit with Landlord an additional sum as additional Security Deposit (the
"Additional Security Deposit") and together with the amounts set forth in
Article 1.13, the ("Security Deposit") in the amount of Seventy-Five Thousand
Dollars ($75,000.00) payable in cash or in the form of an unconditional and
irrevocable letter of credit (the "Letter of Credit") in favor of Landlord,
having an expiration date not less than two (2) years after the date that the
Letter of Credit is effective and in form and drawn upon a federally insured
bank in Phoenix, Arizona (the "Bank") satisfactory to Landlord, in Landlord's
sole discretion and approved in advance, in writing, by Landlord. The terms of
Article 4 shall govern the times and amounts under which Landlord may draw upon
the Additional Security Deposit.
The Letter of Credit shall provide, among other things, that Landlord may
draw thereon up to the full amount thereof solely and simply by presenting the
Letter of Credit to the Bank with a sight draft signed on behalf of Landlord and
stating that Tenant has caused an Event of Default under this Lease. The Letter
of Credit shall be honored by the issuing bank without inquiry as to the
accuracy thereof, and regardless of whether Tenant disputes Landlord's
presentment of the draft. If Tenant shall default under any term or condition of
this Lease, then Landlord may draw upon the proceeds of the Letter of Credit.
Such proceeds shall constitute all or part of the Security Deposit and Landlord
may use such proceeds as provided in Article 4 hereof and the other terms of
such Article 4 shall apply, including, without limitation, restoration of the
Security Deposit.
Should no Event of Default have occurred and be continuing under this
Lease, and provided the shares of Tenant's stock are traded publicly, Tenant has
a minimum net worth of Fifteen Million U.S. Dollars ($15,000,000.00) in
Shareholder's equity and no greater than Twenty-Five Percent (25%) debt to
equity ratio, the Additional Security Deposit shall be released and repaid (in
the case of the deposit of cash) or returned (in the case of the Letter of
Credit) to Tenant. If the foregoing criteria has not been met by the first day
of the twenty-fifth (25th) month of the Lease Term, and no Event of Default has
occurred and is continuing, Thirty-Seven Thousand Five Hundred U.S. Dollars
($37,500) of the Additional Security Deposit shall be released to Tenant (in the
case of the deposit of cash) or the Letter of Credit shall be reduced to
Thirty-Seven Thousand Five Hundred U.S. Dollars ($37,500), all other terms
remaining the same and the remaining amount of the Additional Security Deposit
or the Letter of Credit, as applicable, shall be returned to tenant provided no
Event of Default has occurred and is continuing, the Security Deposit set forth
in Article 1. 13 shall remain deposited with Landlord and shall be released as
set forth in Article 4.
32-
<PAGE> 34
EXHIBIT "A"
"SITE PLAN"
<PAGE> 35
PARCEL NO, - 1:
A portion of the North half of the Southeast quarter of Section 2, Township 3
North, Range 4 East of the Gila and Salt River, Base and Meridian, Maricopa
County, Arizona, as shown on the Map of Dedication for SCOTTSDALE RESEARCH PARK,
recorded in Book 259 of Maps, Page 38, Maricopa County Records, more
particularly described as follows:
COMMENCING at the center of said Section 2;
thence South 89 degrees 39 minutes 41 seconds East along the North line of said
Southeast quarter 1077.16 feet to the centerline intersection of Paradise Lane
and 78th Street as shown on said Map of Dedication,
thence South 00 degrees 20 minutes 19 seconds West along said centerline of 78th
Street 365.70 feet;
thence South 89 degrees 39 minutes 41 seconds East departing said centerline
30.00 feet to the TRUE POINT OF BEGINNING, said point also being the Easterly
right of way line of said 78th Street;
thence South 89 degrees 39 minutes 41 seconds East 546.86 feet;
thence South 00 degrees 20 minutes 19 seconds West 281.74 feet to the beginning
of a curve concave Easterly and having a radius of 200.00 feet;
thence Southeasterly along the arc of said curve through a central angle of 40
degrees 44 minutes 47 seconds a distance of 142.23 feet to a point of tangency;
thence South 40 degrees 24 minutes 28 seconds East 45.00 feet to a point on the
Northerly right of way line of Greenway Arterial as shown on said Map of
Dedication;
thence South 49 degrees 35 minutes 32 seconds West along said Northerly right of
way line 685.63 feet to the beginning of a curve concave Northwesterly and
having a radius of 20.00 feet;
thence Northwesterly along said Northerly right of way line and the arc of said
curve through a central angle of 93 degrees 16 minutes 32 seconds a distance of
32.56 feet to the beginning of a compound curve the radius of which bears North
52 degrees 52 minutes 04 seconds East 370.00 feet, said point also lying on said
Easterly right of way line 78th Street;
thence Northwesterly along said Easterly right of way line and the arc of said
curve through a central angle of 37 degrees 28 minutes 15 seconds a distance of
241.98 feet to a point of tangency;
thence North 00 degrees 20 minutes 19 seconds East along said Easterly right of
way line 665.82 feet to the TRUE POINT OF BEGINNING.
and
EXHIBIT "B"
"LEGAL DESCRIPTION"
PAGE 1 OF 4
<PAGE> 36
PARCEL NO. 2
A non-exclusive perpetual easement for ingress and egress, drainage and public
utilities as created by instrument recorded May 21, 1996 in 96-352271, Official
Records over a portion of the North half of the Southeast quarter of Section 2,
Township 3 North, Range 4 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, as shown on the Map of Dedication for SCOTTSDALE
RESEARCH PARK, recorded in Book 259 of Maps, Page 38, Maricopa County Records
more particularly described as follows:
COMMENCING at the center of said Section 2;
thence South 89 degrees 39 minutes 41 seconds East along the North line of said
Southeast quarter 1077.16 feet to the centerline intersection of Paradise Lane
and 78th Street as shown on said Map of Dedication;
thence South 00 degrees 20 minutes 19 seconds West along said centerline of 78th
Street 365.70 feet;
thence South 89 degrees 39 minutes 41 seconds East leaving said centerline
576.116 feet to the TRUE POINT OF BEGINNING
thence South 89 degrees 39 minutes 41 seconds East 15.00 feet;
thence South 00 degrees 20 minutes 19 seconds West 281.74 feet to the beginning
of a curve concave Northeasternly and having a radius of 185.00 feet;
thence Southeasterly along the arc of said Curve through a central angle of 40
degrees 44 minutes 17 seconds a distance of 131.56 feet to a point of tangency;
thence South 40 degrees 24 minutes 28 seconds East 45.00 feet to a point on
the Northerly right of way line of Greenway Arterial as shown on said Map of
Dedication;
thence South 49 degrees 35 minutes 32 seconds West along said Northerly right
of way line 15.00 feet;
thence North 40 degrees 24 minutes 28 seconds West leaving said Northerly
right-of-way 45.00 feet to the beginning of a curve concave Northeasterly and
having a radius of 200.00 feet;
thence Northwesterly, along the arc of said curve through a central angle of 40
degrees 44 minutes 47 seconds, a distance or 142.23 feet to a point of tangency;
thence North 00 degrees 20 minutes 19 seconds East 281.74 feet to the TRUE POINT
OF BEGINNING.
and
EXHIBIT "B"
"LEGAL DESCRIPTION"
PAGE 2 OF 4
<PAGE> 37
PARCEL NO. 1:
A portion of the North half of the Southeast quarter of Section 2, Township 3
North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona, more particularly described as follows:
COMMENCING at the center of said Section 2:
thence South 89 degrees 39 minutes 41 seconds East along the North line of said
Southeast quarter 1654.02 feet;
thence South 00 degrees 20 minutes 19 seconds West departing said North line
30.00 feet to the TRUE POINT OF BEGINNING, said point lying on the South right
of way line Paradise Lane, as shown on Map of Dedication for SCOTTSDALE RESEARCH
PARK, as recorded in Book 259 of Maps, Page 38, records of Maricopa County,
Arizona;
thence South 89 degrees 39 minutes 41 seconds East along said South line 494.67
feet;
thence South 82 degrees 49 minutes 07 seconds East along said South line 100.72
feet to the beginning of a non-tangent curve the radius of which bears South 00
degrees 20 minutes 17 seconds West 357.99 feet;
thence Southeasterly along said South line and the arc of said curve through a
central angle of 26 degrees 53 minutes 19 seconds, a distance of 168.00 feet to
the beginning of a compound curve concave Southwesterly and having a radius of
20.00 feet;
thence Southwesterly along said South line and the arc of said curve through a
central angle of 95 degrees 25 minutes 52 seconds, a distance of 33.31 feet to
the beginning of a compound curve concave northwesterly and having a radius of
1945.00 feet, said point also lying on the Northerly right of way line of
Greenway Arterial as shown on said Map of Dedication;
thence Southwesterly along said Northerly line and the arc of said curve
through a central angle of 16 degrees 56 minutes 04 seconds, a distance of
574.87 feet to a point of tangency;
thence South 49 degrees 35 minutes 32 seconds West along said Northerly line
412.38 feet;
thence departing said Northerly line North 40 degrees 24 minutes 28 seconds West
45.00 feet to the beginning of a curve concave Northeasterly and having a radius
of 200.00 feet;
thence Northwesterly along the arc of said curve through a central angle of 40
degrees 44 minutes 47 seconds, a distance of 142.23 feet to the point of
tangency;
thence North 00 degrees 20 minutes 19 seconds East 617.45 feet the TRUE POINT OF
BEGINNING.
and
EXHIBIT "B"
"LEGAL DESCRIPTION"
PAGE 3 OF 4
<PAGE> 38
PARCEL No. 2:
A non-exclusive perpetual easement for ingress and egress drainage and public
utilities as created by instrument recorded May 21, 1996 in 96-0352271, of
Official Records and amended in 96-0650699, of Official Records, over a portion
of the North half of the Southeast quarter of Section 2, Township 3 North, Range
4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona,
as shown on the Map of Dedication for Scottsdale Research Park recorded in Book
259 of Maps, Page 38, Maricopa County Records, more particularly described as
follows:
COMMENCING at the center of said Section 2;
thence South 89 degrees 39 minutes 41 seconds East along the North line of said
Southeast quarter 1077.16 feet to the centerline intersection of Paradise Lane
and 78th Street as shown on said Map of Dedication;
thence South 00 degrees 20 minutes 19 seconds West along said centerline of
78th Street 365.70 feet;
thence South 89 degrees 39 minutes 41 seconds East leaving said centerline
576.86 feet to the TRUE POINT OF BEGINNING;
thence South 00 degrees 20 minutes 19 seconds West 281.74 feet to the beginning
of a curve concave Northeasterly and having a radius or 200.00 feet;
thence Southeasterly along the arc of said curve through a central angle of 40
degrees 44 minutes 47 seconds a distance of 142.23 feet to a point of tangency;
thence South 40 degrees 24 minutes 28 seconds East 45.00 feet to a point lying
on the Northerly Right-of-Way line of Greenway Arterial as shown on said Map of
Dedication;
thence South 49 degrees 35 minutes 32 seconds West along said Northerly
Right-of-Way line 15.00 feet;
thence North 40 degrees 24 minutes 28 seconds West leaving said Northerly
Right-of-Way 45.00 feet to the beginning of a curve concave Northeasterly and
having a radius of 215.00 feet;
thence Northwesterly, along the arc of said curve through a central angle of 40
degrees 44 minutes 47 seconds a distance of 152.90 Feet to a point of tangency;
thence North 00 degrees 20 minutes 19 seconds East 281.74 feet;
thence South 89 degrees 39 minutes 41 seconds East 15.00 feet to the TRUE
POINT OF BEGINNING.
EXHIBIT "B"
"LEGAL DESCRIPTION"
PAGE 4 OF 4
<PAGE> 39
[MOBILITY ELECTRONICS OFFICE LAYOUT]
THE ABOVE PREMISES IS HEREBY REPRESENTED BY LANDLORD AND BY ARCHITECTURAL
DRAWINGS TO BE 5,047 +/- SQUARE FEET.
/s/ ILLEGIBLE
EXHIBIT "C"
"THE PREMISES"
<PAGE> 40
EXHIBIT "D"
MEMORANDUM OF COMMENCEMENT DATE
THIS MEMORANDUM OF COMMENCEMENT DATE is entered into this ____ day of _________,
1998 by SUN LIFE ASSURANCE COMPANY OF CANADA, a Canadian corporation
("Landlord"), and, ELECTRONIC ACCESSORY SPECIALISTS INTERNATIONAL, INC., a
Delaware corporation, dba Mobility Electronics ("Tenant").
RECITALS
A. Landlord and Tenant have previously executed that certain Office
Lease dated _______________, 1998 ("Lease"), pursuant to which Tenant has leased
from Landlord certain premises more particularly described therein.
B. Pursuant to the provisions of Article 3.3 of the Lease, Landlord and
Tenant have agreed to execute this Memorandum of Commencement Date to specify
the Commencement Date of the Lease Term.
NOW, THEREFORE, in consideration of the foregoing recitals, the
execution and delivery of the Lease and other good and valuable considerations,
the receipt, sufficiency and validity which is hereby acknowledged, Landlord and
Tenant agree as follows:
1. Commencement Date. The Commencement Date is ______________________
and the expiration date of the Lease is ______________________.
2. Definitions. Capitalized terms used in this Memorandum of
Commencement Date without definition shall have the meanings assigned to such
terms in the Lease, unless the context requires otherwise.
3. Full Force and Effect. Except as specifically modified by this
Memorandum of Commencement Date, the Lease remains in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum
Commencement Date as of the date and year first above written.
LANDLORD: TENANT:
SUN LIFE ASSURANCE COMPANY OF ELECTRONIC ACCESSORY SPECIALISTS
CANADA, a Canadian corporation INTERNATIONAL, INC., a Delaware
corporation dba Mobility Electronics
By: By:
----------------------------- ------------------------------------
J. LaMont Hall
Name: Controller
---------------------------
Its:
----------------------------
By:
-----------------------------
Name:
---------------------------
Its:
----------------------------
36-
<PAGE> 41
EXHIBIT "E"
RESERVED COVERED PARKING LICENSE
THIS RESERVED COVERED PARKING LICENSE (this "License") is made as of the
_____day of , 199_, between SUN LIFE ASSURANCE COMPANY OF CANADA, a
Canadian corporation ("Licensor"), and ELECTRONIC ACCESSORY SPECIALISTS
INTERNATIONAL, INC., a Delaware corporation, dba Mobility Electronics
("Licensee").
1. LICENSE. Licensor hereby grants Licensee a license to use five (5) reserved
covered parking spaces (the "Spaces") in the parking accommodations (the
"Parking Accommodations") of the property (the "Property") located at 15880,
15990, 16100 Greenway-Hayden Loop Road, Scottsdale, Arizona 85254, as
cross-hatched on the site plan attached hereto as Exhibit "A", for a term the
same as the term of the Lease referred to in Paragraph 2 hereof. Licensor may
also make available from time to time, at its discretion, on a first come, first
served basis, additional reserved covered parking spaces in the Parking
Accommodations to the tenants of the Property and if offered and accepted by
Licensee, this License shall also include one (1) additional reserved, covered
parking space (the "Additional Space"). Each Space shall be used solely for the
parking of one vehicle (which shall mean an automobile, motorcycle or light
"sport utility" truck, but shall expressly exclude heavy "delivery" or other
trucks) therein by Licensee in accordance with the terms of this License.
2. THE LEASE. Anything herein to the contrary notwithstanding, this
License shall terminate no later than the date of termination of the Lease (the
"Lease") between Licensor, as Landlord, and Licensee, as Tenant, for space in
the Property of even date herewith, whether such termination occurs at the end
of the scheduled Lease term or prior thereto. A breach of this License by
Tenant shall be deemed a breach of the Lease by Tenant and after notice given in
accordance with the terms of the Lease and the failure of Tenant to cure within
fifteen (15) days of such notice, Landlord shall have all remedies available
herein, under the Lease, and at law or in equity. In the event the term of the
Lease is extended, the term of this License shall also be extended to correspond
with the Lease Term.
3. MONTHLY FEE. Licensee agrees to pay as a monthly fee for this License
Licensor's current fee for each Space licensed, payable on or before the first
day of each month in advance. The monthly fee which Licensee shall pay for the
Spaces is $25.00. The monthly fee for the Additional Space shall be at
Licensor's then current market rate as established from time to time by
Landlord, which fee may increase on thirty (30) days prior written notice to
Licensee.
4. DESIGNATION OF SPACES. This License is for 5 reserved covered parking
Spaces in the area of the Parking Accommodations cross-hatched on Exhibit "B"
attached hereto, which area may be redesignated from time to time by Licensor.
The initial Spaces designated for Licensee are cross-hatched on Exhibit "B"
attached hereto.
5. DESIGNATION OF AUTOMOBILE. Only vehicles designated by Licensee to
Licensor may be parked in the Spaces, provided, however, that Licensee may
change its automobile designations at any time upon written notice to Licensor
or for temporary use upon notification given to the garage attendant, if any. No
more than one (1) automobile per Space licensed hereunder shall be parked or
stored under Licensee's rights hereunder at any one time.
6. No ADDITIONAL SERVICES. This License is for self-service parking only
and does not include the rights to any additional services, which services may
be made available by Licensor from time to time at an additional charge. No
overnight parking of vehicles in the Parking Accommodations is permitted.
7. INDEMNIFY: Licensor and its agents and employees shall not be liable
for loss or damage to any vehicle parked by Licensee or under Licensee's rights
herein and/or to the contents thereof caused by fire, theft, vandalism,
collision, explosion, freezing, earthquake, storms, natural disasters, strikes,
riots or by any other causes, unless caused by the gross negligence or willful
misconduct of Licensor, and Licensee (1) waives and agrees to hold Licensor
harmless from any claim against Licensor, its agents and employees for and in
respect thereto, and (2) hereby agrees to indemnify and defend Licensor, its
agents and employees against all claims for any loss or damage to any such
vehicle or its contents from any cause whatsoever, unless caused by the gross
negligence or willful misconduct of Licensor.
37-
<PAGE> 42
8. RELATIONSHIP OF PARTIES. The relationship between Licensor and
Licensee constitutes a license to use the Parking Accommodations subject to the
terms and conditions of this License only and neither such relationship nor the
storage or parking of any automobile thereunder shall constitute a bailment nor
create the relationship of bailor and baillee.
9. Notices. All notices hereunder shall be given in accordance with the
terms of the Lease.
10. SUBORDINATION AND ATTORNMENT. This License shall be subject and
subordinate to any mortgage, deed of trust or ground lease now or hereafter
placed on the Property, or any portion thereof, and to replacements, renewals
and extensions thereof, and Licensee, upon request by Licensor, shall execute
instruments (in form satisfactory to Licensor) acknowledging such subordination.
11. No Waste. Licensee covenants not to cause any waste or damage or c or
injury to the Property.
12. CLOSURE OF FACILITY. Licensor shall have the right to close any
portion of the Parking Accommodations and deny access thereto in connection with
any repairs or in an emergency, as it may require, without liability, cost or
abatement of fee.
13. Rules. Licensee shall perform, observe and comply with such rules of
the Property as may be reasonably adopted by Licensor in respect of the use and
operation of said Parking Accommodations.
14. REGULATIONS. Licensee shall, when using the Parking Accommodations,
observe and obey all signs regarding fire lanes and no parking zones, and when
parking always park between designated lines. Licensor reserves the right to tow
away, or otherwise impound, at the expense of the owner or operator, any vehicle
which is improperly parked or parked in a no parking zone. No storage or
overnight parking is permitted in the Parking Accommodations.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
day and year first above written.
LICENSOR: LICENSEE:
SUN LIFE ASSURANCE COMPANY OF ELECTRONIC ACCESSORY
CANADA, a Canadian corporation SPECIALISTS INTERNATIONAL, INC.,
a Delaware corporation dba Mobility
Electronics
By: /s/ George M. Collins
-------------------------- By:/s/ J. LaMont Hall
-----------------------
J. Lamont Hall
Name: George M. Collins Controller
------------------------
Its: for PRESIDENT
------------------------
By: /s/ John G. Muluihil
--------------------------
Name: John G. Muluihil
------------------------
Its: for SECRETARY
------------------------
38-
<PAGE> 43
EXHIBIT "F"
RESERVED
39-
<PAGE> 44
EXHIBIT "G"
RESERVED
40-
<PAGE> 45
EXHIBIT "H"
WORK LETTER
In order to induce Tenant to enter into the Lease (which is
incorporated herein by reference to the extent that the provisions of this Work
Letter may apply thereto) and in consideration of the mutual covenants
hereinafter contained, Landlord and Tenant agree as follows:
1. Completion Schedule, Landlord shall provide Tenant a schedule (the
"Work Schedule") setting forth the time table for the planning and completion of
the installation of the tenant improvements to be constructed in the Leased
Premises (the "Tenant Improvements"). The Work Schedule shall set forth each of
the various items of work to be done in connection with the completion of the
Tenant Improvements and shall become the basis for completing the Tenant
Improvements. Landlord and Tenant acknowledge and agree that time is of the
essence with respect to their respective obligations as set forth in this Work
Letter.
2. Tenant Improvements. The Tenant Improvements shall include the work
depicted on Exhibit "C" which work shall be done in the Leased Premises pursuant
to the Tenant Improvements Plans described in Paragraph 3 below.
3. Tenant Improvement Plans. Tenant has previously met with Landlord's
architect and/or space planner for the purposes of preparing the space plan
shown on Exhibit "C" which space plan has been approved by Landlord and Tenant.
Landlord's architect shall prepare final working drawings and specifications for
the Tenant Improvements based on the space plan. Such final working drawings and
specifications are referred to in this Work Letter as the "Tenant Improvement
Plans."
4. Preparation of Tenant Improvement Plans and Final Pricing. Landlord
shall cause its architect to prepare and submit to Tenant the Tenant Improvement
Plans. Promptly after the approval of the Tenant Improvement Plans by Landlord
and Tenant, the Tenant Improvement Plans shall be submitted to the appropriate
governmental body for plan checking and building permits. Landlord, with
Tenant's cooperation, shall cause to be made such changes in the Tenant
Improvement Plans necessary to obtain required permits. Tenant acknowledges that
after final approval of the Tenant Improvement Plans, no further changes to the
Tenant Improvement Plans may be made without the prior written consent of
Landlord, which consent shall not be unreasonably withheld but may be
conditioned on the agreement by Tenant to pay all additional costs and expenses
resulting from such requested changes that exceed the Allowance (defined below).
5. Construction of Tenant Improvements. After the Tenant Improvement
Plans have been prepared and approved, and building permits for the Tenant
Improvements have been issued, Landlord shall enter into a construction contract
with its contractor for the installation of the Tenant Improvements in
accordance with the Tenant Improvement Plans. The Tenant Improvements shall be
constructed in a good, workmanlike and lien free manner, and in conformance with
applicable building codes. Landlord shall supervise the completion of the Tenant
Improvements and shall endeavor in good faith to secure the completion of the
Tenant Improvements in accordance with the Work Schedule. The cost of the Tenant
Improvements shall be paid as provided in Paragraph 6 below. Tenant shall accept
the Tenant Improvements upon substantial completion thereof, as reasonably
determined by Landlord's architect.
6. PAYMENT OF THE COST OF THE TENANT IMPROVEMENTS.
(a) Tenant Improvement Allowance. Landlord hereby grants to
Tenant a Tenant Improvement allowance (the "Allowance") based upon a calculation
of thirteen dollars ($13.00) per usable square foot of the Leased Premises. The
Allowance shall be used only for:
(i) Payment of the cost preparing the space plan and
the final working drawings and specifications, including mechanical, electrical
and structural drawings and of all other aspects of the Tenant Improvement
Plans, including the charges of Landlord's space planner and Landlord's
architect.
(ii) The payment of permit and license fees relating
to construction of the Tenant Improvements; and
41-
<PAGE> 46
(iii) Construction of the Tenant Improvements, including without
limitation the following:
(1) Installation within the Leased Premises of all
partitioning, doors, floor coverings, finishes, ceilings, wall coverings and
paintings, millwork and similar items;
(2) All electrical wiring, lighting fixtures, outlets and
switches, and other electrical work to be installed within the Leased Premises;
(3) The furnishing and installation of all duct work, terminal
boxes, defusers and accessories required for the completion of the heating,
ventilation and air conditioning systems within the Leased Premises.
(4) Any additional Tenant requirements including, but not
limited to odor control, special heating, ventilation and air conditioning,
noise or vibration control or other special systems;
(5) All fire and life safety control systems such as fire
walls, sprinklers, halon, fire alarms, including piping, wiring and accessories
installed within the Leased Premises; and
(6) All plumbing, fixtures, pipes and accessories to be
installed within the Leased Premises; and
(7) All monument and directory signage.
b. ADDITIONAL COSTS. The cost of each of the items set forth in
Paragraph 6(a) above shall be charged against the Allowance. In the event the
anticipated cost of installing the Tenant Improvements, as established by
Landlord's final pricing schedule, shall exceed the Allowance, or in the event
any of the Tenant Improvements are not to be paid for from the Allowance, the
excess shall be paid by Tenant to Landlord prior to the commencement of
construction of the Tenant Improvements.
c. CHANGES TO TENANT IMPROVEMENT PLANS. In the event that Tenant shall
request any changes or substitutions to the Tenant Improvement Plans, after the
Tenant Improvement Plans have been prepared and the final pricing established by
Landlord, any additional costs attributable thereto shall be paid by Tenant to
Landlord prior to the commencement of the work represented by such changes,
unless covered under the Allowance.
d. UNUSED ALLOWANCE. No portion of the Allowance may be credited toward
Annual Basic Rent or Additional Rent.
7. EARLY ENTRY Landlord has given Tenant the right to enter and occupy the
Early Occupancy Space prior to the Commencement Date. Tenant understands and
agrees that the work to install and construct the Tenant Improvements shall take
place while Tenant is occupying the Early Occupancy Premises and that Tenant
agrees to cooperate with Landlord and not prohibit, impair or interfere with the
work of the Tenant Improvements. Tenant agrees that no disturbances or
interruptions of Tenant in connection with the installation and construction of
the Tenant Improvements and subsequent Punch List (as defined below) correction
of the Tenant Improvements shall constitute a constructive or actual eviction of
Tenant or entitle Tenant to damages or other relief, Tenant hereby waiving same.
Landlord agrees, however, to exercise reasonable diligence in the construction
of the Tenant Improvements so as to avoid unnecessary interference with or
disturbance of Tenant in its use and occupancy of the Early Occupancy Premises.
8. PUNCH LIST PROCEDURE. Not later than the day prior to the Commencement
Date, tenant shall prepare a list (the "Punch List") of any deficiencies or
incomplete work regarding any Tenant Improvements. Provided that such items are
Landlord's responsibility pursuant to the Tenant Improvement Plans, Landlord
shall correct such deficiencies or incomplete work within a reasonable period of
time, but in no event later than sixty (60) days after receipt of the Punch
List, after which Landlord shall have no further obligation to alter, change,
decorate or improve the Leased Premises, whether to adapt the same for the use
for which it is leased or for any other purpose. The existence of such
deficiencies or incomplete work shall not effect Tenant's obligation to accept
the Leased Premises as otherwise required hereunder.
42-
<PAGE> 47
9. ASSIGNMENT OF WARRANTIES. Landlord shall assign to Tenant the
non-exclusive right to enforce any and all warranties which Landlord may receive
from any contractor, supplier or other person or entity involved with
construction of the Tenant Improvements, which assignment shall continue until
the expiration or sooner termination of the Lease or the expiration of the
warranty, whichever occurs first.
43-
<PAGE> 48
EXHIBIT "I"
RULES AND REGULATIONS
1. Unless otherwise specifically defined herein, all capitalized terms
in these Rules and Regulations shall have the meaning set forth in the Lease to
which these Rules and Regulations are attached.
2. The sidewalks, driveways, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls of the Building and the Property shall
not be obstructed or encumbered or used for any purpose other than ingress and
egress to and from the premises demised to any tenant or occupant. The halls,
passages, exits, entrances, elevators, stairways, balconies and roof are not for
the use of the general public, and the Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence in the
judgment of Landlord shall be prejudicial to the safety, character, reputation
and interests of the Building and its tenants.
3. No awnings or other projection shall be attached to the outside
walls or windows of the Building. No curtains, blinds, shades, or screens shall
be attached to or hung in, or used in connection with, any window or door of the
premises demised to any tenant or occupant, without the prior written consent of
Landlord. All electrical fixtures hung in any premises demised to any tenant or
occupant must be of a type, quality, design, color, size and general appearance
approved by Landlord.
4. No tenant shall place objects against glass partitions, doors or
windows which would be in sight from the Building corridors or from the exterior
of the Building and such tenant will promptly remove any such objects when
requested to do so by Landlord.
5. The windows and doors that reflect or admit light and air into the
halls, passageways or other public places in the Building shall not be covered
or obstructed, nor shall any bottles, parcels, or other articles be placed on
any window sills.
6. No show cases or other articles shall be put in front of or affixed
to any part of the exterior of the Building or the other buildings in the
Property, nor placed in the halls, corridors, walkways, landscaped areas,
vestibules or other public parts of the Building or the Property.
7. The restrooms, water and wash closets and other plumbing fixtures
shall not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags or other substances shall be thrown
therein. The reasonable costs incurred by Landlord (a) for extra cleaning in any
restroom, water or wash closet required because of any misuse of such restroom,
water or wash closet, and/or (b) to repair any damage resulting from any misuse
of the fixtures will be borne by the tenant who, or whose employees, agents,
visitors or licensees, caused the same. No tenant shall bring or keep, or permit
to be brought or kept, any flammable, combustible, explosive or hazardous fluid,
material, chemical or substance in or about the premises demised to such tenant
or the Property.
8. No tenant or occupant shall mark, paint, drill into, or in any way
deface any part of the Property, the Building or the premises demised to such
tenant or occupant. No boring, cutting or strings of wires shall be permitted,
except with the prior consent of Landlord, and as Landlord may direct. No tenant
or occupant shall install any resilient tile or similar floor covering in the
premises demised to such tenant or occupant except in a manner approved by
Landlord..
9. Any carpeting cemented down by a tenant shall be installed with a
releasable adhesive. In the event of a violation of the foregoing by a tenant,
Landlord may charge the expense incurred in such removal to such tenant.
44-
<PAGE> 49
10. No bicycles, vehicles or animals of any kind (except seeing eye
dogs) shall be brought into or kept in or about the premises demised to any
tenant. No cooking shall be done or permitted in the Building by any tenant
without the written approval of Landlord. No tenant shall cause or permit any
unusual or objectionable odors to emanate from the premises demised to such
tenant.
11. No space in the Building or the Property shall be used for
manufacturing, for the storage of merchandise, or for the sale of merchandise,
goods or property of any kind at auction.
12. No tenant and no employee, visitor, agent, or licensee of any
Tenant shall make, or permit to be made, any unseemly or disturbing noises or
vibrations or disturb or interfere with other tenants or occupants of the
Building or neighboring buildings or premises whether by the use of any musical
instrument, radio, television set, broadcasting equipment or other audio device,
noise, whistling, singing, yelling or screaming, or in any other way. Nothing
shall be thrown out of any doors. No tenant and no employee, visitor, agent, or
licensee of any Tenant shall conduct itself in any manner that is inconsistent
with the character of the Building as a first quality building or that will
impair the comfort, convenience or safety of other tenants in the Building.
13. No additional locks or bolts of any kind shall be placed upon any
of the doors, nor shall any changes be made in locks or the mechanism thereof.
Each tenant must, upon, the termination of its tenancy, return to Landlord all
keys of stores, offices and toilet rooms, either furnished to, or otherwise
procured by, such Tenant.
14. All removals from the Building, or the carrying in or out of the
Building or from the premises demised to any tenant, of any safes, freight,
furniture or bulky matter of any description must take place at such time and in
such manner as Landlord or its agents may determine, from time to time. Landlord
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of the Rules and
Regulations or the provisions of such tenant's lease.
15. No tenant or occupant shall engage or pay any employees in the
Building or the Property, except those actually working for such tenant or
occupant in the Building or the Property, nor advertise for day laborers giving
an address at the Building or the Property.
16. No tenant or occupant shall purchase lighting maintenance, cleaning
towels or other like service, from any company or person not approved in writing
by Landlord.
17. Landlord shall have the right to prohibit any advertising by any
tenant or occupant which, in Landlord's opinion, tends to impair the reputation
of the Building or the Property or its desirability as a building for offices,
and upon notice from Landlord, such tenant or occupant shall refrain from or
discontinue such advertising.
18. Each tenant, before closing and leaving the premises demised to
such tenant at any time, shall see that all entrance doors are locked and all
electrical equipment and lighting fixtures are turned off. Corridor doors, when
not in use, shall be kept closed.
19. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
20. No premises shall be used, or permitted to be used for lodging or
sleeping, or for any immoral or illegal purposes or in any matter that, in
Landlord's reasonable business judgment, threatens the safety of the Building or
the tenants of the Building and their employees invitees. In addition, each
tenant shall maintain its furniture, fixtures and equipment within its premises
in a manner that presents a pleasant appearance both in daylight and nighttime
from the surrounding streets and roadways.
21. The requirements of tenants will be attended to only upon
application at the management office of Landlord. Building employees shall not
be required to perform, and shall not be requested by any tenant or occupant to
perform, and work outside of their regular duties, unless under specific
instructions from the office of Landlord.
22. Canvassing, soliciting and peddling in the Building or the Property
are prohibited and each tenant and occupant shall cooperate in seeking their
prevention.
45-
<PAGE> 50
23. There shall not be used in the Building, either by any tenant or
occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight or other matter, any hand trucks or other means of
conveyance except those equipped with rubber tires, rubber side guards and such
other safeguards as Landlord may require.
24. If the premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved in writing by Landlord.
25. No premises shall be used, or permitted to be used, at any time, as
a store for the sale or display of goods, wares or merchandise of any kind, or
as a restaurant, shop, booth, bootblack or other stand, or for the conduct of
any business or occupation which predominantly involves direct patronage of the
general public in the premises demised to such tenant, or for manufacturing or
for other similar purposes.
26. No tenant shall clean any window of the Building from the outside.
27. No tenant shall move, or permit to be moved, into or out of the
Building or the premises demised to such tenant, any heavy or bulky matter,
without the specific approval of Landlord. If any such matter requires special
handling, only a qualified person shall be employed to perform such special
handling. No tenant shall place or permit to be placed, on any part of the floor
or floors of the premises demised to such tenant, a load exceeding the floor
load per square foot which such floor was designed to carry and which is allowed
by law. Landlord reserves the right to prescribe the weight and position of
safes and other heavy objects, which must be placed so as to distribute the
weight.
28. With respect to work being performed by a tenant in its premises
with the approval of Landlord, the tenant shall refer all contractors,
contractors' representatives and installation technicians to Landlord for its
supervision, approval and control prior to the performance of any work or
services. This provision shall apply to all work performed in the Building and
the Property including installation of telephones, telegraph equipment,
electrical devices and attachments, and installations of every nature affecting
floors, walls, woodwork, trim, ceilings, equipment and any other physical
portion of the Building and the Property.
29. Landlord shall not be responsible for lost or stolen personal
property, equipment, money, or jewelry from the premises of tenants or public
rooms whether or not such loss occurs when the Building or the premises are
locked against entry.
30. Landlord may permit entrance to the premises of tenants by use of
pass keys controlled by Landlord employees, contractors, or service personnel
directly supervised by Landlord and employees of the United States Postal
Service.
31. Each tenant and all of tenant's representatives, shall observe and
comply with the directional and parking signs on the property surrounding the
Building, and Landlord shall not be responsible for any damage to any vehicle
towed because of non-compliance with parking regulations.
32. No tenant shall install any radio, telephone, television, microwave
or satellite antenna, loudspeaker, music system or other device on the roof or
exterior walls of the Building or on common walls with adjacent tenants or in
the Common Areas.
33. Each tenant shall store all trash and garbage within its premises.
No material shall be placed in the trash boxes or receptacles in the Building or
the Property unless such material may be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage and will not
result in a violation of any law or ordinance governing such disposal. All
garbage and refuse disposal shall be made only through entryways and elevators
provided for such purposes and at such times as Landlord shall designate.
34. No tenant shall employ any persons other than the janitor of
Landlord for the purpose of cleaning its premises without the prior written
consent of Landlord.
35. Each tenant shall give prompt notice to landlord of any accidents
to or defects in plumbing, electrical or heating apparatus so that same may be
attended to properly.
36. No tenant shall bring onto the Property or into the Building any
pollutants, contaminants, inflammable, gasoline, kerosene or hazardous
substances (as now or later defined under State or Federal law).
46-
<PAGE> 51
37. Landlord reserves the right to restrict access to and from the
Building between the hours of 6:00 P.M. and 7:00 A.M. on business days, 12:00
P.M. to 8:00 A.M. on Saturdays, and at all hours on Sundays and holidays.
38. All tenants and tenants' servants, employees, agents, visitors,
invitees and licensees shall observe faithfully and comply strictly with the
foregoing Rules and Regulations and such other and further appropriate Rules and
Regulations as Landlord or Landlord's agent from time to time adopt. Each tenant
shall at all times keep the premises leased to such tenant, its employees,
agents and invitees under its control so as to prevent the performance of any
act that would damage the Building or its reputation or the premises leased to
such tenant or could injure, annoy, or threaten the security of the other
tenants in the Building or their respective employees, agents or invitees or the
public.
39. Landlord may deny entrance to the Building and may remove from the
Building any person or persons who appear to be or are intoxicated, or who
appear to be or are under the influence of liquor or drugs, or who are in any
manner violating any of the Building Rules and Regulations, or who present a
hazard or nuisance to any other person. The reasonable costs incurred by
Landlord for security services or other costs reasonably incurred by Landlord to
remove any such persons shall be borne by the tenant whose employees, agents
and/or invitees are so removed.
40. Landlord shall furnish each tenant, at Landlord's expense, with two
(2) keys to unlock the entry level doors and two (2) keys to unlock each
corridor door entry to each tenant's premises and, at such tenant's expense,
with such additional keys as such tenant may request. No tenant shall install or
permit to be installed any additional lock on any door into or inside of the
premises demised to that tenant or make or permit to be made any duplicate of
keys to the entry level doors or the doors to such premises. Landlord shall be
entitled at all times to possession of a duplicate of all keys to all doors into
or inside of the premises demised to tenants of the Building. All keys shall
remain the property of Landlord. Each tenant shall deliver to Landlord a deposit
in the amount established by Landlord. Any lost key shall be subject to a
replacement charge as established by Landlord from time to time. Upon the
expiration of the Lease Term, each tenant shall surrender all such keys to
Landlord and shall deliver to Landlord the combination to all locks on all
safes, cabinets and vaults which will remain in the premises demised to that
tenant. Landlord shall be entitled to install, operate and maintain security
systems
41. Each person using the Parking Accommodations or other areas
designated by Landlord where parking will be permitted shall comply with all
Rules and Regulations adopted by Landlord with respect to the Parking
Accommodations or other areas, including any employee or visitor parking
restrictions, and any sticker or other identification system established by
Landlord. Landlord may refuse to permit any person who violates any parking rule
or regulation to park in the Parking Accommodations or other areas, and may
remove any vehicle which is parked in the Parking Accommodations or other areas
in violation of the parking Rules and Regulations. The Rules and Regulations
applicable to the Parking Accommodations and the outside parking areas are as
follows:
(a) The maximum speed limit within the Parking Accommodations
shall be 5 miles per hour, the maximum speed limit in other parking areas shall
be 15 miles per hour.
(b) All directional signs and arrows must be strictly
observed.
(c) All vehicles must be parked entirely within painted stall
lines.
(d) No intermediate or full-size car may be parked in any
parking space reserved for a compact car; no bicycle, motorcycle or other two
or three wheeled vehicle, and no truck, van or other oversized vehicle, may be
parked in any area not specifically designated for use thereby.
(e) No vehicle may be parked (i) in an area not striped for
parking, (ii) in a space which has been reserved for visitors or for another
person or firm, (iii) in an aisle or on a ramp, (iv) where a "no parking" sign
is posted or to which has otherwise designated as a no parking area, (v) in a
cross hatched area, (vi) in an area bearing a "handicapped parking only" or
similar designation unless the vehicle bears an appropriate handicapped
designation, (vii) in an area bearing a "loading zone" or similar designation
unless the vehicle is then engaged in a loading or unloading function and (viii)
in an area with a posted height limitation if the vehicle exceeds the
limitation.
47-
<PAGE> 52
(f) Parking passes, stickers or other identification devices
that may be supplied by Landlord shall remain the property of Landlord and shall
not be transferable. Landlord may require a deposit for each such pass, sticker
or other identification device. In addition, a replacement charge determined by
Landlord will be payable by each tenant for loss of any magnetic parking card or
parking pass or sticker.
(g) Garage managers or attendants shall not be authorized to
make or allow any exceptions to these Rules and Regulations.
(h) Each operator shall be required to park and lock his or
her own vehicle, shall use the Parking Facilities at his or her own risk and
shall bear full responsibility for all damage to or loss of his or her vehicle,
and for all injury to persons and damage to property caused by his or her
operation of the vehicle.
(i) Landlord reserves the right to tow away, at the expense of
the owner, any vehicle which is inappropriately parked or parked in violation of
these Rules and Regulations.
42. Landlord reserves the right at any time and from time to time to
rescind, alter or waive, in whole or in part, any of the Building Rules and
regulations when it is deemed necessary, desirable or proper, in Landlord's
judgment for its best interest or of the best interests of the tenants of the
Property.
43. Landlord has designated the Building a "non-smoking" building in
accordance with the Smoking Pollution Control Ordinance adopted by the City of
Scottsdale, Arizona as set forth in the City of Scottsdale Municipal Code.
Accordingly, smoking of tobacco or any other weed plant is prohibited in the
Building Common Areas, including the Building Lobby, the Building entrances and
exits, including the portions of the Property adjacent thereto, public
corridors, lavatories, elevators and other public areas. Further, smoking of
tobacco or any other weed plant is prohibited on the Property, except in areas
that may be designated, from time to time, by Landlord.
44. Bicycles, motorcycles and other two or three-wheeled vehicles may only
be stored or parked in areas designated, from time to time, by Landlord.
48-
<PAGE> 53
Tenant hereby acknowledges receipt of the Building Rules and Regulations.
LANDLORD: TENANT:
SUN LIFE ASSURANCE COMPANY OF ELECTRONIC ACCESSORY SPECIALISTS
CANADA, a Canadian corporation INTERNATIONAL, INC., a Delaware
corporation dba Mobility Electronics
By: /s/ George M. Collins By: /s/ J. LaMont Hall
J. LaMont Hall
Name: George M. Collins Controller
Its: for PRESIDENT
By: /s/ John G. Muluihil
Name: John G. Muluihil
Its: for SECRETARY
49-
<PAGE> 1
EXHIBIT 10.47
PRIVATE LABEL AND MANUFACTURING AGREEMENT
This Private Label and Manufacturing Agreement (this Agreement) is made and
entered into as of May 11,1998, (the "Effective Date"), by and between
Electronics Accessory Specialists International, Inc. (d/b/a "Mobility
Electronics"), a Delaware corporation ("Mobility"), and Targus Group
International, Inc., a Delaware corporation ("Targus"). For purposes of this
Agreement, "Targus" shall include its subsidiaries; provided, however, that
Targus shall be responsible for the actions and/or inaction's of its
subsidiaries with respect to the performance of this Agreement. Targus and
Mobility are each sometimes referred to herein as a "Party" and collectively as
the "Parties".
1. DEFINITIONS
1.1 "Alternative Product" means a product of a manufacturer other than
Mobility, which possesses characteristics of quality, function, and
performance comparable to a Product.
1.2 "Commercially Reasonable Cost" means no greater than 120% of the cost
of an Alternative Product.
1.3 "Components" means parts, materials, assemblies, subassemblies or
components which Mobility purchases from third parties for
incorporation into the Products prior to delivery.
1.4 "Custom Components" means Components which are unique to and used only
in the Custom Products, which cannot be reasonably incorporated into
other products or sold profitably to third parties. Custom Components
for each Custom Product are identified on Attachments 2 and 3.
1.5 "Custom Products" means products, including unique plastics or other
differentiating features, developed specifically for Targus by
Mobility, which initial products shall be described on Attachments 2
and 3 to this Agreement.
1.6 "Long Lead Components" means the Components for a Custom Product which
are identified on Attachments 2 and 3.
1.7 "PO's" means Targus's purchase orders issued under this Agreement.
1.8 "Products" means, collectively, Custom Products and Standard Products.
1.9 "Standard Products" means the products of Mobility described on
Attachment 1 of this Agreement, other than Custom Products.
2. TERM
2.1 Subject to Section 2.2 below, this Agreement shall commence on the
Effective Date and shall continue for a period of one (1) year
thereafter (the "Initial Term"); provided, however, that the term of
this Agreement shall be renewed on a year-to-year basis thereafter
(each, a "Renewal Term"), unless either Party gives written notice to
the other Party, at least ninety (90) days prior to the end of the
then-current term, of such Party's desire to terminate this Agreement
at the expiration of the then-
Targus/Mobility Agreement May 13, 1998 Page 1
<PAGE> 2
current term. The Initial Term and any Renewal Term(s) are sometimes
collectively referred to herein as the "Term". Notwithstanding the
above, this Agreement shall continue after the expiration of the Term
with respect, and only with respect, to any Products on order pursuant
to "PO's" accepted by Mobility prior to or at the time of such
termination, and with respect to Targus's liabilities for Long Lead
Components and Custom Components as otherwise provided in this
Agreement.
2.2 This Agreement may be terminated by either Party upon the material
breach of this Agreement by the other Party, which breach is not cured
within sixty (60) days after delivery of written notice by the
non-breaching Party to the breaching Party.
2.3 At least thirty (30) days prior to the effective date of termination
of this Agreement, Mobility will submit its final bill to Targus for
any Long Lead Components and Custom Components, which final bill will
be equal to the amount paid or to be paid by Mobility for Long Lead
Components and Custom Components that have not or will not be utilized
in any outstanding "PO's" at the time.
3. CUSTOM PRODUCT DEVELOPMENT
3.1 Mobility agrees to use commercially reasonable efforts to develop any
Custom Product (including, without limitation, power or docking
station products) requested in writing by Targus, subject to the
remainder of this Section. Any Custom Product shall be developed and
manufactured pursuant to the terms and conditions of this Agreement
(including, without limitation, Section 3.2 below). In addition, prior
to commencing the development of any Custom Product, the Parties shall
have mutually agreed to a development program schedule, NRE and
Tooling Charges, quantity purchase minimum and a PO lead time, which
agreement shall be in writing in the form of Attachment 3 to this
Agreement. Mobility agrees that it will not market or sell any
Custom Product to any person or entity other than Targus.
3.2 Targus agrees that at the time Mobility begins to develop a Custom
Product, Targus will place a separate PO for NRE and Tooling Charges
for such Custom Product, with the terms of such PO being fifty percent
(50%) due and payable upon placement of the PO, and the remaining
fifty percent (50%) due and payable upon approval of first article.
3.3 Targus hereby agrees that Mobility shall be the exclusive manufacturer
and supplier to Targus of the Products, subject to Section 6.1 below.
Any material changes to any Custom Products will require the written
consent of both Parties pursuant to an amendment to Attachment 2 or
3 (as applicable). Mobility agrees to use all commercially reasonable
efforts to incorporate into the Products any changes reasonably
requested by Targus, which changes shall be incorporated as soon as
practicable after an amendment to Attachment 2 or 3 (as applicable)
has been executed by the Parties setting forth such change, as well as
the affect, if any, on the purchase price of such Product.
4. ORDERING AND DELIVERY
4.1 Targus will provide to Mobility on a calendar monthly basis a
six-month rolling forecast of anticipated purchases of Products by
Targus for the following six-month period. Based on such forecast,
Mobility intends to purchase the minimum required
Targus/Mobility Agreement May 13, 1998 Page 2
<PAGE> 3
Long Lead Components and Custom Components for such anticipated Custom
Products (taking into account the expected lead-time for delivery of
such Components).
4.2 Targus will order Products by issuing PO's. Mobility will use all
commercially reasonable efforts to fill any PO's within the lead-time
for such Products as set forth in Attachment 4. As part of this
agreement, Targus agrees to issue the PO attached as Attachment 5
hereto.
4.3 Mobility agrees to use all commercially reasonable efforts to deliver
the Products to Targus in a timely manner, as provided in the PO's; it
being acknowledged and agreed that Mobility will manufacture to PO's
provided by Targus and, at Mobility's sole discretion, will not
manufacture or inventory Products in excess of PO quantities, except
as provided in Section 4.1 above.
4.4 All deliveries of Products will be made F.O.B. Scottsdale, Arizona,
United States of America. Mobility will accommodate other delivery
requests made by Targus for an additional charge.
4.5 Each Product shall have affixed thereto an non-prominent label titled
"Manufactured by Mobility Electronics for ________" (i.e. Port or
Targus), which label shall be in form, and located on the Product in a
place, mutually agreeable to the parties. If the Parties in good faith
cannot mutually agree to such a label, then similar text will be
included in the packaging or manual for the Product.
5. MOBILITY WARRANTIES
5.1 Mobility shall manufacture the Standard Products in accordance with
the product specifications, which specifications may be changed from
time to time by Mobility upon thirty (30) days prior written notice to
Targus. Mobility shall manufacture Custom Products in accordance with
the specifications for such Custom Products (as set forth in
Attachment 2 or 3 (as applicable) for each of such Custom Product).
Mobility shall not make any material change in the Custom Products
without prior written approval of Targus. For each Custom Product,
Mobility will provide Targus with a "First Article" from its initial
production run for quality verification and approval.
5.2 Mobility warrants that all Products shall comply with all applicable
governmental laws and regulations, and be free from defects in design,
material, workmanship and performance for the period set forth in the
product specification. Targus will provide written notice of any
warranted defect promptly upon its discovery. Upon receipt of such
notice, Mobility shall arrange for the repair or replacement, at
Mobility's sole discretion, of the Product and shall bear all costs
necessary to complete such repair or replacement Targus shall not be
required to return failed Products to Mobility, unless specifically
requested by Mobility. At the request of Mobility, Targus shall use
its best efforts to deliver to Mobility, at Mobility's cost and
expense, any failed Products. Any Products returned shall be subject
to reasonable inspection by, and the concurrence of, Mobility.
Targus/Mobility Agreement May 13, 1998 Page 3
<PAGE> 4
5.3 Mobility warrants that it has the unrestricted worldwide right to
manufacture, sell and deliver the Products to Targus and that it has
in place proper authorizations and licenses from all parties as may be
necessary to deliver the Products to Targus.
5.4 Mobility warrants that no Products will infringe any patent,
copyright, trademark, trade secret or other proprietary or
intellectual property right of any third party. Mobility shall
indemnify, defend and hold harmless Targus, its parent, subsidiaries,
affiliates and Targus (each an "Indemnitee" and collectively, the
"Indemnities") from any damage, expense, liability, cost (including
attorney's fees and expenses) arising out of any suit, claim, action
or proceeding alleging any such infringement. Targus agrees to provide
prompt written notice to Mobility upon receipt by any Indemnitee of
any suit, claim, action or proceeding alleging such infringement, and
Mobility shall have the right to defend such suit, claim, action or
proceeding at its own expense. Such Indemnitee may participate in such
defense at its own expense and will reasonably cooperate with Mobility
in the defense there of, and such Indemnitee agrees that it will not
unreasonably withhold its consent to any settlement or compromise
thereof.
5.5 THE ABOVE WARRANTIES ARE IN LIEU OF ANY OTHER WARRANTY, WHETHER
EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH WARRANTIES
ARE SPECIFICALLY DENIED.
6. PRODUCT PRICING AND PAYMENT
6.1 In the event Targus believes that the cost of a Product is in excess
of a Commercially Reasonable Cost, Targus shall notify Mobility in
writing of such circumstance, and Mobility shall have thirty days to
provide a mutually acceptable written explanation as to how Mobility
plans to cure the situation. If Mobility fails to cure the situation
within ninety days thereafter, as to the Product in question, Targus
may purchase and sell an Alternative Product.
6.2 Each Product shall have a purchase price as provided in Attachment 4
to this Agreement and Mobility shall use its best efforts to meet the
Commercially Reasonable Cost requirements of Targus; provided,
however, Mobility shall have the final right to establish its purchase
prices. Mobility may change the purchase price of any Product upon
seventy-five (75) days prior written notice to Targus. Mobility shall
offer each Product to Targus at a purchase price that is not more than
the purchase price offered to any other customer of Mobility, given
similar volumes and timing of purchases and payment terms.
6.3 Deleted.
6.4 Mobility shall invoice Targus upon shipment. Payment for Product
invoices shall be subject to a credit limit as determined from time to
time in the sole discretion of Mobility, net twenty (20) days from
date of invoice.
6.5 Except as provided in the next sentence, Mobility will not invoice
Targus separately for Long Lead Components or Custom Components, as
such Components will be included in Custom Products which shall be
invoiced as provided in Section 6.4 above. However, in the event
Targus does not purchase Custom Products in the
Torgus/Mobility Agreement May 13,1998 Page 4
<PAGE> 5
amounts set forth in the monthly forecast provided to Mobility, then
Mobility shall have the option, in its sole discretion, to invoice
Targus at any time thereafter for such Long Lead Components and/or
Custom Components. If so invoiced, the payment for such Long Lead
Components and Custom Components shall be due and payable net thirty
(30) days from date of invoice.
6.6 All amounts payable by Targus to Mobility under this Agreement and
under the PO's shall be paid in United States dollars.
7. CONFIDENTIAL INFORMATION AND COVENANT NOT-TO-COMPETE
7.1 All copies of any confidential information delivered by any Party to
the other Party pursuant to or as a result of this Agreement shall,
upon the written request of the Party delivering the same, be promptly
returned by the Party receiving the same, and each receiving Party
agrees that it will hold in confidence such confidential information
delivered from the other Party and shall use such confidential
information only in furtherance of and in connection with this
Agreement and its performance hereunder and not for any other purpose.
For purposes of the preceding sentence, "confidential information"
shall not include information which: (i) is or becomes generally
available to the public other than as a result of disclosure which is
in violation of this Section; (ii) was known by the receiving Party on
a non-confidential basis prior to the disclosure thereof; or (iii) is
acquired by the receiving Party from a third party who has not
confidential commitment to the delivering Party with respect to the
same.
7.2 During the Term, Targus will not acquire, manufacture, sell, or offer
to sell any product which is competitive with the Products, except as
provided for in section 6.1, unless there are extenuating
circumstances. Extenuating circumstances can include significant
technological, regulatory, performance, function, quality and other
differences between the Products and competitive products which
Mobility is unable or unwilling to address. If Targus believes that
extenuating circumstances exist, then Targus will notify Mobility in
writing of such circumstances and Targus will work in good faith with
Mobility for a period of four months to address such circumstances.
8. MARKETING PRODUCTS
8.1 Targus agrees to make a good faith effort to market and sell the
Products on a non-exclusive basis (exclusive basis for Custom
Products), world-wide through all of its distribution channels. Good
faith effort means that Targus will market and sell the Products
subject to local market conditions, the presence or absence of
competition, and product pricing.
9. PO CHANGES
9.1 Targus may, upon written notice, modify any PO, other than the Master
PO and Individual POs as described in Attachment 5, within the
following parameters:
1 PO's for Products to be delivered within thirty (30) days from
the date of any such notice are non-cancellable and may not be
rescheduled.
Targua/Mobility Agreement May 13,1998 Page 5
<PAGE> 6
2. PO's for Products to be delivered between thirty one (31) days
and sixty (60) days from the date of any such notice are not
cancellable, but can be rescheduled for a maximum of thirty (30)
days from the original delivery date.
PO's for Products to be delivered more than sixty (60) days from the
date of any such notice may be rescheduled or canceled prior to the
commencement of such sixty (60) day period and may be rescheduled
during such sixty (60) day period as provided in (2) above. PO's for
NRE and Tooling Charges are non-cancellable and cannot be rescheduled.
10. DISPUTES
10.1 The Parties will attempt to resolve disputes through ascending levels
of management. Disputes which cannot be resolved by negotiation
between the Parties may be referred to arbitration by an international
arbitration body acceptable to both Parties, provided no arbitrator
shall have authority to award any indirect or speculative damages
(including, without limitation, consequential, incidental, special or
punitive damages).
11. GOVERNING LAW
11.1 This Agreement, and PO's issued hereunder, shall be governed by and
interpreted in accordance with the substantive and procedural laws of
the State of Arizona, United States of America, and each Party hereby
submits to the jurisdiction and venue of the courts of the State of
Arizona county of Maricopa.
11.2 The United Nations Convention on the international Sale of Goods shall
not apply to this Agreement or any PO issued thereunder.
12. LIMITATION OF LIABILITY
12.1 Each Party hereby waives any right to recover any indirect or
speculative damages (including, without limitation, consequential,
incidental, special or punitive damages) from the other Party.
13. GENERAL PROVISIONS
13.1 The Parties agree that Mobility 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.
point of shipment), and that Targus shall bear the loss from the
destruction or breakage of any Products after delivery thereof.
13.2 This Agreement is subject to strikes and lockouts or refusal of
employees to work, or the inability of Mobility to be able to cause
Products manufactured for Mobility outside of the United States of
America to be delivered into the United States of America, and for
such cause that portion of this Agreement affected thereby may be
suspended during the continuance thereof. Impossibility of performance
by reason of any legislative, executive or judicial act of any
government or state any other similar or dissimilar cause which cannot
be presented by either Party or by the
Targus/Mobility Agreement May 13,1998 Page 6
<PAGE> 7
exercise of proper diligence, shall excuse performance of this
Agreement. Bankruptcy of either Party shall allow the other Party, at
its sole discretion, to terminate this Agreement. 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 12.2 shall
give prompt written notice to the other Party of such inability to
perform.
13.3 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.
13.4 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 mailed,
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 Targus: Targus, Inc.
6180 Valley View
Buena Park, CA 90620
Ph: (714) 523-5429
Fax: (714) 523-0153
Attn: David Cartwright
Port, Inc.
66 Fort Point Street
Norwalk, CT 06855
Ph: (203) 852-1102
Fax: (203) 866-0221
Attn: Sean O'Connor
If to Mobility: Mobility Electronics
7955 Redfield Road
Scottsdale, AZ 85260
Ph: (602) 596-0061
Fax: (602) 596-0349
Attn: Cameron Wilson
Any Party may change its address for notice by written notice given
to the other Party in accordance with this Section.
13.5 Any debts, obligations, covenants or liabilities accrued hereunder
between the Parties hereto shall survive the expiration or termination
of this Agreement for whatever reason.
13.6 This Agreement (including the Attachments hereto) 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
Targus/Mobility Agreement May 13,1998 Page 7
<PAGE> 8
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.
13.7 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.
13.8 The headings in the Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning of this Agreement.
13.9 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.
Targus/Mobility Agreement May 13,1998 Page 8
<PAGE> 9
EXECUTED as of the date first above written.
TARGUS GROUP INTERNATIONAL, INC.
By: /s/ DAVE CARTWRIGHT
------------------------------------
Its: President
-----------------------------------
PORT, INCORPORATED
By: /s/ SEAN O'CONNER
------------------------------------
Its: CEO
-----------------------------------
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
By: /s/ CAMERON WILSON
------------------------------------
Its: President
-----------------------------------
Targus/Mobility Agreement May 13,1998 Page 9
<PAGE> 1
EXHIBIT 10.49
MOBILITY ELECTRONICS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (the "Agreement") dated as of
April 1, 2000 is entered into between Mobility Electronics, Inc., a Delaware
corporation (the "Company"), and Donald W. Johnson, an employee of the Company
(the "Optionee"). In consideration of the mutual promises and covenants made
herein, the parties hereby agree as follows:
1. GRANT OF OPTION. Under the terms and conditions of the Company's Amended
and Restated 1996 Long Term Incentive Plan (the "Plan"), a copy of which is
available to Optionee and incorporated herein by reference, the Company grants
to the Optionee an option (the "Option") to purchase from the Company all or any
part of a total of 110,000 shares of the Company's Common Stock, par value $.01
per share, at a price equal to $11.00 per share. The Option is granted as of the
date first above written (the "Date of Grant").
2. CHARACTER OF OPTION. The Option is not an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
3. TERM. The Option will expire on the earliest of: (i) the fifth
anniversary of the Date of Grant or, (ii) one year following the termination of
Optionee's employment with the Company.
4. VESTING. Subject to the provisions of Section 6(b) of the Plan, this
Option shall be exercised (and shall vest) on the basis of 3,056 shares per
month for 35 months, commencing on May 1, 2000, and 3,040 shares on the 36th
month, with such exercisability being on the first day of each such month.
Notwithstanding the above, the Option will be exercisable, and vest, in full
upon a Change In Control (as defined in the Employment Agreement, of even date
herewith, by and between the Company and Optionee). Notwithstanding anything
herein to the contrary, except as provided above in this Section 4, upon
termination of Employee's employment with the Company, for any reason, the
unvested portion of the Option shall immediately terminate.
5. PROCEDURE FOR EXERCISE. Exercise of the Option or a portion thereof
shall be effected by the giving of written notice to the Company and payment of
the purchase price prescribed in Section 1 above for the shares to be acquired
pursuant to the exercise.
6. PAYMENT OF PURCHASE PRICE. Payment of the purchase price for any shares
purchased pursuant to the Option shall be in cash, unless otherwise agreed to in
writing by the Compensation Committee of the Board of Directors of the Company.
7. TRANSFER OF OPTIONS. The Option may not be transferred except by will or
the laws of descent and distribution and, during the lifetime of the Optionee,
may be exercised only by the Optionee or by the Optionee's legally authorized
representative.
8. ACCEPTANCE OF THE PLAN. The Option is granted subject to all of the
applicable terms and provisions of the Plan, and such terms and provisions are
incorporated by reference herein. The Optionee hereby accepts and agrees to be
bound by all the terms and conditions of the Plan.
1
<PAGE> 2
9. AMENDMENT. This Agreement may be amended by an instrument in writing
signed by both the Company and the Optionee.
10. MISCELLANEOUS. This Agreement will be construed and enforced in
accordance with the laws of the State of Delaware and will be binding upon and
inure to the benefit of any successor or assign of the Company and any executor,
administrator, trustee, guardian or other legal representative of the Optionee.
Executed as of the date first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ Charles R. Mollo
-----------------------------------------
Title: President and CEO
--------------------------------------
OPTIONEE
/s/ Donald W. Johnson
---------------------------------------------
Donald W. Johnson
---------------------------------------------
Social Security Number of Optionee
2
<PAGE> 1
EXHIBIT 10.50
LICENSE AGREEMENT
This License Agreement (hereinafter "Agreement") is entered into by and
between Mobility Electronics, Inc. ("Mobility"), an Delaware corporation with
its principal place of business at 7955 E. Redfield Road, Scottsdale, AZ 85260,
and Cybex Computer Products Corporation ("Cybex"), an Alabama corporation with
its principal place of business at 4991 Corporate Drive, Huntsville, Alabama
35805 effective the 6th day of March, 2000.
I.
RECITALS
1.1 Mobility owns the Mobility Technology (as herein defined), has
pending patent applications (Nos. 09-130,057 and 09-130,058) (the "Pending
Patents") pertaining to the Mobility Technology, and has the right to grant
non-exclusive licenses thereunder.
1.2 Cybex desires to obtain from Mobility, and Mobility hereby desires
to grant to Cybex, a certain non-exclusive license under the Mobility Technology
as provided in this Agreement.
II.
DEFINITIONS
The following terms shall have meanings ascribed to them below:
2.1 "CYBEX TECHNOLOGY" shall mean all of Cybex's split computer
technology represented by United States Patent Application No. 09-430,163 for a
"split computer architecture" and United States Continuation Patent Application
No. 09-430,162, and all related intellectual property, including without
limitation software, patents, patents pending, trade secrets, ASIC chips and
related intellectual property blocks, designs, specifications, and any future
enhancements, modifications, variations thereto, and all intellectual property
associated with the adaptation of cables and connectors adapted for use with
such technology and future generations of any of the above. Cybex Technology
does not include any incorporated Mobility Technology.
2.2 "MOBILITY TECHNOLOGY" shall mean all of Mobility's Split Bridge
Technology (as hereinafter defined), including Mobility's current split bridge
ASIC chip commonly known as "Merlin" and ASIC split bridge chips currently under
development by Mobility with LSI Logic or developed in the future "Mobility
Split Bridge Chips". This further includes all related intellectual property and
Mobility Split Bridge Chip intellectual property including without limitation
software, patents and patents pending (including, without limitations, the
Pending Patents), trade secrets, ASIC chips and related IP blocks, designs,
specifications, and any future enhancements, modifications, variations thereto,
and all intellectual property associated with the adaptation of cables and
connectors adapted for use with Mobility's Split Bridge Chips and technology and
future generations of any of the above. "Split Bridge Technology" is the
1
<PAGE> 2
technology which allows a main computer PCI bus to be extended to a remote
location by connecting two proprietary Mobility Split Bridge Chips with a high
speed cable, and includes all of the above. Mobility Technology does not include
any incorporated Cybex Technology.
2.3 "PERMITTED APPLICATIONS" shall mean any product or device
containing Mobility Technology for an application in a desk top computer, KVM
Switch, or server computer system.
2.4 "SPLIT BRIDGE LINK" shall mean two Mobility Split Bridge Chips,
associated connectors, and associated high speed cable which permit the use and
implementation of Mobility Technology.
III.
GRANT OF LICENSE BY MOBILITY
3.1 Subject to Cybex making the royalty payments required pursuant to
this Agreement, and during the Term, Mobility grants to Cybex, for Permitted
Applications only, a worldwide, nontransferable, and nonsublicensable right to
use, sell and otherwise incorporate Mobility Technology including Mobility Split
Bridge Chips; provided, however, that Cybex shall have the right to sublicense
the Mobility Technology to Cycom, LLC, an Alabama limited liability company and
an Affiliate (as defined below) of Cybex, for use in Permitted Applications and
otherwise under the terms of this Agreement (including compliance with Section
11.3 below).
3.2 The rights granted in Section 3.1 will survive any change in
control of Mobility.
3.3 Cybex shall not have the right to use Mobility Technology or Split
Bridge Chips for any purposes other than those specified in Section 3.1, with
such prohibition specifically including universal docking stations primarily
designed for use with portable and handheld computers.
IV.
TITLE AND OWNERSHIP
4.1 Cybex acknowledges that Mobility owns and has all rights, title and
interest in and to all intellectual property relating to Mobility Technology and
Mobility Split Bridge Chips, including all patents, patents pending, trade
secrets, ASIC chips, software, utility models, trademarks, mask works,
copyrights, and all related applications therefor, including all future
improvements, modifications, and enhancements made to Mobility Technology and
Mobility Chips.
4.2 If either or both parties develop new technology, products and/or
chips that include a significant amount of both Cybex Technology and Mobility
Technology for extended PCI bus systems and applications that are beyond the
capabilities of Mobility Technology, the parties agree as follows:
(a) Each party will have the right to use, sell, or otherwise market
the joint products or chips, except that Mobility will have exclusive rights in
the portable and handheld computer docking market and Cybex will have the
exclusive rights in the KVM switch market.
2
<PAGE> 3
(b) Product or chip development cost will be funded fifty percent (50%)
by each party, or if only one party decides to fund such development, the party
that has agreed to fund development will receive 100% of royalties due the other
party until 125% of such development cost is recovered.
(c) If the joint chips are sold by either party, the other party will
receive a royalty of 15% on the sales revenues of all such chips. Such royalty
may be adjusted from time to time by the mutual written consent of Mobility and
Cybex. Both parties will have the right to purchase and sell such chips from the
manufacturing foundry at cost.
(d) If the joint products are sold by either party, the other party
will receive a royalty of 6% on the sales revenue of all such products. Such
royalty may be adjusted from time to time by the mutual written consent of
Mobility and Cybex. Both parties will have the right to manufacture and sell
such products.
(e) Any technology contributed by a party will be owned 100% by such
contributing party, and may not be used by the non-contributing party for any
purpose other than the joint product and/or joint chip. Any new jointly
developed technology and any associated patents and patent rights will be
jointly owned by the parties, but also may not be used for any purpose other
than the joint product and/or joint chip as provided above without the other
party's consent.
4.3 Pursuant to the terms of this agreement, Mobility agrees to make
available to Cybex, to the extent it has the right to do so, all future
enhancements, variations, modifications, and future generations of Mobility
Technology and Mobility Split Bridge Chips at a royalty rate defined below.
V.
ROYALTIES AND LINK PURCHASES
During the Term, Cybex shall pay to Mobility royalties as follows:
5.1 On all sales by Cybex of any product incorporating any Mobility
Technology or Mobility Split Bridge Chips, 6% of Cybex's sale price of such
product. This royalty will not apply to any products sold by Cybex incorporating
products purchased from Mobility pursuant to the Private Label Agreement, of
even date herewith, between Mobility and Cybex, as may be amended from time to
time.
5.2 Cybex agrees to purchase required Split Bridge Links from Mobility
for all products which include Mobility Technology.
5.3 Mobility shall price the Mobility Split Bridge Links for sale to
Cybex at a rate no greater than the lowest rate offered to any third party
independent of Mobility Electronics that purchases the same products at
comparable volumes. Moreover, Mobility agrees to provide Cybex an appropriate
discount on the pricing for the applicable Mobility Split Bridge Chips if the
applicable Mobility Split Bridge Chips incorporates a material amount of Cybex
Technology at terms to be mutually agreed upon in writing.
5.4 Royalties due under Paragraph 5.1 shall be paid quarterly within 30
days of the end of each quarter. Payments shall be made by wire transfer to an
account specified in writing
3
<PAGE> 4
at least 30 days prior to the date a royalty payment is due. Within 30 days
after the end of each quarter, Cybex shall furnish to Mobility a report
providing the number and types of Mobility Technology sold, the applicable
royalty rate, and the total royalty paid.
5.5 Cybex agrees to make and maintain such books, records and accounts
as are reasonably necessary to verify the royalty payments due Mobility under
this Agreement. An independent certified public accountant, selected by
Mobility, who agrees to sign a nondisclosure agreement may, upon reasonable
notice and during normal business hours, but no more often than twice each year,
audit and inspect those records of Cybex which are necessary to determine the
accuracy of the royalty payments made to Mobility. In the event that the
independent audit reveals that the royalties owed by Cybex for any given quarter
are more than 5% greater than the royalties actually paid by Cybex for that
quarter, then in addition to remitting all outstanding royalties shown to be due
under the audit, all expenses incurred by Mobility in conducting the audit shall
be paid by Cybex within 30 days of receiving the auditor's report; otherwise,
all expenses incurred by Mobility in conducting the audit shall be borne by
Mobility.
VI.
COVENANTS
6.1 Mobility hereby covenants not to license or sell directly, or to
its knowledge, indirectly, Mobility Technology, Split Bridge Links or any
technology jointly developed by Mobility and Cybex during the Term of this
Agreement to those companies set forth on Exhibit A attached hereto, or any
successor or assign or subsidiary company of such listed company (unless
Mobility has contractual arrangements with any such successor or assign prior to
such assignment or succession, which Mobility will notify Cybex of following any
event triggering this Section). Mobility further agrees that Cybex may amend
Exhibit A from time to time only to delete companies listed therein, by written
notice to Mobility in accordance with Section 11.9 below.
VII.
TERM AND TERMINATION
7.1 The Term of this agreement is perpetual and can only be terminated
upon the written consent of both Mobility and Cybex or as provided in Section
7.2.
7.2 Either Party shall have the right to terminate this Agreement upon
a material default by the other Party of any of its obligations hereunder, if
such default has not been cured within sixty (60) days after receipt of written
notice from the other Party of the alleged default. For purposes of this
Agreement, a material default includes, but is not limited to, the failure of
Cybex to pay any royalties when due and/ or the use of Mobility Technology or
Mobility Split Bridge Chips except as permitted in this Agreement.
VIII.
REPRESENTATIONS AND WARRANTIES
8.1 REPRESENTATIONS AND WARRANTIES OF MOBILITY. Mobility hereby
represents, warrants and covenants to Cybex that as of the execution date of
this Agreement:
4
<PAGE> 5
(a) Mobility is a corporation duly organized, validly existing and in
good standing under the laws of the State of Arizona, with full power to carry
on its business and activities as now being conducted;
(b) This Agreement has been duly authorized, executed and delivered by
Mobility. Mobility has the corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. No other act, approval or
proceeding on the part of Mobility is or will be required to authorize the
execution and delivery of this Agreement, or the consummation of the
transactions contemplated hereby; and
(c) The execution and delivery by Mobility of this Agreement will not,
and the fulfillment of and compliance by Mobility with the terms, conditions and
provisions hereof will not, (i) conflict with any of the terms, conditions or
provisions of the articles of incorporation or by-laws of Mobility, (ii) violate
any term, condition or provision of, or require any consent, authorization or
approval under, any judicial or arbitration judgment, order, award, writ,
injunction or decree applicable to Mobility, or (iii) conflict with, result in a
breach of, constitute a default under (whether with or without the giving of
notice or the lapse of time or both), or accelerate or permit the acceleration
of the performance required by, or require any consent, authorization or
approval under any document, instrument, agreement or license to which Mobility
or a person under its control is a party or is bound or to which any of the
assets or properties of Mobility or such person are subject.
8.2 REPRESENTATIONS AND WARRANTIES OF CYBEX.
(a) Cybex is a corporation duly organized, validly existing and in good
standing under the laws of the State of Alabama, with full power to carry on its
business and activities as now being conducted;
(b) This Agreement has been duly authorized, executed and delivered by
Cybex. Cybex has the corporate power and authority to enter into this Agreement
and to perform its obligations hereunder. No other act, approval or proceeding
on the part of Cybex is or will be required to authorize the execution and
delivery of this Agreement, or the consummation of the transactions contemplated
hereby; and
(c) The execution and delivery by Cybex of this Agreement will not, and
the fulfillment of and compliance by Cybex with the terms, conditions and
provisions hereof will not, (i) conflict with any of the terms, conditions or
provisions of the articles of incorporation or by-laws of Cybex, (ii) violate
any term, condition or provision of, or require any consent, authorization or
approval under, any judicial or arbitration judgment, order, award, writ,
injunction or decree applicable to Cybex, or (iii) conflict with, result in a
breach of, constitute a default under (whether with or without the giving of
notice or the lapse of time or both), or accelerate or permit the acceleration
of the performance required by, or require any consent, authorization or
approval under any document, instrument, agreement or license to which Cybex or
a person under its control is a party or is bound or to which any of the assets
or properties of Cybex or such person are subject.
8.3 INDEMNIFICATION.
(a) Cybex shall indemnify, hold harmless and defend Mobility, its
directors, officers, shareholders, employees, representatives, attorneys and
agents (each such Person a "Mobility
5
<PAGE> 6
Indemnitee") from and against any and all claims, suits, losses, damages, costs,
fees and expenses (including reasonable attorneys' and experts witness fees and
court costs) incurred by any Mobility Indemnitee arising out of, resulting from
or otherwise concerning a breach by Cybex of any of Cybex's representations and
warranties contained in this Article 8.
(b) Mobility shall indemnify, hold harmless and defend Cybex, its
directors, officers, shareholders, employees, representatives, attorneys and
agents (each such Person a "Cybex Indemnitee") from and against any and all
claims, suits, losses, damages, costs, fees and expenses (including reasonable
attorneys' and experts' fees and court costs) incurred by any Cybex Indemnitee
arising out of, resulting from or otherwise concerning a breach by Mobility of
any of Mobility's representations and warranties contained in this Article 8.
(c) Any Mobility Indemnitee or Cybex Indemnitee, as the case may be,
seeking to be held harmless, defended and indemnified in accordance with the
provisions of Section (a) or (b) of this Section 8.3 shall promptly notify Cybex
or Mobility, as appropriate (the "Indemnitor"), of any claim or suit brought
against such Mobility Indemnitee or Cybex Indemnitee in respect of which such
Mobility Indemnitee or Cybex Indemnitee intends to invoke the provisions of this
Section 8.3, although the failure to so notify the Indemnitor shall not release
such Indemnitor from its obligations under this Section 8.3 unless such
Indemnitor shall have been materially prejudiced by such failure. Such
Indemnitor shall indemnify, hold harmless and defend such Mobility Indemnitee or
Cybex Indemnitee, as the case may be, as above provided and keep such Mobility
Indemnitee or Cybex Indemnitee fully informed on a current basis of the
Indemnitor's defense and/or settlement of such claim or suit. The Mobility
Indemnitee or Cybex Indemnitee, as the case may be, shall reasonably cooperate
in the defense of such claim or suit and shall have the right, but no
obligation, to participate in the defense thereof with counsel of such Person's
choice at such Person's expense.
8.4 WAIVER OF CONSEQUENTIAL DAMAGES, ETC. Except as otherwise
contemplated in Article 8, neither party shall be liable for indirect, special,
consequential or punitive damages (including loss of income, profits or
goodwill) arising under or in relation to this Agreement whether based on an
action or claim in contract, equity, negligence, intended conduct, tort or
otherwise and each party hereby waives any claims with respect thereto. In
connection with the conduct of any litigation with third parties relating to any
liability of one party to the other or to such third parties, the one party
shall have all rights (including the right to accept or reject settlement offers
and to participate in such litigation) which are appropriate to its potential
responsibilities or liabilities. Mobility and Cybex expressly acknowledge that
the limitations and exclusions contained in this Section 8.4 have been the
subject of active and complete negotiation between the parties and represent the
parties' agreement based upon the level of risk to Cybex and Mobility associated
with their respective obligations under this Agreement and the payments provided
to Mobility hereunder.
IX.
PROPRIETARY INFORMATION
9.1 PROPRIETARY INFORMATION. During the period from the date of
disclosure until three (3) years after the termination of this Agreement,
Mobility and Cybex, respectively, will treat and maintain the proprietary
business, technical, patent prosecution and other proprietary information, to
include the documentation and comments communicated between Mobility and
6
<PAGE> 7
Cybex (collectively, the "Proprietary Information") of the other party in
confidence (using at least the same degree of care as the recipient uses to
protect its own Proprietary Information of a like nature) and only use such
Proprietary Information in furtherance of this Agreement and the transactions
and matters contemplated herein.
9.2 PROPRIETARY INFORMATION. In order to be considered Proprietary
Information, proprietary information must be labeled or marked confidential or
proprietary by the disclosing party or reasonably be expected to be treated as
confidential or proprietary. The receiving party shall not remove any
proprietary or other legal notices from the Proprietary Information of the
disclosing party.
9.3 CONFIDENTIAL DISCLOSURE. Notwithstanding the foregoing, Mobility or
Cybex may disclose Proprietary Information of the other party to its employees,
agents, consultants, contractors and permitted sublicensees, provided that each
such Person is bound by a like duty of confidentiality and restriction on use.
Notwithstanding the foregoing, such disclosing party shall remain ultimately
responsible for any non-permitted use of the Proprietary Information by such
party's employees, agents, consultants, contractors and permitted sublicensees.
9.4 LIMITATIONS. Nothing contained herein will in any way restrict or
impair the right of Mobility or Cybex to use, disclose or otherwise deal with
any Proprietary Information of the other party:
(i) that the recipient can demonstrate by written records was
previously known to it;
(ii) that the recipient can demonstrate by written records was
independently developed by it without access to or use of the
Proprietary Information of the disclosing party;
(iii) that is now, or in the future becomes, publicly known other
than through acts or omissions of the recipient;
(iv) that is lawfully obtained by the recipient without
confidentiality or use restrictions known to the recipient
from sources independent of the disclosing party;
(v) that is required to be disclosed to a governmental entity or
agency in connection with seeking any governmental or
regulatory approval, or pursuant to the lawful requirement or
request of a governmental entity or agency; and/or
(vi) that the recipient is required to disclose pursuant to lawful
legal process or other applicable law.
X.
DISCLAIMER OF WARRANTIES
10.1 CYBEX ACKNOWLEDGES THAT ITS USE OF THE MOBILITY TECHNOLOGY IS AT
THE SOLE RISK OF CYBEX. THE MOBILITY TECHNOLOGY
7
<PAGE> 8
MAY CONTAIN DEFECTS, FAIL TO COMPLY WITH APPLICABLE SPECIFICATIONS, AND PRODUCE
UNINTENDED OR ERRONEOUS RESULTS WHEN OPERATED ALONE OR IN COMBINATION WITH OTHER
TECHNOLOGY OR ANY OTHER HARDWARE, SOFTWARE, EQUIPMENT, OR PRODUCTS. CYBEX
ACCEPTS THE MOBILITY TECHNOLOGY "AS IS." NEITHER MOBILITY NOR CYBEX MAKE ANY
WARRANTIES WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT OTHER THAN AS
EXPRESSLY SET FORTH HEREIN AND EACH PARTY EXPRESSLY DISCLAIMS ANY IMPLIED
WARRANTIES, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, NONINFRINGMENT OR OF FITNESS FOR A PARTICULAR PURPOSE. WITHOUT
LIMITING THE FOREGOING, MOBILITY SPECIFICALLY DOES NOT WARRANT, GUARANTEE OR
MAKE ANY REPRESENTATIONS: (i) THAT THE MOBILITY TECHNOLOGY WILL MEET CYBEX'S
REQUIREMENTS; (ii) THAT ANY PRODUCT INCORPORATING THE MOBILITY TECHNOLOGY WILL
BE ERROR FREE OR OPERATE IN AN UNINTERRUPTED MANNER; (iii) REGARDING THE USE, OR
THE RESULTS OF THE USE, OF THE MOBILITY TECHNOLOGY IN TERMS OF CORRECTNESS,
ACCURACY, RELIABILITY, CURRENTNESS, OR OTHERWISE. THE ENTIRE RISK AS TO THE
RESULTS AND PERFORMANCE OF THE MOBILITY TECHNOLOGY IS ASSUMED BY CYBEX. THE
WARRANTIES SET FORTH IN SECTIONS 8.1 AND 8.2 ABOVE ARE EXCLUSIVE AND IN LIEU OF
ALL OTHER WARRANTIES OR REMEDIES. NO VERBAL OR WRITTEN INFORMATION OR ADVICE
GIVEN BY MOBILITY OR ITS AGENTS, REPRESENTATIVES OR EMPLOYEES SHALL CREATE A
WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THIS WARRANTY, AND CYBEX SHALL NOT
RELY ON ANY SUCH INFORMATION OR ADVICE. THE FOREGOING DISCLAIMERS OF WARRANTY
CONSTITUTES AN ESSENTIAL PART OF THIS AGREEMENT. CYBEX AGREES TO RELEASE
MOBILITY FROM ANY LIABILITY ANY CUSTOMER OF CYBEX SUFFERS OR INCURS DUE TO THE
USE OF ANY PRODUCT INCORPORATING THE MOBILITY TECHNOLOGY. Cybex shall include
with the sales documentation for any product which incorporates Mobility
Technology or Mobility Chips a disclaimer of any express or implied warranties
of merchantability or of fitness for a particular purpose.
10.2 Nothing in this Agreement shall be construed as a warranty or
representation by any of the Parties to this Agreement (i) as to the validity,
enforceability or scope of any patent, design patent or utility mode; (ii) that
any manufacture, sale, lease, import, use or other disposition of any products
hereunder will be free from infringement of any intellectual property right of
third parties.
10.3 Nothing in this Agreement shall be construed as an agreement or
authorization for Cybex to bring or prosecute actions or suits on behalf of
Mobility against third parties for patent infringement or conferring any right
to bring or prosecute actions or suits on behalf of Mobility against third
parties for patent infringement.
10.4 With the sole exception of its obligations to indemnify set forth
in Paragraph 8.3, Mobility's entire liability to Cybex for any cause whatsoever,
and regardless of the form of action, whether in contract or in tort, shall be
limited to the royalties actually paid by Cybex to Mobility pursuant to this
Agreement.
8
<PAGE> 9
XI.
GENERAL PROVISIONS
11.1 MARKINGS. Cybex agrees to identify Mobility's "Split Bridge" logo
on all Cybex products and packaging incorporating Mobility Technology or
Mobility Chips in a manner approved by Mobility, which approval will not be
unreasonably withheld.
11.2 SUPPORT. Mobility agrees to provide reasonable support to Cybex to
educate Cybex in the use of Mobility Technology and Mobility Split Bridge Chips
at no charge. Additionally, Mobility will provide Cybex with development and
architecture systems support to meet Cybex's new product development objectives
and requirements for a charge. Such charge will be quoted in advance on a case
by case basis.
11.3 ASSIGNMENT; BINDING EFFECT, ETC. This Agreement shall be binding
upon and inure to the benefit of Mobility and Cybex and their respective
permitted successors and permitted assigns. Subject to the following, the rights
and licenses of Cybex under this Agreement are personal to Cybex.
Notwithstanding the foregoing, Cybex may assign its rights and licenses under
this Agreement to any Affiliate (as hereinafter defined) or any Affiliate or
successor to all or substantially all of its business or assets without the
prior written consent of Mobility, provided such successor assumes in writing
the obligations of Cybex under this Agreement. Cybex Indemnitees and Mobility
Indemnitees are intended third party beneficiaries of this Agreement to the
extent expressly provided herein. Any permitted assignment of this Agreement by
either party shall not relieve or release such party from any of its duties or
obligations under this Agreement. Mobility shall not assign or transfer the
Mobility Technology or grant any security interest, lien, right, license or
other encumbrance upon or respecting the Mobility Technology unless such
assignment, transfer or grant is made expressly subject to the licenses and
other terms and conditions of this Agreement. Each and every permitted successor
and permitted assign to the interests of either party to this Agreement shall
hold such interests subject to the terms, conditions and provisions of this
Agreement. For the purpose of this Agreement, the term "Affiliate" shall mean
any and all corporations, partnerships, limited liability entities, and other
entities that are in or under direct or indirect control of Cybex or of another
Affiliate of Cybex and any and all corporations, partnerships, limited liability
entities, and other entities that are under common control with Cybex or any
successor to all or substantially all of the business of Cybex or such
Affiliate, and "control" shall exist whenever there is an ownership, profits,
voting, or other similar interest (including any right or option to obtain such
an interest) representing at least thirty percent (30%) of the total interests
of Cybex then outstanding (treating as outstanding any interests obtainable by
Cybex or the relevant Affiliate pursuant to the exercise of the aforementioned
rights or options).
11.4 INTERPRETATION. The parties acknowledge and agree that this
Agreement was prepared and drafted by the parties equally, and that neither
party shall be considered to have drafted this Agreement, nor shall this
Agreement, or any term hereof, be construed against a party on the grounds that
the party was the drafter.
11.5 ARBITRATION. Except as otherwise provided for in this Agreement,
all disputes, claims and controversies between the parties to this Agreement
shall be submitted to arbitration before a panel of three arbitrators. The
arbitration shall be conducted according to the commercial arbitration rules and
the rules governing large, complex cases of the American
9
<PAGE> 10
Arbitration Association. A party shall commence arbitration under this paragraph
by submitting a concise statement of its claim and a demand for arbitration to
the other party and to the American Arbitration Association. The decision and
award of the arbitrators shall be final and binding, and the award so rendered
may be entered in any court having jurisdiction thereof. The arbitration shall
be held in Dallas, Texas. The arbitrators shall render their decision within
thirty (30) days after the parties complete their submission of evidence and
final argument.
11.6 RELIEF. Nothing in this Agreement shall preclude a party from
seeking equitable or injunctive relief from a court on an emergency, temporary
or expedited basis prior to the pendency of an arbitration proceeding; provided
that the arbitration panel, once appointed, shall have the power and authority
to modify or rescind such relief. Venue for any action brought under this
paragraph shall be in Dallas, Texas.
11.7 GOVERNING LAW. This Agreement, the entire relationship of the
parties hereto, as well as any claim by a party against another party, whether
grounded in tort, contract, law or equity, shall be construed and enforced in
accordance with the laws of the State of Delaware, without regard to its choice
of law principles.
11.8 COUNTERPARTS. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same agreement. Each such agreement shall become
effective upon the execution of a counterpart hereof or thereof by each of the
parties hereto.
11.9 NOTICES All notices required or permitted under this Agreement
shall be deemed to have been given and received five (5) days after being
deposited in the U.S. Mail, certified mail, return receipt requested, postage
prepaid, to the following addresses:
To Mobility: Mobility Electronics, Inc.
Charles Mollo
Chief Executive Officer
7955 E. Redfield Road
Scottsdale, AZ 85260
To Cybex: Cybex Computer Products Corporation
Doyle Weeks
Executive Vice President
4991 Corporate Drive
Huntsville, Alabama 35805
11.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all prior or contemporaneous proposals, oral or
written, understandings, representations, conditions and all other
communications between the parties relating to such subject matter. Each party
represents and warrants to the other party that in entering into this Agreement
it has not relied on any representations, promises or assurances from the other
party or any employee, officer, director, representative, or attorney of the
other party not expressly contained in this Agreement.
10
<PAGE> 11
Any other terms or conditions shall not be incorporated herein or be binding
upon either party unless expressly agreed to in writing by both parties.
11.11 SEVERABILITY. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, then both parties shall be relieved
of all obligations arising under such provision, but only to the extent that
such provision is illegal, unenforceable or void. Further, this Agreement shall
be deemed amended by modifying such provision to the extent necessary to make it
legal and enforceable while preserving its intent or, if that is not possible,
by substituting therefor another provision that is legal and enforceable and
achieves the same intended objective. If the remainder of this Agreement shall
not be affected by such illegal, unenforceable or void provision and is capable
of substantial performance, then each provision not so affected shall be
enforced to the extent permitted by law.
11.12 INTERPRETATION. In any interpretation of this Agreement, it shall
be deemed that this Agreement was prepared jointly by the parties, and no
ambiguity shall be construed or resolved against either party on the premise or
presumption that such party was responsible for drafting this Agreement.
11.13 WAIVER. No delay or omission by either party to exercise any
right or power hereunder shall impair any right or power or be construed to be a
waiver thereof. A waiver by either of the parties of any of the covenants,
conditions or agreements to be performed by the other party or any breach
thereof shall not be construed to be a waiver of any succeeding breach thereof
or of any other covenant, condition or agreement contained herein. All remedies
provided for in this Agreement shall be cumulative and in addition to and not in
lieu of any other remedies available to either party at law, in equity or
otherwise, and may be enforced concurrently therewith or from time to time.
11.14 HEADINGS. Captions, headings and titles in this Agreement are for
reference purposes only and are neither part of this Agreement nor to be used
for purposes of interpreting the Parties' intent.
11.15 FURTHER ACTS. Each party shall do, or cause to be done, all such
further acts, and shall execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, any and all such further documentation as
the other party reasonably requires to carry out the purposes of this Agreement.
11.16 MEDIA RELEASES. All media releases, public announcements and
public disclosures by Mobility or Cybex, or their respective representatives,
employees or agents, relating to this Agreement or its subject matter or using
the name of the other party shall be coordinated with and approved in writing by
the other party prior to the release thereof. Both Mobility and Cybex may
publicly disclose the existence of this Agreement and its broad purpose, but not
any of the specific terms thereof.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
---------------------------------
Its: President and Chief Executive
Officer
--------------------------------
CYBEX COMPUTER PRODUCTS
CORPORATION
By: /s/ STEPHEN THORNTON
---------------------------------
Its: Executive Vice President
--------------------------------
12
<PAGE> 13
EXHIBIT A
1. Apex Inc., having a place of business located at 9911 Willows Rd.,
N.E., Redmond, WA 98052
2. Raritan Computer Inc., having a place of business located at 400
Cottontail Lane, Somerset, NJ 08873
3. CCC Group, specifically including those entities identified as (i)
C-C-C group PLC located at Unit 13, Farnborough Business Centre,
Eelmoor Road, FARNBOROUGH, Hants, GU14 7XA; (ii) C-C-C group located at
______, Long Island, New York ______; and (iii) CCC Group (Europe)
Limited, Prince Rupert House, 64 Queen Street, London EC4R 1AD.
4. Rose Electronics, having a place of business located at 10707 Stancliff
Road, Houston, TX 77099.
5. Belkin Components, specifically including those entities identified as
(i) Belkin Components located at 501 West Walnut, Compton, CA 90220 and
(ii) Belkin Components LTD., Clarke Road, Mount Farm Bletchley, Milton
Keynes, MK1 1LG, United Kingdom.
A-1
<PAGE> 1
EXHIBIT 10.51
LICENSE AGREEMENT
This License Agreement (hereinafter "Agreement") is entered into by and
between Cybex Computer Products Corporation ("Cybex"), an Alabama corporation
with its principal place of business at 4991 Corporate Drive, Huntsville,
Alabama 35805, and Mobility Electronics, Inc. ("Mobility"), a Delaware
corporation with its principal place of business at 7955 E. Redfield Road,
Scottsdale, AZ 85260, effective the 6th day of March, 2000.
I.
RECITALS
1.1 Cybex owns the Cybex Technology (as herein defined), has pending
patent applications (Nos. 09-430,162 and 09-430,163) pertaining to the Cybex
Technology, and has the right to grant non-exclusive licenses thereunder.
1.2 Mobility desires to obtain from Cybex, and Cybex hereby desires to
grant to Mobility, a certain non-exclusive license under the Cybex Technology as
provided in this Agreement.
II.
DEFINITIONS
The following terms shall have meanings ascribed to them below:
2.1 "CYBEX TECHNOLOGY" shall mean all of Cybex's split computer
technology represented by United States Patent Application No. 09-430,163 for a
"split computer architecture" and United States Continuation Patent Application
No. 09-430,162, and all related intellectual property, including without
limitation software, patents, patents pending, trade secrets, ASIC chips and
related intellectual property blocks, designs, specifications, and any future
enhancements, modifications, variations thereto, and all intellectual property
associated with the adaptation of cables and connectors adapted for use with
such technology and future generations of any of the above. Cybex Technology
does not include any incorporated Mobility Technology.
2.2 "MOBILITY TECHNOLOGY" shall mean all of Mobility's Split Bridge
Technology (as hereinafter defined), including Mobility current split bridge
ASIC chip commonly known as "Merlin" and ASIC split bridge chips currently under
development by Mobility with LSI Logic or developed in the future "Mobility
Split Bridge Chips". This further includes all related intellectual property and
Mobility Split Bridge Chip intellectual property including without limitation
software, patents, patents pending (including without limitation patent
application Nos. 09-130,057 and 09-130,058), trade secrets, ASIC chips and
related IP blocks, designs, specifications, and any future enhancements,
modifications, variations thereto, and all
1
<PAGE> 2
intellectual property associated with the adaptation of cables and connectors
adapted for use with Mobility's Split Bridge Chips and technology and future
generations of any of the above. "Split Bridge Technology" is the technology
which allows a main computer PCI bus to be extended to a remote location by
connecting two proprietary Mobility Split Bridge Chips with a high speed cable,
and includes all of the above. Mobility Technology does not include any
incorporated Cybex Technology.
2.3 "PERMITTED APPLICATIONS" shall mean any product or device or ASIC
chip containing Cybex Technology for any application or purpose except those
applications identified in Article 3.3.
III.
GRANT OF LICENSE BY CYBEX
3.1 Subject to Mobility making the royalty payments required pursuant
to this Agreement, and during the Term, Cybex grants to Mobility, for Permitted
Applications only, a worldwide, nontransferable, and nonsublicensable right to
use, sell and otherwise incorporate Cybex Technology.
3.2 The rights granted in Section 3.1 will survive any change in
control of Cybex.
3.3 Mobility shall not have the right to use Cybex Technology in any
server or desk top computer application or product that does not incorporate
Mobility's Technology.
IV.
TITLE AND OWNERSHIP
4.1 Mobility acknowledges that Cybex owns and has all rights, title and
interest in and to all intellectual property relating to Cybex Technology
including all patents, patents pending, trade secrets, software, utility models,
trademarks, mask works, copyrights, and all related applications therefor,
including all future improvements, modifications, and enhancements made to Cybex
Technology.
4.2 If either or both parties develop new technology, products and/or
chips that include a significant amount of both Cybex Technology and Mobility
Technology for extended PCI bus systems and applications that are beyond the
capabilities of Mobility Technology, the parties agree as follows:
(a) Each party will have the right to use, sell, or otherwise market
the joint products or chips, except that Mobility will have exclusive rights in
the portable and handheld computer docking market and Cybex will have the
exclusive rights in the KVM switch market.
(b) Product or chip development cost will be funded fifty percent (50%)
by each party, or if only one party decides to fund such development, the party
that has agreed to fund development will receive 100% of royalties due the other
party until 125% of such development cost is recovered.
2
<PAGE> 3
(c) If the joint chips are sold by either party, the other party will
receive a royalty of 15% on the sales revenues of all such chips. Such royalty
may be adjusted from time to time by the mutual written consent of Mobility and
Cybex. Both parties will have the right to purchase and sell such chips from the
manufacturing foundry at cost.
(d) If the joint products are sold by either party, the other party
will receive a royalty of 6% on the sales revenue of all such products. Such
royalty may be adjusted from time to time by the mutual written consent of
Mobility and Cybex. Both parties will have the right to manufacture and sell
such products.
(e) Any technology contributed by a party will be owned 100% by such
contributing party, and may not be used by the non-contributing party for any
purpose other than the joint product and/or joint chip. Any new jointly
developed technology and any associated patents and patent rights will be
jointly owned by the parties, but also may not be used for any purpose other
than the joint product and/or joint chip as provided above without the other
party's consent.
4.3 Pursuant to the terms of this agreement, Cybex agrees to make
available to Mobility, to the extent it has the right to do so, all future
enhancements, variations, modifications, and future generations of Cybex
Technology at a royalty rate defined below.
V.
ROYALTIES AND LINK PURCHASES
During the Term, Mobility shall pay to Cybex royalties as follows:
5.1 On all sales by Mobility of any product incorporating any Cybex
Technology, 6% of Mobility's sale price of such product. This royalty will not
apply to any products sold by Mobility which are purchased from Cybex or its
affiliates for resale.
5.2 Subject to availability (it being acknowledged and agreed that
Mobility shall be treated at least similar to Cybex's other customers), Cybex
and its affiliates shall offer for sale to Mobility any of their products that
incorporate Cybex Technology or Mobility Technology. The price of such product
sales to Mobility will be at a rate no greater than the lowest rate offered to
any third party independent of Cybex or its affiliates that purchases the same
product at comparable volumes. Moreover, Cybex and its affiliates agree to
provide Mobility an appropriate discount on the pricing for the applicable
products if the applicable Cybex or affiliate product incorporates a material
amount of Mobility Technology at terms to be mutually agreed upon in writing.
5.3 Royalties due under Paragraph 5.1 shall be paid quarterly within 30
days of the end of each quarter. Payments shall be made by wire transfer to an
account specified in writing at least 30 days prior to the date a royalty
payment is due. Within 30 days after the end of each quarter, Mobility shall
furnish to Cybex a report providing the number and types of Cybex Technology
sold, the applicable royalty rate, and the total royalty paid.
5.4 Mobility agrees to make and maintain such books, records and
accounts as are reasonably necessary to verify the royalty payments due Cybex
under this Agreement. An independent certified public accountant, selected by
Cybex, who agrees to sign a nondisclosure agreement may, upon reasonable notice
and during normal business hours, but no more often
3
<PAGE> 4
than twice each year, audit and inspect those records of Mobility which are
necessary to determine the accuracy of the royalty payments made to Cybex. In
the event that the independent audit reveals that the royalties owed by Mobility
for any given quarter are more than 5% greater than the royalties actually paid
by Mobility for that quarter, then in addition to remitting all outstanding
royalties shown to be due under the audit, all expenses incurred by Cybex in
conducting the audit shall be paid by Mobility within 30 days of receiving the
auditor's report; otherwise, all expenses incurred by Cybex in conducting the
audit shall be borne by Cybex.
VI.
COVENANTS
6.1 Cybex hereby covenants not to utilize Cybex Technology, Mobility
Technology or any technology jointly developed by Mobility and Cybex in any
docking station product, application, or purpose for portable or handheld
computers.
VII.
TERM AND TERMINATION
7.1 The Term of this agreement is perpetual and can only be terminated
upon the written consent of both Cybex and Mobility or as provided in Section
7.2.
7.2 Either Party shall have the right to terminate this Agreement upon
a material default by the other Party of any of its obligations hereunder, if
such default has not been cured within sixty (60) days after receipt of written
notice from the other Party of the alleged default. For purposes of this
Agreement, a material default includes, but is not limited to, the failure of
Mobility to pay any royalties when due and/ or the use of Cybex Technology
except as permitted in this Agreement.
VIII.
REPRESENTATIONS AND WARRANTIES
8.1 REPRESENTATIONS AND WARRANTIES OF CYBEX. Cybex hereby represents,
warrants and covenants to Mobility that as of the execution date of this
Agreement:
(a) Cybex is a corporation duly organized, validly existing and in good
standing under the laws of the State of Alabama, with full power to carry on its
business and activities as now being conducted;
(b) This Agreement has been duly authorized, executed and delivered by
Cybex. Cybex has the corporate power and authority to enter into this Agreement
and to perform its obligations hereunder. No other act, approval or proceeding
on the part of Cybex is or will be required to authorize the execution and
delivery of this Agreement, or the consummation of the transactions contemplated
hereby; and
(c) The execution and delivery by Cybex of this Agreement will not, and
the fulfillment of and compliance by Cybex with the terms, conditions and
provisions hereof will
4
<PAGE> 5
not, (i) conflict with any of the terms, conditions or provisions of the
articles of incorporation or by-laws of Cybex, (ii) violate any term, condition
or provision of, or require any consent, authorization or approval under, any
judicial or arbitration judgment, order, award, writ, injunction or decree
applicable to Cybex, or (iii) conflict with, result in a breach of, constitute a
default under (whether with or without the giving of notice or the lapse of time
or both), or accelerate or permit the acceleration of the performance required
by, or require any consent, authorization or approval under any document,
instrument, agreement or license to which Cybex or a person under its control is
a party or is bound or to which any of the assets or properties of Cybex or such
person are subject, other than as set forth on Exhibit A attached hereto.
8.2 REPRESENTATIONS AND WARRANTIES OF MOBILITY.
(a) Mobility is a corporation duly organized, validly existing and in
good standing under the laws of the State of Arizona, with full power to carry
on its business and activities as now being conducted;
(b) This Agreement has been duly authorized, executed and delivered by
Mobility. Mobility has the corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. No other act, approval or
proceeding on the part of Mobility is or will be required to authorize the
execution and delivery of this Agreement, or the consummation of the
transactions contemplated hereby; and
(c) The execution and delivery by Mobility of this Agreement will not,
and the fulfillment of and compliance by Mobility with the terms, conditions and
provisions hereof will not, (i) conflict with any of the terms, conditions or
provisions of the articles of incorporation or by-laws of Mobility, (ii) violate
any term, condition or provision of, or require any consent, authorization or
approval under, any judicial or arbitration judgment, order, award, writ,
injunction or decree applicable to Mobility, or (iii) conflict with, result in a
breach of, constitute a default under (whether with or without the giving of
notice or the lapse of time or both), or accelerate or permit the acceleration
of the performance required by, or require any consent, authorization or
approval under any document, instrument, agreement or license to which Mobility
or a person under its control is a party or is bound or to which any of the
assets or properties of Mobility or such person are subject.
8.3 INDEMNIFICATION.
(a) Mobility shall indemnify, hold harmless and defend Cybex, its
directors, officers, shareholders, employees, representatives, attorneys and
agents (each such Person a "Cybex Indemnitee") from and against any and all
claims, suits, losses, damages, costs, fees and expenses (including reasonable
attorneys' and experts witness fees and court costs) incurred by any Cybex
Indemnitee arising out of, resulting from or otherwise concerning a breach by
Mobility of any of Mobility's representations and warranties contained in this
Article 8.
(b) Cybex shall indemnify, hold harmless and defend Mobility, its
directors, officers, shareholders, employees, representatives, attorneys and
agents (each such Person a "Mobility Indemnitee") from and against any and all
claims, suits, losses, damages, costs, fees and expenses (including reasonable
attorneys' and experts' fees and court costs) incurred by any Mobility
Indemnitee arising out of, resulting from or otherwise concerning a breach by
Cybex of any of Cybex's representations and warranties contained in this Article
8.
5
<PAGE> 6
(c) Any Cybex Indemnitee or Mobility Indemnitee, as the case may be,
seeking to be held harmless, defended and indemnified in accordance with the
provisions of Section (a) or (b) of this Section 8.3 shall promptly notify
Mobility or Cybex, as appropriate (the "Indemnitor"), of any claim or suit
brought against such Cybex Indemnitee or Mobility Indemnitee in respect of which
such Cybex Indemnitee or Mobility Indemnitee intends to invoke the provisions of
this Section 8.3, although the failure to so notify the Indemnitor shall not
release such Indemnitor from its obligations under this Section 8.3 unless such
Indemnitor shall have been materially prejudiced by such failure. Such
Indemnitor shall indemnify, hold harmless and defend such Cybex Indemnitee or
Mobility Indemnitee, as the case may be, as above provided and keep such Cybex
Indemnitee or Mobility Indemnitee fully informed on a current basis of the
Indemnitor's defense and/or settlement of such claim or suit. The Cybex
Indemnitee or Mobility Indemnitee, as the case may be, shall reasonably
cooperate in the defense of such claim or suit and shall have the right, but no
obligation, to participate in the defense thereof with counsel of such Person's
choice at such Person's expense.
8.4 WAIVER OF CONSEQUENTIAL DAMAGES, ETC. Except as otherwise
contemplated in Article 8, neither party shall be liable for indirect, special,
consequential or punitive damages (including loss of income, profits or
goodwill) arising under or in relation to this Agreement whether based on an
action or claim in contract, equity, negligence, intended conduct, tort or
otherwise and each party hereby waives any claims with respect thereto. In
connection with the conduct of any litigation with third parties relating to any
liability of one party to the other or to such third parties, the one party
shall have all rights (including the right to accept or reject settlement offers
and to participate in such litigation) which are appropriate to its potential
responsibilities or liabilities. Cybex and Mobility expressly acknowledge that
the limitations and exclusions contained in this Section 8.4 have been the
subject of active and complete negotiation between the parties and represent the
parties' agreement based upon the level of risk to Mobility and Cybex associated
with their respective obligations under this Agreement and the payments provided
to Cybex hereunder.
IX.
PROPRIETARY INFORMATION
9.1 PROPRIETARY INFORMATION. During the period from the date of
disclosure until three (3) years after the termination of this Agreement, Cybex
and Mobility, respectively, will treat and maintain the proprietary business,
technical, patent prosecution and other proprietary information, to include the
documentation and comments communicated between Cybex and Mobility
(collectively, the "Proprietary Information") of the other party in confidence
(using at least the same degree of care as the recipient uses to protect its own
Proprietary Information of a like nature) and only use such Proprietary
Information in furtherance of this Agreement and the transactions and matters
contemplated herein.
9.2 PROPRIETARY INFORMATION. In order to be considered Proprietary
Information, proprietary information must be labeled or marked confidential or
proprietary by the disclosing party or reasonably be expected to be treated as
confidential or proprietary. The receiving party shall not remove any
proprietary or other legal notices from the Proprietary Information of the
disclosing party.
6
<PAGE> 7
9.3 CONFIDENTIAL DISCLOSURE. Notwithstanding the foregoing, Cybex or
Mobility may disclose Proprietary Information of the other party to its
employees, agents, consultants, contractors and permitted sublicensees, provided
that each such Person is bound by a like duty of confidentiality and restriction
on use. Notwithstanding the foregoing, such disclosing party shall remain
ultimately responsible for any non-permitted use of the Proprietary Information
by such party's employees, agents, consultants, contractors and permitted
sublicensees.
9.4 LIMITATIONS. Nothing contained herein will in any way restrict or
impair the right of Cybex or Mobility to use, disclose or otherwise deal with
any Proprietary Information of the other party:
(i) that the recipient can demonstrate by written records was
previously known to it;
(ii) that the recipient can demonstrate by written records was
independently developed by it without access to or use of the
Proprietary Information of the disclosing party;
(iii) that is now, or in the future becomes, publicly known other
than through acts or omissions of the recipient;
(iv) that is lawfully obtained by the recipient without
confidentiality or use restrictions known to the recipient
from sources independent of the disclosing party;
(v) that is required to be disclosed to a governmental entity or
agency in connection with seeking any governmental or
regulatory approval, or pursuant to the lawful requirement or
request of a governmental entity or agency; and/or
(vi) that the recipient is required to disclose pursuant to lawful
legal process or other applicable law.
X.
DISCLAIMER OF WARRANTIES
10.1 MOBILITY ACKNOWLEDGES THAT ITS USE OF THE CYBEX TECHNOLOGY IS AT
THE SOLE RISK OF MOBILITY. THE CYBEX TECHNOLOGY MAY CONTAIN DEFECTS, FAIL TO
COMPLY WITH APPLICABLE SPECIFICATIONS, AND PRODUCE UNINTENDED OR ERRONEOUS
RESULTS WHEN OPERATED ALONE OR IN COMBINATION WITH OTHER TECHNOLOGY OR ANY OTHER
HARDWARE, SOFTWARE, EQUIPMENT, OR PRODUCTS. MOBILITY ACCEPTS THE CYBEX
TECHNOLOGY "AS IS." NEITHER CYBEX NOR MOBILITY MAKE ANY WARRANTIES WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT OTHER THAN AS EXPRESSLY SET FORTH HEREIN
AND EACH PARTY EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING WITHOUT
LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGMENT OR OF
FITNESS FOR A PARTICULAR PURPOSE. WITHOUT LIMITING THE FOREGOING, CYBEX
SPECIFICALLY DOES NOT WARRANT, GUARANTEE OR MAKE ANY
7
<PAGE> 8
REPRESENTATIONS: (i) THAT THE CYBEX TECHNOLOGY WILL MEET MOBILITY'S
REQUIREMENTS; (ii) THAT ANY PRODUCT INCORPORATING THE CYBEX TECHNOLOGY WILL BE
ERROR FREE OR OPERATE IN AN UNINTERRUPTED MANNER; (iii) REGARDING THE USE, OR
THE RESULTS OF THE USE, OF THE CYBEX TECHNOLOGY IN TERMS OF CORRECTNESS,
ACCURACY, RELIABILITY, CURRENTNESS, OR OTHERWISE. THE ENTIRE RISK AS TO THE
RESULTS AND PERFORMANCE OF THE CYBEX TECHNOLOGY IS ASSUMED BY MOBILITY. THE
WARRANTIES SET FORTH IN SECTIONS 8.1 AND 8.2 ABOVE ARE EXCLUSIVE AND IN LIEU OF
ALL OTHER WARRANTIES OR REMEDIES. NO VERBAL OR WRITTEN INFORMATION OR ADVICE
GIVEN BY CYBEX OR ITS AGENTS, REPRESENTATIVES OR EMPLOYEES SHALL CREATE A
WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THIS WARRANTY, AND MOBILITY SHALL
NOT RELY ON ANY SUCH INFORMATION OR ADVICE. THE FOREGOING DISCLAIMERS OF
WARRANTY CONSTITUTES AN ESSENTIAL PART OF THIS AGREEMENT. MOBILITY AGREES TO
RELEASE CYBEX FROM ANY LIABILITY ANY CUSTOMER OF MOBILITY SUFFERS OR INCURS DUE
TO THE USE OF ANY PRODUCT INCORPORATING THE CYBEX TECHNOLOGY. Mobility shall
include with the sales documentation for any product which incorporates Cybex
Technology or Cybex Chips a disclaimer of any express or implied warranties of
merchantability or of fitness for a particular purpose.
10.2 Nothing in this Agreement shall be construed as a warranty or
representation by any of the Parties to this Agreement (i) as to the validity,
enforceability or scope of any patent, design patent or utility mode; (ii) that
any manufacture, sale, lease, import, use or other disposition of any products
hereunder will be free from infringement of any intellectual property right of
third parties.
10.3 Nothing in this Agreement shall be construed as an agreement or
authorization for Mobility to bring or prosecute actions or suits on behalf of
Cybex against third parties for patent infringement or conferring any right to
bring or prosecute actions or suits on behalf of Cybex against third parties for
patent infringement.
10.4 With the sole exception of its obligations to indemnify set forth
in Paragraph 8.3, Cybex's entire liability to Mobility for any cause whatsoever,
and regardless of the form of action, whether in contract or in tort, shall be
limited to the royalties actually paid by Mobility to Cybex pursuant to this
Agreement.
XI.
GENERAL PROVISIONS
11.1 MARKINGS. Mobility agrees to identify Cybex's products and
packaging incorporating Cybex Technology in a manner approved by Cybex, which
approval will not be unreasonably withheld.
11.2 SUPPORT. Cybex agrees to provide reasonable support to Mobility to
educate Mobility in the use of Cybex Technology at no charge. Additionally,
Cybex will provide Mobility with development and architecture systems support to
meet Mobility's new product development objectives and requirements for a
charge. Such charge will be quoted in advance on a case by case basis.
8
<PAGE> 9
11.3 ASSIGNMENT; BINDING EFFECT, ETC. This Agreement shall be binding
upon and inure to the benefit of Cybex and Mobility and their respective
permitted successors and permitted assigns. Subject to the following, the rights
and licenses of Mobility under this Agreement are personal to Mobility.
Notwithstanding the foregoing, Mobility may assign its rights and licenses under
this Agreement to any Affiliate (as hereinafter defined) or any successor to all
or substantially all of its business or assets without the prior written consent
of Cybex, provided such Affiliate or successor assumes in writing the
obligations of Mobility under this Agreement. Mobility Indemnitees and Cybex
Indemnitees are intended third party beneficiaries of this Agreement to the
extent expressly provided herein. Any permitted assignment of this Agreement by
either party shall not relieve or release such party from any of its duties or
obligations under this Agreement. Cybex shall not assign or transfer the Cybex
Technology or grant any security interest, lien, right, license or other
encumbrance upon or respecting the Cybex Technology unless such assignment,
transfer or grant is made expressly subject to the licenses and other terms and
conditions of this Agreement. Each and every permitted successor and permitted
assign to the interests of either party to this Agreement shall hold such
interests subject to the terms, conditions and provisions of this Agreement. For
the purpose of this Agreement, the term "Affiliate" shall mean any and all
corporations, partnerships, limited liability entities, and other entities that
are in or under direct or indirect control of Mobility or of another Affiliate
of Mobility and any and all corporations, partnerships, limited liability
entities, and other entities that are under common control with Mobility or any
successor to all or substantially all of the business of Mobility or such
Affiliate, and "control" shall exist whenever there is an ownership, profits,
voting, or other similar interest (including any right or option to obtain such
an interest) representing at least thirty percent (30%) of the total interests
of Mobility then outstanding (treating as outstanding any interests obtainable
by Mobility or the relevant Affiliate pursuant to the exercise of the
aforementioned rights or options).
11.4 INTERPRETATION. The parties acknowledge and agree that this
Agreement was prepared and drafted by the parties equally, and that neither
party shall be considered to have drafted this Agreement, nor shall this
Agreement, or any term hereof, be construed against a party on the grounds that
the party was the drafter.
11.5 ARBITRATION. Except as otherwise provided for in this Agreement,
all disputes, claims and controversies between the parties to this Agreement
shall be submitted to arbitration before a panel of three arbitrators. The
arbitration shall be conducted according to the commercial arbitration rules and
the rules governing large, complex cases of the American Arbitration
Association. A party shall commence arbitration under this paragraph by
submitting a concise statement of its claim and a demand for arbitration to the
other party and to the American Arbitration Association. The decision and award
of the arbitrators shall be final and binding, and the award so rendered may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in Atlanta, Georgia. The arbitrators shall render their decision within thirty
(30) days after the Parties complete their submission of evidence and final
argument.
11.6 RELIEF. Nothing in this Agreement shall preclude a party from
seeking equitable or injunctive relief from a court on an emergency, temporary
or expedited basis prior to the pendency of an arbitration proceeding; provided
that the arbitration panel, once appointed, shall have the power and authority
to modify or rescind such relief. Venue for any action brought under this
paragraph shall be in Atlanta, Georgia.
9
<PAGE> 10
11.7 GOVERNING LAW. This Agreement, the entire relationship of the
parties hereto, as well as any claim by a party against another party, whether
grounded in tort, contract, law or equity, shall be construed and enforced in
accordance with the laws of the State of Delaware, without regard to its choice
of law principles.
11.8 COUNTERPARTS. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same agreement. Each such agreement shall become
effective upon the execution of a counterpart hereof or thereof by each of the
parties hereto.
11.9 NOTICES All notices required or permitted under this Agreement
shall be deemed to have been given and received five (5) days after being
deposited in the U.S. Mail, certified mail, return receipt requested, postage
prepaid, to the following addresses:
To Mobility: Mobility Electronics, Inc.
Charles Mollo
Chief Executive Officer
7955 E. Redfield Road
Scottsdale, AZ 85260
To Cybex: Cybex Computer Products Corporation
Doyle Weeks
Executive Vice President
4991 Corporate Drive
Huntsville, Alabama 35805
11.10 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all prior or contemporaneous proposals, oral or
written, understandings, representations, conditions and all other
communications between the parties relating to such subject matter. Each party
represents and warrants to the other party that in entering into this Agreement
it has not relied on any representations, promises or assurances from the other
party or any employee, officer, director, representative, or attorney of the
other party not expressly contained in this Agreement. Any other terms or
conditions shall not be incorporated herein or be binding upon either party
unless expressly agreed to in writing by both parties.
11.11 SEVERABILITY. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, then both parties shall be relieved
of all obligations arising under such provision, but only to the extent that
such provision is illegal, unenforceable or void. Further, this Agreement shall
be deemed amended by modifying such provision to the extent necessary to make it
legal and enforceable while preserving its intent or, if that is not possible,
by substituting therefor another provision that is legal and enforceable and
achieves the same intended objective. If the remainder of this Agreement shall
not be affected by such illegal, unenforceable or void provision and is capable
of substantial performance, then each provision not so affected shall be
enforced to the extent permitted by law.
10
<PAGE> 11
11.12 INTERPRETATION. In any interpretation of this Agreement, it shall
be deemed that this Agreement was prepared jointly by the parties, and no
ambiguity shall be construed or resolved against either party on the premise or
presumption that such party was responsible for drafting this Agreement.
11.13 WAIVER. No delay or omission by either party to exercise any
right or power hereunder shall impair any right or power or be construed to be a
waiver thereof. A waiver by either of the parties of any of the covenants,
conditions or agreements to be performed by the other party or any breach
thereof shall not be construed to be a waiver of any succeeding breach thereof
or of any other covenant, condition or agreement contained herein. All remedies
provided for in this Agreement shall be cumulative and in addition to and not in
lieu of any other remedies available to either party at law, in equity or
otherwise, and may be enforced concurrently therewith or from time to time.
11.14 HEADINGS. Captions, headings and titles in this Agreement are for
reference purposes only and are neither part of this Agreement nor to be used
for purposes of interpreting the Parties' intent.
11.15 FURTHER ACTS. Each party shall do, or cause to be done, all such
further acts, and shall execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, any and all such further documentation as
the other party reasonably requires to carry out the purposes of this Agreement.
11.16 MEDIA RELEASES. All media releases, public announcements and
public disclosures by Cybex or Mobility, or their respective representatives,
employees or agents, relating to this Agreement or its subject matter or using
the name of the other party shall be coordinated with and approved in writing by
the other party prior to the release thereof. Both Cybex and Mobility may
publicly disclose the existence of this Agreement and its broad purpose, but not
any of the specific terms thereof.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the day and year first above written.
CYBEX COMPUTER PRODUCTS
CORPORATION
By: /s/ STEPHEN THORNTON
---------------------------------
Its: Executive Vice President
--------------------------------
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
---------------------------------
Its: President and Chief Executive
Officer
--------------------------------
12
<PAGE> 1
EXHIBIT 10.52
PRIVATE LABEL AGREEMENT
This Private Label Agreement (this "Agreement") is made and entered
into as of March 6, 2000 (the "Effective Date"), by and between Mobility
Electronics, Inc., a Delaware corporation ("Mobility"), and Cybex Computer
Products Corporation, an Alabama corporation ("Cybex"). For purposes of this
Agreement, "Cybex" shall include its subsidiaries; provided, however, that Cybex
shall be responsible for the actions and/or inactions of its subsidiaries with
respect to the performance of this Agreement. Cybex and Mobility are each
sometimes referred to herein as a "Party" and collectively as the "Parties".
1 DEFINITIONS
1.1 "Custom Products" means products, including unique plastics
and/or characteristics or other differentiating features,
developed specifically for Customer by Mobility.
1.2 "PO's" means Cybex's purchase orders issued under this
Agreement.
1.3 "Products" means, collectively, the Custom Products and the
Standard Products.
1.4 "Standard Products" means the products of Mobility described
on Attachment I of this Agreement, other than Custom Products.
2 TERM
2.1 Subject to Section 2.2 below, this Agreement shall commence on
the Effective Date and shall continue for a period of three
(3) years thereafter (the "Initial Term"); provided, however,
that the term of this Agreement shall be renewed on a
year-to-year basis thereafter (each, a "Renewal Term"), unless
either Party gives written notice to the other Party, at least
ninety (90) days prior to the end of the then-current term, of
such Party's desire to terminate this Agreement at the
expiration of the then-current term. The Initial Term and any
Renewal Term(s) are sometimes collectively referred to herein
as the "Term". Notwithstanding the above, this Agreement shall
continue after the expiration of the Term with respect, and
only with respect, to any Products on order pursuant to PO's
accepted by Mobility prior to or at the time of such
termination.
2.2 This Agreement may be terminated by either Party upon the
material breach of this Agreement by the other Party, which
breach is not cured within sixty (60) days after delivery of
written notice by the non-breaching Party to the breaching
Party.
Cybex Private Label Agreement - 2401369 Page 1
<PAGE> 2
3 SALES AND PURCHASE OF PRODUCTS
3.1 Mobility agrees to sell the Products to Cybex on a
non-exclusive basis. Cybex hereby agrees that Mobility shall
be the exclusive manufacturer and supplier to Cybex of any of
the following products for portable or handheld computers: (i)
power products, (ii) USB docking products; (iii)split bridge
docking station products.
3.2 Mobility agrees to use commercially reasonable efforts to
develop any Custom Product requested in writing by Cybex,
subject to the remainder of this Section. Any Custom Product
shall be developed and manufactured pursuant to the terms and
conditions of this Agreement (including, without limitation,
Section 3.3 below). In addition, prior to commencing the
development of any Custom Product, the Parties shall have
mutually agreed to a development program schedule, pricing,
quantity purchase minimum and a PO lead time, which agreement
shall be in writing in the form of Attachment 2 to this
Agreement. Mobility agrees that it will not market or sell any
Custom Product to any person or entity other than Cybex.
3.3 Cybex agrees that at the time Mobility begins to develop a
Custom Product, Cybex will place a separate PO for NRE Charges
applicable to each Custom Product and that each PO will be
subject to varying engineering charges and tooling charges
(collectively, the "NRE Charges"), which will be dependent
upon the Custom Product being developed, the order of a
minimum quantity over a commercially reasonable period of
time, sufficient lead time given to Mobility and the price of
each Custom Product, with such terms agreeable by both
Parties, which PO shall be non-cancellable, with the terms of
such NRE Charges being fifty percent (50%) due and payable
upon placement of the PO, and the remaining fifty percent
(50%) due and payable upon completion of the tool.
4 ORDERING AND DELIVERY
4.1 Cybex will provide to Mobility on a calendar monthly basis a
six-month rolling forecast of anticipated purchases of
Products by Cybex within the following six-month period.
4.2 Cybex will order Products through placement of PO's from time
to time. Cybex will use its best efforts to place PO's with
Mobility using minimum lead times specified from time to time
by Mobility. In addition, Cybex agrees that each PO will
specify Product unit orders in excess of the minimum size
order established by Mobility from time to time.
4.3 Mobility agrees to use all commercially reasonable efforts to
deliver the Products to Cybex in a timely manner, as provided
in the PO's; it being acknowledged and agreed that Mobility
will manufacture to PO's provided by Cybex and, at Mobility's
sole discretion, will not manufacture or inventory Products in
excess of PO quantities.
Cybex Private Label Agreement - 2401369 Page 2
<PAGE> 3
4.4 All deliveries of Products will be made point of manufacture.
Mobility will accommodate other delivery requests made by
Cybex for an additional charge.
4.5 Each Product and related package shall include "EasiDock" and
"Split Bridge" logos, which logos shall be displayed
prominently in a manner acceptable to Mobility. The Products
may include any other packaging and/or marketing material in
Cybex's name as Cybex may from time to time request.
5 MOBILITY WARRANTIES
5.1 Mobility shall manufacture the Standard Products in accordance
with Mobility's specifications, which specifications may be
changed from time to time by Mobility upon at least thirty
(30) days prior written notice to Cybex. Mobility shall
manufacture Custom Products in accordance with the
specifications for such Custom Products. Mobility shall not
make any material change in the Custom Products without prior
written approval of Cybex.
5.2 Mobility warrants that all Products shall comply with all
applicable governmental certificates, and be free from defects
in design, material, workmanship and performance for a period
of two years from the date of delivery hereunder. Cybex will
provide written notice of any warranted defect promptly upon
its discovery. Upon receipt of such notice, Mobility shall
arrange for the repair or replacement, at Mobility's sole
discretion, of the Product and shall bear all costs necessary
to complete such repair or replacement. Cybex shall not be
required to return failed Products to Mobility, unless
specifically requested by Mobility. At the request of
Mobility, Cybex shall use its best efforts to deliver to
Mobility, at Mobility's cost and expense, any failed Products.
Any Products returned shall be subject to reasonable
inspection by, and the concurrence of, Mobility.
5.3 Mobility warrants that it has the unrestricted worldwide right
to manufacture, sell and deliver the Products to Cybex and
that it has in place proper authorizations and licenses from
all parties as may be necessary to deliver the Products to
Cybex.
5.4 Mobility warrants that no Products will infringe any patent,
copyright, trademark, trade secret or other proprietary or
intellectual property right of any third party. Mobility shall
indemnify, defend and hold harmless Cybex, its parent,
subsidiaries, affiliates and customers (each an "Indemnitee"
and collectively, the "Indemnities") from any damage, expense,
liability, cost (including attorneys fees and expenses)
arising out of any suit, claim, action or proceeding alleging
any such infringement. Cybex agrees to provide prompt written
notice to Mobility upon receipt by any Indemnitee of any suit,
claim, action or proceeding alleging such infringement, and
Mobility shall have the right to defend such suit, claim,
action or proceeding at its own expense. Such Indemnitee may
participate in such defense at its own expense and will
reasonably cooperate with Mobility in the defense thereof, and
such Indemnitee agrees that it will not unreasonably withhold
its consent to any settlement or compromise thereof.
Cybex Private Label Agreement - 2401369 Page 3
<PAGE> 4
5.5 THE ABOVE WARRANTIES ARE IN LIEU OF ANY OTHER WARRANTY,
WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT
LIMITATION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, WHICH WARRANTIES ARE SPECIFICALLY DENIED.
6 PRODUCT PRICING AND PAYMENT
6.1 The initial pricing for Custom Products shall be as mutually
agreed to by the Parties as provided in Section 3.2 above.
6.2 The pricing for Standard Products will be Mobility's OEM
pricing for customers of similar volumes.
6.3 Products shall be provided in bulk packaging. Mobility will
use all commercially reasonable efforts to accommodate changes
in packaging and special delivery and additional and special
packaging requests by Cybex for an additional charge.
6.4 Mobility shall invoice Cybex upon delivery. Payment for
Product invoices shall be subject to a credit limit as
determined from time to time in the sole discretion of
Mobility, net thirty (30) days from date of invoice. Nothing
shall excuse Cybex's obligation to pay correct invoice amounts
for Products which have been delivered and accepted by Cybex.
6.5 All amounts payable by Cybex to Mobility under this Agreement
and under the PO's shall be paid in United States dollars.
7 CONFIDENTIAL INFORMATION AND COVENANTS NOT-TO-COMPETE
7.1 All copies of any confidential information delivered by any
Party to the other Party pursuant to or as a result of this
Agreement shall, upon the written request of the Party
delivering the same, be promptly returned by the Party
receiving the same, and each receiving Party agrees that it
will hold in confidence such confidential information
delivered from the other Party and shall use such confidential
information only in furtherance of and in connection with this
Agreement and its performance hereunder and not for any other
purpose. For purposes of the preceding sentence, "confidential
information" shall not include information which: (i) is or
becomes generally available to the public other than as a
result of disclosure which is in violation of this Section;
(ii) was known by the receiving Party on a nonconfidential
basis prior to the disclosure thereof; or (iii) is acquired by
the receiving Party from a third party who has not
confidential commitment to the delivering Party with respect
to the same.
7.2 Cybex agrees that during the Term, neither Cybex 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) develop, acquire,
Cybex Private Label Agreement - 2401369 Page 4
<PAGE> 5
manufacture, sell or offer for sale, or enter into or
negotiate any agreement, understanding or arrangement to
develop, acquire, manufacture, sell or offer for sale, any
place in the world any product which is directly or indirectly
competitive with any Product for usage with portable or
handheld computers, or (ii) finance any person or entity in
any manner or in any way inconsistent with the intents and
purposes of (i) above.
In the event of Cybex's breach, or threatened breach, of any
term or provision contained in this Section 7.2, Cybex agrees
that Mobility and/or its affiliates shall be entitled to the
right of specific performance and/or both temporary and
permanent injunctive relief. It is the intent of each of the
Parties that the covenants not-to-compete contained in this
Section 7.2 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 hereto that the court should reform such covenant
to such narrower scope as it may determine is necessary to
make such covenant enforceable. Each of the Parties hereto
recognizes and agrees that this Section 7.2 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 drive 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 the such Party agreeing to be bound by such covenants.
8 MARKETING PRODUCTS
8.1 Cybex agrees to use its best efforts to market and sell the
Products on a non-exclusive basis.
9 PO CHANGES
9.1 Cybex may, upon written notice, modify any PO within the
following parameters:
(a) PO's for Products to be delivered within thirty (30)
days from the date of any such notice are
non-cancellable and may not be rescheduled.
(b) PO's for Products to be delivered between thirty one
(31) days and sixty (60) days from the date of any
such notice are not cancellable, but can be
rescheduled for a maximum of thirty (30) days from
the original delivery date.
(c) PO's for Products to be delivered more than sixty
(60) days from the date of any such notice may be
rescheduled or canceled prior to the commencement of
such sixty (60) day period, and may be rescheduled
during such sixty (60) day period as provided in (b)
above.
(d) PO's for NRE Charges are non-cancellable and cannot
be rescheduled.
Cybex Private Label Agreement - 2401369 Page 5
<PAGE> 6
10 DISPUTES
10.1 The Parties will attempt to resolve disputes through ascending
levels of management. Disputes which cannot be resolved by
negotiation between the Parties may be referred to arbitration
by an international arbitral body acceptable to both Parties,
provided no arbitrator shall have authority to award any
indirect or speculative damages (including, without
limitation, consequential, incidental, special or punitive
damages).
11 GOVERNING LAW
11.1 This Agreement, and PO's issued hereunder, shall be governed
by and interpreted in accordance with the substantive and
procedural laws of the State of Arizona, United States of
America, and each Party hereby submits to the jurisdiction and
venue of the courts of the State of Arizona, county of
Maricopa.
11.2 The United Nations Convention on the International Sale of
Goods shall not apply to this Agreement or any PO issued
thereunder.
12 LIMITATION OF LIABILITY
12.1 Each Party hereby waives any right to recover any indirect or
speculative damages (including, without limitation,
consequential, incidental, special or punitive damages) from
the other Party.
13 GENERAL PROVISIONS
13.1 The Parties agree that Mobility 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. point of shipment), and that Cybex shall
bear the loss from the destruction or breakage of any Products
after delivery thereof.
13.2 This Agreement is subject to strikes and lockouts or refusal
of employees to work, or the inability of Mobility to be able
to cause Products manufactured for Mobility outside of the
United States of America to be delivered into the United
States of America, and for such cause that portion of this
Agreement affected thereby may be suspended during the
continuance thereof. Impossibility of performance by reason of
any legislative, executive or judicial act of any government
or state 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 of either Party shall allow the other Party, at its
sole discretion, to terminate this Agreement. 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 13.2 shall give prompt written notice to the other
Party of such inability to perform.
Cybex Private Label Agreement - 2401369 Page 6
<PAGE> 7
13.3 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.
13.4 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 fifth business day following
the date on which it is mailed, 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 Cybex: Cybex Computer Products Corporation
4991 Corporate Drive
Huntsville, Alabama 35805
Phone: (256) 430-4000
Fax: (256) 430-4030
Attn: Executive Vice President
If to Mobility: Mobility Electronics, Inc.
7955 Redfield Road
Scottsdale, AZ 85260
Phone: (480) 596-0061
Fax: (480) 596-0349
Attn: Chief Executive Officer
Any Party may change its address for notice by written notice
given to the other Party in accordance with this Section.
13.5 Any debts, obligations, covenants or liabilities accrued
hereunder between the Parties hereto shall survive the
expiration or termination of this Agreement for whatever
reason.
13.6 This Agreement (including the Attachments hereto) 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.
13.7 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
Cybex Private Label Agreement - 2401369 Page 7
<PAGE> 8
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 herefrom. 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.
13.8 The headings in the Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning of
this Agreement.
13.9 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 but only one of
which need be produced.
EXECUTED as of the date first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
---------------------------------
Its: President and Chief Executive
Officer
--------------------------------
CYBEX COMPUTER
PRODUCTS CORPORATION
By: /s/ STEPHEN THORNTON
---------------------------------
Its: Executive Vice President
--------------------------------
Cybex Private Label Agreement - 2401369 Page 8
<PAGE> 9
Attachment 1
Standard Products
1. Mobility's complete line of distribution power products, docking station
products and monitor stands as published from time to time.
2. Mobility's complete line of distribution USB products as published from
time to time.
3. Mobility's complete line of distribution Split Bridge universal docking
products as published from time to time.
<PAGE> 10
ATTACHMENT 2
NEW CUSTOM PRODUCT FORM
Product Specification:
NRE Charge:
Tooling Charge:
Product Charge:
Forecast:
Date:
---------------------
CYBEX COMPUTER
PRODUCTS CORPORATION
By:
------------------------------
Its:
-----------------------------
MOBILITY ELECTRONICS, INC.
By:
------------------------------
Its:
-----------------------------
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mobility Electronics, Inc.
We consent to the use of our report dated March 3, 2000, except for the fourth
and fifth paragraphs of Note 20, which are as of March 6, 2000 and March 10,
2000, respectively, on the consolidated financial statements of Mobility
Electronics, Inc. and subsidiaries as of December 31, 1998 and 1999 and for each
of the years in the three-year period ended December 31, 1999, included herein
and to the reference to our firm under the headings "Selected Consolidated
Financial Data" and "Experts" in the prospectus.
/s/ KPMG LLP
Phoenix, Arizona
May 3, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,792,313
<SECURITIES> 0
<RECEIVABLES> 3,622,014
<ALLOWANCES> 630,000
<INVENTORY> 1,554,016
<CURRENT-ASSETS> 10,021,071
<PP&E> 4,026,657
<DEPRECIATION> 2,109,766
<TOTAL-ASSETS> 14,899,337
<CURRENT-LIABILITIES> 4,538,181
<BONDS> 8,050,924
0
23,991
<COMMON> 59,787
<OTHER-SE> 2,226,454
<TOTAL-LIABILITY-AND-EQUITY> 14,899,337
<SALES> 13,952,010
<TOTAL-REVENUES> 13,952,010
<CGS> 11,750,705
<TOTAL-COSTS> 11,750,705
<OTHER-EXPENSES> 12,235,891
<LOSS-PROVISION> 219,013
<INTEREST-EXPENSE> 6,396,567
<INCOME-PRETAX> (16,457,073)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,457,073)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,449,541)
<CHANGES> 0
<NET-INCOME> (17,906,614)
<EPS-BASIC> (3.59)
<EPS-DILUTED> (3.14)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,317,537
<SECURITIES> 0
<RECEIVABLES> 5,104,653
<ALLOWANCES> 735,081
<INVENTORY> 2,021,360
<CURRENT-ASSETS> 13,742,872
<PP&E> 4,146,548
<DEPRECIATION> 2,259,389
<TOTAL-ASSETS> 18,079,110
<CURRENT-LIABILITIES> 9,512,928
<BONDS> 3,429,647
0
29,478
<COMMON> 66,981
<OTHER-SE> 5,040,076
<TOTAL-LIABILITY-AND-EQUITY> 18,079,110
<SALES> 5,002,005
<TOTAL-REVENUES> 5,002,005
<CGS> 3,607,286
<TOTAL-COSTS> 3,607,286
<OTHER-EXPENSES> 3,350,338
<LOSS-PROVISION> 248,347
<INTEREST-EXPENSE> 986,734
<INCOME-PRETAX> (2,882,344)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,882,344)
<DISCONTINUED> 0
<EXTRAORDINARY> (48,663)
<CHANGES> 0
<NET-INCOME> (2,931,007)
<EPS-BASIC> (0.46)
<EPS-DILUTED> (0.43)
</TABLE>
