<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000.
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
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)
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Copies of communication to:
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>
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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>
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- --------------------------------------------------------------------------------------------------------------------
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 OFFERING PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value................. $ $70,000,000.00 $18,480.00
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</TABLE>
(1) Includes shares which the Underwriters have an option to purchase to cover
over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of determining the amount of the
registration fee.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
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 , 2000
MOBILITY ELECTRONICS LOGO
Mobility Electronics, Inc.
Shares
Common Stock
THIS IS THE INITIAL PUBLIC OFFERING OF MOBILITY ELECTRONICS, INC. WE ARE
OFFERING SHARES OF COMMON STOCK. WE EXPECT THAT THE PUBLIC OFFERING PRICE WILL
BE BETWEEN $ AND $ 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 7.
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.
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<CAPTION>
Price to Underwriting Discounts
Public and Commissions Proceeds to Mobility
<S> <C> <C> <C>
PER SHARE $ $ $
TOTAL $ $ $
</TABLE>
WE HAVE GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
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 $ , THE TOTAL
UNDERWRITING DISCOUNT WILL BE $ AND THE TOTAL PROCEEDS TO US WILL BE $ .
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 HEREBY 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, 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................................................ 7
Forward-Looking Statements.................................. 21
Use of Proceeds............................................. 21
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 36
Management.................................................. 49
Principal Stockholders...................................... 56
Certain Transactions........................................ 58
Description of Capital Stock................................ 61
Shares Eligible For Future Sale............................. 67
Underwriting................................................ 69
Legal Matters............................................... 71
Experts..................................................... 71
Additional Information Available To You..................... 71
Index to Consolidated Financial Statements.................. F-1
</TABLE>
Mobility Electronics(TM), Easi(TM), EasiDock(TM), 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 connectivity and remote
peripheral component interface, or PCI bus, technology and products for the
computer industry and for a broad range of related embedded processor
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. 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 with virtually no software or performance
degradation and enables architectural designs of computer systems and
applications that previously were not feasible. Unlike traditional communication
protocols such as Universal Serial Bus, or USB, IEEE 1394, Ethernet and small
computer systems interface, or SCSI, Split Bridge(TM) 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. 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.
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.
Our 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. 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. Moreover, all of the secondary PCI bus loads and
peripherals do not need to be physically attached to the primary PCI bus;
therefore, Split Bridge(TM) technology enables input/output devices, peripherals
and other technologies to be placed in multiple remote locations. Examples
include providing remote PCI expansion devices for desktop computers and
integrating Split Bridge(TM) technology into keyboard-video-mouse, or KVM,
switches. Split Bridge(TM) technology can also potentially be used to enhance or
expand the existing installed base of PCI-based computers, routers and servers.
Since routers and servers are one of the fastest growing segments of the
computer industry, and because they often already require multiple bridges, the
growth potential for Split Bridge(TM) in the router and server segment could be
quite large.
3
<PAGE> 6
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, and more importantly, is compatible with essentially all
makes and models of portable computers.
The portable computer market, which is the fastest 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 computing
devices is expected to grow at a compounded annual growth rate of 24.0% from
22.1 million units in 1998 to approximately 64.8 million units in 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,
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. When a portable computer is detached
from a connectivity product, all external devices connected to the connectivity
product stay in place.
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. This potentially 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. Our
universal Split Bridge(TM) docking station is capable of being upgraded due to
its modular design, providing the user with enhanced flexibility, and is
designed to work with most standard notebook computers and PCI based computing
devices, regardless of the manufacturer or model.
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 become
available, while at the same time maintaining a limited SKU count. Finally,
these products offer computer original equipment manufacturers, or OEMs, the
ability to use our standardized docking solution for their portable computer
models.
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 were formed as a limited liability company under the laws of the State
of Delaware in September 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 herein,
references to "Mobility," "us," "we" and "our" refer to Mobility Electronics,
Inc. and shall include our predecessors, Electronics Accessory Specialists
International, L.L.C., which was merged with and into us in August 1996, and
Mobility Electronics, L.L.C. which we acquired in May 1996. 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; and
- conversion of all shares of Series C preferred stock into approximately
3,301,884 shares of common stock, on a 1-to-1.3763 basis, upon completion
of this offering.
4
<PAGE> 7
THE OFFERING
Common stock offered by Mobility.... shares
Common stock to be outstanding after
this offering....................... 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 December 31,
1999, assuming the conversion of 2,399,102 shares of Series C preferred stock
into 3,301,884 shares of common stock. This number excludes as of December 31,
1999: (1) 1,655,455 shares subject to outstanding options and 844,545 shares
available for future option grants under our Amended and Restated 1996 Long Term
Incentive Plan, or the 1996 Plan; (2) 264,396 shares subject to non-plan
options; and (3) 5,172,778 shares subject to warrants to purchase common stock.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAY 5, NINE MONTHS
(INCEPTION) YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
TO DECEMBER 31, -------------------------------- ---------------------
1995 1996 1997 1998 1998 1999
--------------- ------- ------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 118 $ 5,669 $12,744 $ 21,072 $ 18,107 $ 10,162
Gross profit (loss).............................. 36 1,217 (114) (2,458) (1,162) 1,353
Total operating expenses......................... 827 3,224 7,483 13,938 8,461 9,168
------ ------- ------- -------- -------- --------
Loss from operations............................. (791) (2,007) (7,597) (16,396) (9,623) (7,815)
Other expense (income):
Interest expense, net.......................... (3) 112 676 1,638 1,142 5,585
Other, net..................................... -- (7) 502 (1) 7 (6)
------ ------- ------- -------- -------- --------
Loss before provision for income taxes........... (788) (2,112) (8,775) (18,033) (10,772) (13,394)
Provision for income taxes....................... -- -- -- -- -- --
------ ------- ------- -------- -------- --------
Net loss before preferred
dividends...................................... (788) (2,112) (8,775) (18,033) (10,772) (13,394)
Cumulative dividends on Series B preferred
stock.......................................... -- (160) -- -- -- --
------ ------- ------- -------- -------- --------
Net loss attributable to common stockholders..... $ (788) $(2,272) $(8,775) $(18,033) $(10,772) $(13,394)
====== ======= ======= ======== ======== ========
Loss per share:
Basic.......................................... $(0.19) $ (0.54) $ (1.66) $ (2.18) $ (1.32) $ (1.44)
====== ======= ======= ======== ======== ========
Diluted........................................ $(0.19) $ (0.54) $ (1.66) $ (2.10) $ (1.28) $ (1.24)
====== ======= ======= ======== ======== ========
Weighted average common shares outstanding:
Basic.......................................... 4,070 4,199 5,277 8,271 8,137 9,324
====== ======= ======= ======== ======== ========
Diluted........................................ 4,070 4,199 5,301 8,586 8,437 10,768
====== ======= ======= ======== ======== ========
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<CAPTION>
SEPTEMBER 30, 1999
(UNAUDITED)
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,268 $
Working capital (deficit)................................... (2,483)
Total assets................................................ 12,053
Long-term debt, less current installments................... 3,416
Total stockholders' equity (deficiency)..................... (2,253)
</TABLE>
See note 21 to our consolidated financial statements for an explanation of
the determination of shares used in computing net loss per share.
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 all outstanding shares of Series C preferred stock into common
stock, on a 1-to-1.3763 basis, upon completion of this offering and the
application of the net proceeds from the sale of shares of common stock
offered by us at the initial public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
6
<PAGE> 9
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
September 30, 1999, have an accumulated deficit of approximately $43.6 million.
We expect to have a net loss in the fourth quarter of fiscal 1999. 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. As a result of our continued losses and uncertainty
surrounding our ability to meet our anticipated operating and working capital
needs, the independent auditors' report on our 1998 consolidated financial
statements has been modified for a going concern. See note 2 to our consolidated
financial statements.
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 first quarter of 1999, 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:
- the demand for our products;
- the level of product and price competition;
- our success in establishing and expanding our direct and indirect
distribution channels;
- our success in attracting and retaining strategic partners, joint
ventures and licensing opportunities;
- our success in attracting and retaining motivated and qualified
personnel;
- our ability to expand our international and domestic sales;
7
<PAGE> 10
- our development and marketing of new products;
- our ability to control costs; and
- the general health of the portable computer market and general economic
conditions.
If we are not successful in addressing such risks, we could be materially
adversely affected.
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
substantially all 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 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 our business, results of
operations and financial condition. 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, our business, results
of operations and financial condition could be adversely affected.
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 products;
- the timing of our, and our competitors, new product introductions and
product enhancements;
- market acceptance of our products;
- the size and timing of customer orders;
- changes in the mix of products sold;
- the mix of distribution channels through which our products are sold;
- the mix of domestic and international sales;
- length of sales cycles, competition and pricing in our industry;
- reduction in demand for existing products and shortening of product
lifecycles;
8
<PAGE> 11
- foreign currency exchange rates;
- seasonality of sales;
- product defects and other product quality problems;
- our ability to attract and retain strategic partners;
- 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;
- our ability to attract and retain key personnel;
- our suppliers' ability to perform under their contracts with us; and
- general economic conditions.
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
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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 and our dependence on such sources could harm our business, financial
condition and operating results.
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 distributors represented 42.8% and 26.8%, respectively, of
our sales during that period. For the nine months ended September 30, 1999, OEMs
and distributors represented 54.3% and 28.9%, 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.
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, we
anticipate that our operating results for any given period will 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 and
have a material adverse effect on our business, results of operations and
financial condition. 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. A failure of our distributors to successfully market our products
could have a material adverse effect on our business, results of operations and
financial condition.
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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,
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 and could have a material adverse effect
on our business, results of operations and financial condition.
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 and could
have a material adverse effect on our business, results of operations and
financial condition.
OUR SUCCESS DEPENDS 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
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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 the 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.
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, could have a material adverse
effect on our business, results of operations and financial condition.
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. 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;
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- 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 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 our business, results of
operations and financial condition. 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
which in turn could have a material adverse effect on our business, results of
operations and financial condition. 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, and
the failure to do so could have a material adverse effect on our business,
results of operations and financial condition.
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, our recently hired 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 and Winterich, 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.
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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 complex and may contain undetected errors or performance
problems, particularly during new and 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, which could have a
material adverse effect on our business, results of operations and financial
condition. 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 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. Any product liability or
other claims against us, if successful and of sufficient magnitude, could have a
material adverse effect on our business, results of operations and financial
condition.
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
copyright and trademark laws, trade secrets, nondisclosure agreements and
technical measures to protect our proprietary rights. We have two patents issued
and five U.S. patent applications pending. There can be no assurance that
patents pending or future patent applications will be issued. 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
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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 infringement claims resolved against us could have a material adverse
effect upon our business, results of operations and financial condition. 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, which could have a material
adverse effect on our business, results of operations and financial condition.
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. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, results of operations and financial condition. 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 our
business, results of operations and financial condition. 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;
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- 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. Any of these factors
could have a material adverse effect on our business, operating results or
financial condition.
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.
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.
WE MAY NEED ADDITIONAL CAPITAL TO FUND OUR FUTURE OPERATIONS WHICH MAY NOT BE
AVAILABLE TO US ON FAVORABLE TERMS WHEN REQUIRED OR AT ALL.
We have expended and will continue to expend substantial funds to continue
the research and development and marketing efforts for our current and future
products. Our ability to execute our growth strategy depends to a significant
degree on our ability to obtain substantial additional debt and equity capital.
We believe that our existing working capital together with the proceeds from
this offering and cash available from credit facilities and future operations
will enable us to meet our working capital requirements for at least the next 12
months. However, if cash from future operations is insufficient, or if cash is
used for acquisitions or other currently unanticipated uses, we could be
required to raise substantial additional capital. The precise amount and timing
of our funding needs cannot be determined at this time, and will depend upon a
number of factors, including:
- the market demand for our products;
- the progress of our product development efforts;
- the success of programs we are seeking to implement to improve our
inventory management; and
- our management of our cash and accounts payable.
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There can be no assurance that funds required by us in the future will be
available on terms satisfactory to us, if at all. If additional funds are raised
through the issuance of equity or convertible debt securities, the percentage
ownership of the existing stockholders will be reduced, such existing
stockholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the holders of our common
stock. Additionally, any debt financing that may be available to us may include
restrictive covenants that would be applicable to us. The inability to obtain
needed funding on satisfactory terms may require us:
- to reduce planned capital expenditures;
- to reduce planned levels of advertising and promotion;
- to scale back our manufacturing or other operations; or
- to enter into financing arrangements on terms which we would not
otherwise accept,
and this could have a material adverse effect on our business, results of
operations and financial condition.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT COULD RESULT IN THE DILUTION OF OUR
STOCKHOLDERS, CAUSE US TO INCUR SUBSTANTIAL EXPENSES AND HARM OUR BUSINESS IF WE
CANNOT SUCCESSFULLY INTEGRATE THE ACQUIRED BUSINESS, PRODUCTS, TECHNOLOGIES OR
PERSONNEL.
As part of our business strategy, we may review acquisition prospects that
would complement our existing business or enhance our technological
capabilities. Future acquisitions by us could result in large and immediate
write-offs, the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
negatively affect our results of operations. Furthermore, acquisitions involve
numerous risks and uncertainties, including:
- difficulties in assimilation of the operations, products and personnel of
the acquired companies;
- the ability to effectively manage geographically remote units;
- the diversion of management's attention from other business concerns;
- the potential loss of key employees of acquired companies;
- risks of entering markets in which we have limited or no direct
experience;
- customer dissatisfaction;
- performance problems with an acquired company;
- dilutive issuances of equity securities;
- reduction of existing cash balances; and
- other effects on us that could have a material adverse effect on our
business, results of operations and financial condition.
Although we do not currently have any agreements or plans with respect to
any material acquisitions, we may make acquisitions of complementary businesses,
products or technologies in the future. We may not be able to successfully
integrate any businesses, products, technologies or personnel that might be
acquired in the future, and our failure to do so could harm our business.
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THE FAILURE OF OUR PRODUCTS AND COMPUTER SYSTEMS TO BE YEAR 2000 COMPLIANT COULD
HURT OUR BUSINESS.
Our business could suffer if our products and the computer systems we use,
as well as the computer systems used by our customers, users and vendors, do not
correctly process date-sensitive information in the year 2000 and beyond. We
believe that our products and business systems accurately process year 2000 date
information, but there may be parts of our products and business systems and
aspects of the year 2000 issue, including the potential cost of addressing the
year 2000 issue, that we have failed to consider or have not yet encountered.
There can be no assurance that the ultimate cost to identify and implement
solutions to all year 2000 issues will not be material to us.
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 % of the outstanding shares of common stock (
% 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, the
present directors and executive officers, together with our principal
stockholders, 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 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.
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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 $9.0 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 $ in net tangible book value per
share, or approximately % of the initial public offering price of $ per
share. In contrast, existing stockholders paid an average price of $ per
share.
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FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Upon completion of this offering, we will have shares of common stock
outstanding. All the shares sold in this offering can be freely traded. The
remaining 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 date of this prospectus. Immediately after the 180 day lock-up period,
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.
20
<PAGE> 23
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 shares being offered by us
at an assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, are estimated to be $ , or $ 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 $9.0 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 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, 2000. Borrowings
under the revolvers bear interest at a floating rate of prime plus 2.5% per
annum. The amounts outstanding under the revolvers at December 31, 1999 were
$2.3 million and $466,000. 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 December 31, 1999 was $916,667. The term loan amortizes at a rate
of $83,333 per month.
We have 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 December 31, 1999 the amounts outstanding
under the Finova loans were $1.6 million and $1.75 million.
We have two debt offerings bearing interest at 13% per annum. At December
31, 1999 the amount outstanding under the offering that will mature on March 5,
2000 was $1.2 million and the amount outstanding under the offering that will
mature on July 31, 2000 was $550,000.
In connection with the acquisition of Miram International, Inc., we assumed
a promissory note bearing interest at 8% per annum and maturing on July 31,
2000. At December 31, 1999
21
<PAGE> 24
$157,000 was outstanding under this note, which amortizes in equal installments
on January 31, 2000, April 30, 2000 and July 31, 2000.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital 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, our loan agreements prohibit the payment
of cash dividends.
22
<PAGE> 25
CAPITALIZATION
The following table shows:
- our actual capitalization as of September 30, 1999;
- our capitalization as of that date on a pro forma basis to give effect to
the conversion of all shares of Series C preferred stock, on a
1-to-1.3763 basis, upon completion of this offering; 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 $ per share, and after deducting
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
(IN THOUSANDS, UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Debt:
Note payable -- Bridge loans.............................. $ 1,775 $ 1,775 $
Lines of credit -- Bank of America........................ 5,000 5,000
Notes payable -- Finova................................... 3,350 3,350
Convertible debt.......................................... 85 85
Note payable -- Moroz..................................... 157 157
Capital leases............................................ 238 238
-------- -------- --------
Total debt........................................ 10,605 10,605
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, 6,886 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, 1,166,358 of which are issued
and outstanding........................................ 12 --
Common stock $0.01 par value; 100,000,000 shares
authorized; 11,232,172 issued and outstanding;
12,837,430 issued and outstanding pro forma;
issued and outstanding pro forma as adjusted........... 112 128
Additional paid-in capital.................................. 41,192 41,188
Accumulated deficit......................................... (43,596) (43,596)
Foreign currency translation adjustment..................... 27 27
-------- -------- --------
Net stockholders' equity (deficiency)....................... (2,253) (2,253)
-------- -------- --------
Total capitalization.............................. $ 8,352 $ 8,352
======== ========
</TABLE>
The number of shares of capital stock referenced above excludes: (1)
286,567 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 264,396 shares of common stock outside the 1996 Plan at $1.76 per
share; and (3) warrants to purchase 5,172,778 shares of common stock at a
weighted average exercise price of $1.63 per share. See "Capitalization,"
"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 September 30, 1999, was
approximately $ million, or $ per share, based on shares of our
common stock outstanding after giving effect to the conversion of all
outstanding shares of our Series C preferred stock into common stock, on a
1-to-1.3763 basis, upon the closing of this offering.
After giving effect to the sale of the shares of common stock by us at
the assumed initial public offering price of $ 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 September 30, 1999,
would be $ million, or $ per share. This represents an immediate
increase in the pro forma as adjusted net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to new
investors, or approximately % of the initial public offering price of $
per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share before the offering..... $
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, 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
---------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 12,837,431 % $40,894 % $3.19
New investors.....................
---------- --- ------- ---
Totals.................. 100% $ 100%
---------- --- ------- ---
</TABLE>
The information in the table is based upon the initial public offering
price of $ 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
September 30, 1999 and gives effect to the conversion of all outstanding shares
of Series C preferred stock into common stock, on a 1-to-1.3763 basis, upon
completion of this offering. The information presented with respect to existing
stockholders excludes as of September 30, 1999: (1) 754,252 shares subject to
outstanding options and 1,745,748 shares available for future option grants
under our 1996 Plan; (2) 264,396 shares subject to non-plan options; and (3)
3,165,359 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.
24
<PAGE> 27
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" for, and as of December 31, 1996, 1997 and
1998 and for each of the years in the three-year period ended December 31, 1998,
are derived from our consolidated financial statements, which have been audited
by KPMG LLP, independent certified public accountants. The financial statements
as of December 31, 1996, 1997 and 1998 and for each of the years in the
three-year period ended December 31, 1998, and the report thereon, are included
elsewhere in this prospectus. We derived the consolidated financial data for the
period ended December 31, 1995 from our unaudited financial statements that are
not included in this prospectus. The selected data presented below for the nine
months ended September 30, 1998 and 1999, and as of September 30, 1998 and 1999,
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>
NINE MONTHS
MAY 5, ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------------------- -------------------
1995 1996 1997 1998 1998 1999
-------------- ------- ------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 118 $ 5,669 $12,744 $ 21,072 $ 18,107 $ 10,162
Cost of sales.................................. 82 4,452 12,858 23,530 19,269 8,809
----- ------- ------- -------- -------- --------
Gross profit (loss)............................ 36 1,217 (114) (2,458) (1,162) 1,353
Operating expenses:
General and administrative................... 283 1,978 1,907 4,446 2,710 2,879
Research and development..................... 159 711 2,951 4,361 2,614 2,617
Marketing and sales.......................... 385 535 2,625 5,131 3,137 3,672
----- ------- ------- -------- -------- --------
Total operating expenses............... 827 3,224 7,483 13,938 8,461 9,168
----- ------- ------- -------- -------- --------
Loss from operations........................... (791) (2,007) (7,597) (16,396) (9,623) (7,815)
Other expense (income):
Interest expense, net........................ (3) 112 676 1,638 1,142 5,585
Other, net................................... -- (7) 502 (1) 7 (6)
----- ------- ------- -------- -------- --------
Loss before provision for income taxes......... (788) (2,112) (8,775) (18,033) (10,772) (13,394)
Provision for income taxes(a).................. -- -- -- -- -- --
----- ------- ------- -------- -------- --------
Net loss before preferred dividends............ (788) (2,112) (8,775) (18,033) (10,772) (13,394)
Cumulative dividends on Series B preferred
stock........................................ -- (160) -- -- -- --
----- ------- ------- -------- -------- --------
Net loss attributable to common stockholders... $(788) $(2,272) $(8,775) $(18,033) $(10,772) $(13,394)
===== ======= ======= ======== ======== ========
Loss per share(b):
Basic........................................ $(0.19) $ (0.54) $ (1.66) $ (2.18) $ (1.32) $ (1.44)
===== ======= ======= ======== ======== ========
Diluted...................................... $(0.19) $ (0.54) $ (1.66) $ (2.10) $ (1.28) $ (1.24)
===== ======= ======= ======== ======== ========
Weighted average common shares outstanding(b):
Basic........................................ 4,070 4,199 5,277 8,271 8,137 9,324
===== ======= ======= ======== ======== ========
Diluted...................................... 4,070 4,199 5,301 8,586 8,437 10,768
===== ======= ======= ======== ======== ========
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------------
1995 1996 1997 1998 1998 1999
----------- ------- ------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 352 $ 290 $ 2,216 $ 2,433 $ 3,035 $ 1,268
Working capital (deficit).......................... 424 388 1,928 (3,190) 13 (2,483)
Total assets....................................... 815 4,380 12,250 12,735 15,696 12,053
Long-term debt, less current installments.......... -- 1,168 3,919 3,587 5,658 3,416
Total stockholders' equity (deficiency)............ 568 607 430 (3,496) (1,956) (2,253)
</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 21 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.
26
<PAGE> 29
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. Net losses increased from
$788,000 in 1995, to $2.1 million in 1996, to $8.8 million in 1997 and $18.0
million in 1998.
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 ramp up 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
ramp up, 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 $4.1 million, unamortized tooling in the amount of
$275,000 was written off and a reserve for product returns was established in
the amount of $200,000.
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.
The product line abandonment plan assumed a migration from the mechanical
port replicator product offering to a universal line of docking stations, which
are not unique to each portable computer. Universal docking stations are a
natural application for the Split
27
<PAGE> 30
Bridge(TM) technology. These docking stations will represent the first
commercial application of the technology. A line of products was designed around
our leading edge 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 strategy was implemented in September 1999. The
outsourcing of manufacturing allows us to concentrate our efforts on
technological development and application.
As a result of the two aforementioned actions, we have experienced
significant improvement in gross margins in the third quarter of 1999. The new
universal connectivity product line has been set up to use a 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 54.3% of net sales in the nine months ended September 30, 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. Historical returns, which
have been netted in the sales presented herein, have been approximately 6.0% of
sales. 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 connectivity 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 our
international sales subsidiaries in France, Germany and the United Kingdom for
nominal value to Cameron Wilson, our then current president. Mr. Wilson has
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 19.0% of our net sales for the
nine months ended September 30, 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
28
<PAGE> 31
international sales. We recognized net foreign exchange gains of approximately
$25,403 in the nine months ended September 30, 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.
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
---------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ---------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 78.5 100.9 111.7 106.4 86.7
----- ----- ----- ------ ------
Gross profit (loss)...................... 21.5 (0.9) (11.7) (6.4) 13.3
Operating expenses:
General and administrative............... 34.9 15.0 21.1 15.0 28.3
Research and development................. 12.6 23.1 20.7 14.4 25.8
Marketing and sales...................... 9.4 20.6 24.3 17.3 36.1
----- ----- ----- ------ ------
Total operating expenses......... 56.9 58.7 66.1 46.7 90.2
----- ----- ----- ------ ------
Loss from operations.................. (35.4) (59.6) (77.8) (53.1) (76.9)
Other expense:
Interest expense, net.................... 1.9 5.3 7.8 6.3 54.9
Other, net............................... -- 3.9 -- -- --
----- ----- ----- ------ ------
Loss before provision for income
taxes............................... (37.3) (68.8) (85.6) (59.4) (131.8)
Provision for income taxes................. -- -- -- -- --
----- ----- ----- ------ ------
Net loss......................... (37.3)% (68.8)% (85.6)% (59.4)% (131.8)%
===== ===== ===== ====== ======
</TABLE>
Nine Months Ended September 30, 1999 and 1998 (unaudited)
Net sales. Net sales consist of sales of product net of returns and
allowances. We recognize sales at the time goods are shipped and maintain a
reserve for stock rotation transactions with the distribution channel. Net sales
declined 43.9% to $10.2 million for the nine months ended September 30, 1999
from $18.1 million for the nine months ended September 30, 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. We also terminated our exclusive
distribution arrangement with Extended Systems in July 1998 and initiated
relationships directly with the distribution channel. The volume sold through
the distribution channel was ramping in the first quarter of 1999 after
relationships were established in the fourth quarter of 1998. In
29
<PAGE> 32
addition, we had changed from in-house manufacturing to contracted
manufacturing. Product availability was negatively impacted during the
implementation of this transition.
Gross profit. Our cost of sales consists 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 nine months
ended September 30, 1999 decreased 54.3% to $8.8 million from $19.3 million for
the nine months ended September 30, 1998. The decrease in cost of sales was
primarily the result of the volume decrease in net sales. Gross profit (loss)
increased to 13.3% of net sales for the nine months ended September 30, 1999
from (6.4)% of net sales for the nine months ended September 30, 1998. The gross
profit for the period ended September 30, 1998 was adversely affected by
inventory reserve increases to reflect obsolescence issues with the mechanical
port replicator dock product line. Although improved as a percent of net sales,
the gross profit for the period ended September 30, 1999 was adversely affected
by a reduction in sales volume, which caused manufacturing overhead to be
underabsorbed, and the additional initial costs incurred as the shift to
contract manufacturing was implemented.
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 costs increased 6.2% to $2.9 million for the nine months ended
September 30, 1999 from $2.7 million for the nine months ended September 30,
1998. The cost increase was attributed to increases in our European expenses
which were partially offset by 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 company.
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 new product development
group. Research and development expenses were $2.6 million for each of the nine
months ended September 30, 1998 and 1999. Expenses increased significantly in
the product development efforts in connection with Split Bridge(TM) technology
and its application to the universal docking product line. Research and
development expenses associated with mechanical port replicator products were
phased out in the first quarter of the nine month period ended September 30,
1999. We expect engineering costs to increase in the future as we continue to
develop next generation chips aimed to keep us at the leading edge of universal
docking and remote PCI bus applications.
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 expenses increased 17.1% to $3.7 million for the
nine months ended September 30, 1999 from $3.1 million for the nine months ended
September 30, 1998. The increase in cost was primarily due to the launch costs
and packaging development cost 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. Interest expense consists of interest on our bank
revolving lines of credit as well as our subordinated debt and convertible
debentures, partially offset by interest earned on our cash balances and
short-term investments. 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 $5.4
million
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relative to such warrants. Based upon normal amortization or the conversion of
the underlying debt, we expensed $4.7 million related to these and other
warrants for the nine months ended September 30, 1999. The warrants are
amortized over the life of the loan and recorded as interest expense upon
conversion. Interest expense increased by 389.1% to $5.6 million for the nine
months ended September 30, 1999 from $1.2 million for the nine months ended
September 30, 1998. The increase was primarily due to the non-cash expense
associated with amortization of the bridge loan warrants which totaled $4.7
million in the nine months ended September 30, 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 nine months ended September 30,
1999 or 1998.
Years Ended December 31, 1998 and 1997
Net sales. 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. Cost of sales for the year ended December 31, 1998 increased
83.0% to $23.5 million from $12.9 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 inventory reserve in the amount of $4.1 million was recorded in
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
(0.9)% of net sales for the year ended December 31, 1997.
General and administrative. 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 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 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 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, Inc. and developed the internal infrastructure to distribute our
products directly through the established U.S. distribution channels. This was
done to eliminate the second layer of distribution cost that put pressure on
gross profit margins. 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.
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Interest expense. 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, 1997 and 1996
Net sales. Net sales increased 124.8% to $12.7 million for the year ended
December 31, 1997 from $5.7 million for the year ended December 31, 1996. The
increase in net sales for the year ended December 31, 1997 was mainly due to the
introduction of new products in our port replicator product line, as well as
increased sales for our existing products.
Gross profit. Cost of sales for the year ended December 31, 1997 increased
188.8% to $12.9 million from $4.5 million for the year ended December 31, 1996.
This increase was due to higher costs of sales in 1997 for new product platform
and technology introductions, higher overhead expenses, as well as an
incremental $677,000 increase in the provision for inventory losses, primarily
related to many startup issues, and the impact of one new technology program,
which represented 19.2% of 1997 sales and which provided no margin. The gross
profit (loss) declined to (0.9)% of net sales for the year ended December 31,
1997 from $1.2 million, or 21.5% of net sales for the year ended December 31,
1996.
General and administrative. General and administrative expenses decreased
3.6% to $1.9 million for the year ended December 31, 1997 from $2.0 million for
the year ended December 31, 1996, which represented 15.0% and 34.9% of net
sales, respectively. The expense decrease was attributable to minor staffing and
infrastructure reductions.
Research and development. Research and development expenses increased
315.0% to $3.0 million for the year ended December 31, 1997 from $711,000 for
the year ended December 31, 1996, which represented 23.1% and 12.6% of net
sales, respectively. The increase in costs was due largely to a $1.0 million
charge in the third quarter of 1997 due to the write-off of in-process research
and development costs related to the Miram acquisition and the development of
new product offerings, in particular the universal connectivity products.
Marketing and sales. Marketing and sales expenses increased 390.7% to $2.6
million for the year ended December 31, 1997 from $535,000 for the year ended
December 31, 1996, which represented 20.6% and 9.5% of net sales, respectively.
The increase in costs was largely due to the launch of new products during the
period, as well as the costs of building a sales and product management
organization to supplement our distribution channels in the United States.
Interest expense. Interest expense increased 503.6% to $676,000 for the
year ended December 31, 1997 from $112,000 for the year ended December 31, 1996.
The increase was due to an increase in the outstanding balance of our debt and
amortization of deferred loan costs related to warrants issued in connection
with certain debt.
Income taxes. We have incurred losses from inception to date, therefore, no
provision for income taxes was required for the year ended December 31, 1997 or
1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through debt and
equity financing, as the cost of our operating activities has exceeded our
sales. Our operating activities used cash of $8.9 million, $12.9 million and
$11.2 million for the years ended
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December 31, 1997 and 1998 and the nine months ended September 30, 1999,
respectively. All references in this section to dates subsequent to December 31,
1998 are unaudited. 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 and
$10.1 million for the years ended 1997 and 1998 and the nine months ended
September 30, 1999, respectively. In March 1999 we issued an aggregate of $3.5
million of 13% Bridge Promissory Notes, which are due and payable in March,
2000, and issued warrants for the purchase of 1,050,000 shares of common stock.
In June 1999 $2.3 million of the Bridge Notes were converted to common stock at
a price of $4.00 per share. In June through August 1999 we issued an additional
aggregate of $3.7 million of 13% Bridge Promissory Notes and issued warrants of
the purchase of 898,400 shares of common stock. $3.2 million of these Bridge
Notes were immediately converted to common stock at a price of $4.00 per share.
The balance 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 April and May 1998 we sold
1,485,000 shares of common stock for an aggregate of $8.5 million in a private
placement, and in September 1997 we sold 2.5 million shares of common stock for
an aggregate of $10.0 million and issued warrants to purchase an additional
625,000 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 $3.86 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 418,124
shares of common stock at an exercise price of $0.01 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 and $91,000 for
the years ended 1997 and 1998 and the nine months ended September 30, 1999,
respectively. From inception through September 30, 1999, cash used in investing
activities was primarily used for capital purchases, including tooling and
capital leases.
Our cash and cash equivalents decreased to $1.3 million at September 30,
1999, compared to $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 $(2.4
million), $(3.2 million) and $1.9 million, respectively. At September 30, 1999
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 $5.0
million. At September 30, 1999 the $4.5 million domestic line of credit and the
$750,000 foreign line of credit had outstanding balances of approximately $4.3
million and $0.7 million, respectively, bearing interest at 1.5% plus the bank's
corporate base rate (9.75% at September 30, 1999) per annum, payable monthly.
Advances 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 outstanding balances of both
lines of credit will be repaid with part of the proceeds of this offering.
At December 31, 1998 we had $11.8 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 its 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
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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
12 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.
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.
INFLATION
Increases in inflation generally result in higher interest rates and
operating costs. Higher interest rates on our borrowings would decrease the
profitability of our existing portfolio. We intend to retire our existing debt
with the proceeds of this offering thus limiting our exposure
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to increases in interest rates. Our largest cost exposure is cost of net sales
on product sales. These costs are incurred with contract manufacturers on a
fixed cost basis. To date we believe that inflation has not had a significant
impact on our operations.
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 begin to amortize 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.
Most of our revenues are realized currently in U.S. dollars and are from
customers primarily in the United States. Therefore, we do not believe that we
currently have any significant direct foreign currency exchange rate risk.
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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 embedded processor
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 with virtually no software or performance
degradation and enables architectural designs of computer systems and
applications that previously were not feasible. Unlike traditional communication
protocols such as Universal Serial Bus, or USB, IEEE 1394, Ethernet and small
computer systems interface, or SCSI, Split Bridge(TM) 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, and potentially
desktop expansion, servers, routers, keyboard-video-mouse, or KVM, switches,
business machines, such as copiers and printers, test equipment, modular
computers and other applications that could benefit from extending the PCI bus.
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.
Our Split Bridge(TM) technology won PC Week's "Best New Technology" award
at the fall 1999 COMDEX trade show, and our flagship EasiDock(TM) 3000 universal
docking product was runner-up for the Byte.com "Best New Peripheral Award" at
the fall 1999 COMDEX show, the world's largest information technology event in
the computer industry. Our Split Bridge(TM) technology and its universal docking
application have also been selected as one of seven nominees for the "Technology
Achievement of the Year Award" at the Mobile Insights 2000 Conference to be held
in March 2000. Mobile Insights is a professional services company that focuses
on the mobile computing and data communications market.
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.
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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 the fastest 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 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 74% of all
notebook computers sold in 1997 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. 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
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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.
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. Thus, all of the secondary PCI bus
loads and peripherals do not need to be attached to the primary PCI bus,
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.
Split Bridge(TM) technology enables input/output devices, peripherals and
other technologies to be placed in multiple remote locations. Examples include
providing remote PCI expansion devices for desktop computers and integrating
Split Bridge(TM) technology into KVM switches. Split Bridge(TM) technology can
also potentially be used to enhance or expand the existing installed base of
PCI-based computers, routers and servers. Since routers and servers are one of
the fastest growing segments of the computer industry, and because they often
already require multiple bridges, the growth potential for Split Bridge(TM) in
the router and server segment could be quite large.
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.
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
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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 become available, 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.
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.
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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 primary PCI bus PCB. As a result, multiple secondary PCI buses can be
created at a number of remote locations.
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 4, 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
- - Bi-directional - No storage requirements
- - PCI superset (transfers bus, not data) - Minimal size, heat and power requirement
- - Full PCI bus compatibility - Highly upgradeable technology migration path
- - No processor requirements - Small, flexible cable
- - No software requirement - Cost effective
</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 as a leader 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)
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technology installed on every PCI-based computer motherboard for the
purpose of providing a standard 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 include expanding current strategic partnerships and
establishing a wide variety of additional relationships.
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.
Strengthen 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 digital video, or
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
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 products, has
invested a significant amount of capital in this technology and continues
to support the development of our Split Bridge(TM) technology. Molex is
also one of our investors.
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Philips Semiconductors. Philips, formerly VLSI, 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. Philips is our sole supplier
of Split Bridge(TM) technology ASIC chips, 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 our 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.
PRODUCTS
Standard Split Bridge(TM) Products
We have designed and internally tested the Split Bridge(TM) products
described below. We plan to begin shipping commercial production quantities of
these products in the second quarter of 2000.
Split Bridge(TM) Link. This product will allow the extension of the primary
PCI bus. It will include two Split Bridge(TM) ASIC chips, two connectors and a
1.25 gigabit bi-directional, high-speed cable. The choice of connectors and
chips will depend 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.
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(TM) 1000 Series. This product series will enable the user to
connect almost any portable computer to a docking station at a speed of
1.25 gigabits, which is 100 times faster than USB. It will provide 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. A second product in this category will include the features
listed above plus Ethernet-based, 10/100 base T networking. The suggested
retail price for this product is expected to be $249 without Ethernet and
$299 with Ethernet.
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- EasiDock(TM) 2000 Series/Desktop Expansion Products. These standalone
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 any portable computer. Thus, the user
will have the capability to provide almost unlimited expansion capacity.
The suggested retail price for this product line is expected to range
from $399 to $499.
- EasiDock(TM) 3000 Series. This product series will offer all the
functionality of the EasiDock(TM) 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 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. While
we have not begun commercial production shipment of our custom Split Bridge(TM)
products, we are currently marketing these solutions to a number of OEMs. These
products 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. Such products 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 or EIDE 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.
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(TM) USB 200 has been selected as one of the nominees in
the peripheral category for the "2000 Mobility Awards" to be given by Mobile
Insights in March 2000.
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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(TM) 1000 Series. We intend to replace the
current EasiDock(TM) 1000 series with a product series that is expected to
include all the current EasiDock(TM) 1000 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(TM) 3000 Series. We intend to replace the
current EasiDock(TM) 3000 series with the next generation EasiDock(TM) 3000
Series when USB 2.0 becomes widely available. We plan to include all the
current EasiDock(TM) 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 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 drive down 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.
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Next Generation EasiDock(TM) USB Product. This product is planned for
introduction when USB 2.0 becomes available and is intended to replace the
current EasiDock(TM) USB series. We plan to include all the EasiDock(TM) 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.
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>
Targus and Ingram Micro each accounted for more than 10% of our total
revenues for the nine month period ended September 30, 1999. Targus distributes
a range of our products, on a private label basis, primarily to major retail
outlets and certain OEM fulfillment outlets worldwide. Ingram Micro distributes
a wide range of our products to value-added resellers, system integrators,
catalog houses, major retail outlets and certain OEM fulfillment outlets
worldwide.
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.
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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 Mobility's market. We also plan to establish an
e-commerce capability and marketing program, including 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.
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(R), OfficeMax and Staples.
Marketing. We intend to implement a variety of marketing activities in 2000
to aggressively market our new range of 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 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. 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 universal docking product line. These
products are currently in the pre-production phase. Solectron has sourced
components and has built prototype units and customer evaluation units on
production lines that have been established for production of these 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 communications protocols, such as USB, IEEE 1394, Ethernet and SCSI.
These protocols are generally
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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 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 copyright and trademark laws,
trade secrets, nondisclosure agreements and technical measures to protect our
proprietary rights. We have two issued patents and five U.S. patent applications
pending. The process of seeking patent protection can be expensive and time
consuming. There can be no assurance that patents will issue from pending or
future applications 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 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.
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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.
EMPLOYEES
As of December 31, 1999 we had 46 full-time employees all located in the
United States, including 7 employed in operations, 22 in engineering, 5 in sales
and marketing and 12 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 initial term expires on January 31, 2002. We
have the option to renew the lease for the present space for an additional two
years. 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 next several years.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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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
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 system company. From September 1986 to
July 1992 Mr. Mollo was the Vice President of Corporate Development of Alliance
Telecommunications Corporation, a wireless telecommunications company. Mr. Mollo
has a B.E. from Manhattan College, an M.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 December 1999. From May 1994 to May 1995 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 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 six 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.
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Scott Smith has been employed by us since September 1997 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. 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 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 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;
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- 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 an officer or employee of Mobility. 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 Mobility and any member of the compensation committee
and entities affiliated with any compensation committee member, see "Certain
Transactions."
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 20,000
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 30,000 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 5,000 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 20, 2001. The agreement with Mr.
Hunt expires
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<PAGE> 54
on December 7, 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 70,000 shares
of our common stock under our 1996 Plan. Mr. Hunt's options were granted at an
exercise price of $2.00 per share. Mr. Dilworth's options were granted at an
exercise price of $4.00 per share. These options expire on the same day that the
consulting agreements expire. 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.
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 -- $400,000 200,000
President, Chief Executive Officer 1998 116,346 -- -- 171,373 29,804
and Chairman of the Board 1997 116,657 -- -- -- --
Jeffrey S. Doss........................... 1999 120,366 1,731 -- 300,000 150,000
Executive Vice 1998 114,913 -- -- 171,373 29,804
President and Director 1997 100,000 -- -- -- --
Richard W. Winterich...................... 1999 185,711 3,557 -- 200,500 150,000
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 $50,000 or 10% of any officer's
salary and bonus disclosed in this table.
OPTION GRANTS IN LAST FISCAL YEAR
Stock options were granted to the Named Executive Officers during the year
ended December 31, 1999. The following table summarizes the option grants.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE MARKET OPTION TERM ($)
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...... 200,000 16.47% $2.00 $2.00 12/01/04 $ -- $ 86,202 $185,640
Jeffrey S. Doss....... 150,000 12.35% 2.00 2.00 12/01/04 -- 64,652 139,230
Richard W. Winterich.. 100,000 8.24% 2.00 2.00 4/12/04 -- 43,101 92,282
50,000 4.12% .01 2.00 4/12/10 99,500 162,389 258,874
</TABLE>
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<PAGE> 55
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 individual guarantees an amount up to $1,830,000. As affirmation
and compensation for the associated financial risk, we have issued warrants to
purchase 21,750 shares of our common stock to Mr. Mollo at a price of $2.00 per
share and warrants to purchase 18,121 shares of our common stock to Mr. Doss at
a price of $2.00 per share.
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....................... 75,407 213,137
Jeffrey S. Doss........................ 75,407 163,137
Richard W. Winterich................... 0 150,000
</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
2,500,000. 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 any of our
subsidiaries, 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
53
<PAGE> 56
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 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 1,655,455 shares of common stock under the 1996 Plan, 286,567 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 nonqualified options to purchase an
aggregate of 264,396 shares of common stock at a price per share of $1.76
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 and Winterich. The agreements with Messrs. Mollo and Doss expire on
November 30, 2001. The agreement with Mr. Winterich expires on December 31,
2001. 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 is $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
200,000 shares of our common stock at $2.00 per share under our 1996 Plan. This
option expires on December 8, 2003.
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 150,000 shares of our
common stock at $2.00 per share under our 1996 Plan. This option expires on
December 8, 2003. Pursuant to Mr. Doss's employment agreement, we sold him
50,000 shares of our Series C preferred stock
54
<PAGE> 57
at a purchase price of $6.00 per share and issued Mr. Doss a warrant to purchase
100,000 shares of our common stock at an exercise price of $0.01 per share. In
return, Mr. Doss provided us with a promissory note and an agreement pledging
his 50,000 shares of common stock to us.
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 pay a
lump-sum payment equal to his then current salary for the remainder of the then
current term of the agreement. 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 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.
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 100,000 shares of our common stock at $2.00 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 50,000 additional shares of
our common stock at a price of $0.01 per share 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
vests and becomes exercisable over a period of two years from the date of grant
and expires on April 12, 2009, unless it expires earlier due to Mr. Winterich
terminating his employment with us.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock and Series C preferred stock as of December 31,
1999, 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)........................... 2,346,585 15.07%
Jeffrey S. Doss(3)(5)............................ 668,618 4.34%
Jeffrey R. Harris(3)(6).......................... 1,853,884 12.01%
Richard Winterich(3)(7).......................... 60,000 *
Robert P. Dilworth(3)(8)......................... 80,000 *
William O. Hunt(3)(9)............................ 70,000 *
Kenneth A. Steel, Jr. (3)(10).................... 227,903 1.48%
New Vistas Investment Corporation(11)............ 1,021,434 6.65%
Empire National II, LLC(12)...................... 771,959 5.04%
Seligman Communications and Information Fund,
Inc.(13)....................................... 1,354,815 8.51%
Executive officers and directors as a group
(eight persons)................................ 4,405,799 27.11%
</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 December
31, 1999, 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 394,722 shares owned directly by Mr. Mollo; 215,272 shares owned
by Mollo Family LLC of which Mr. Mollo owns 10% and is a manager; 720,116
shares owned by New Vistas Investment Corporation of which Mr. Mollo owns
approximately 43%; 467,655 shares owned by New Horizons of which Mr. Mollo
owns 49%; 44,731 shares that may be received upon the conversion of 32,501
shares of Series C preferred stock owned directly by Mr. Mollo; 195,838
shares that may be received upon the conversion of 142,293 shares of Series
C preferred stock owned by New Vistas Investment Corporation; 52,920 shares
that may be purchased upon the exercise of warrants owned directly by Mr.
Mollo; 55,396 shares that may be purchased upon the exercise of warrants
owned by Mollo Family LLC; 105,480 shares that may be purchased upon the
exercise of warrants owned by New Vistas Investment Corporation; and 94,455
shares that may be purchased upon the exercise of options granted under the
1996 Plan.
(5) Includes 442,068 shares of owned directly by Mr. Doss; 10,000 owned by
Nolton Doss International, Inc. of which Mr. Doss owns 50% and is a
director; 68,815 shares that may be received upon the conversion of 50,000
shares of Series C preferred stock owned directly by Mr. Doss; 55,660
shares that may be purchased upon the exercise
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<PAGE> 59
of warrants owned directly by Mr. Doss; and 92,075 that may be purchased
upon the exercise of options granted under the 1996 Plan.
(6) Includes 145,954 shares owned directly by Mr. Harris; 121,157 shares owned
by Harris Family LLC of which Mr. Harris owns 10% and is a manager; 720,116
shares owned by New Vistas Investment Corporation of which Mr. Harris owns
approximately 20% and is a director; 467,655 shares owned by New Horizons
of which Mr. Harris owns 26% and is a director; 22,937 shares that may be
received upon the conversion of 16,666 shares of Series C preferred stock
owned directly by Mr. Harris; 195,838 shares that may be received upon the
conversion of 142,293 shares of Series C preferred stock owned by New
Vistas Investment Corporation; 8,500 shares that may be purchased upon the
exercise of warrants owned directly by Mr. Harris; 21,247 shares that may
be purchased upon the exercise of warrants owned by Harris Family LLC;
105,480 shares that may be purchased upon the exercise of warrants owned by
New Vistas Investment Corporation; and 45,000 shares that may be purchased
upon the exercise of options granted under the 1996 Plan.
(7) Includes 10,000 shares owned directly by Mr. Winterich; and 50,000 shares
that may be purchased upon the exercise of options granted under the 1996
Plan.
(8) Includes 80,000 shares that may be purchased upon the exercise of options
granted under the 1996 Plan.
(9) Includes 70,000 shares that may be purchased upon the exercise of options
granted under the 1996 Plan.
(10) Includes 26,068 shares owned directly by Mr. Steel; 79,250 shares owned by
K.A. Steel Chemicals, Inc. of which Mr. Steel owns approximately 33% and is
a director; 49,585 shares that may be purchased upon the exercise of
warrants owned directly by Mr. Steel; 3,000 shares that may be purchased
upon the exercise of warrants owned by K.A. Steel Chemicals, Inc.; and
70,000 shares that may be purchased upon the exercise of options granted
under the 1996 Plan.
(11) Includes 720,116 shares owned directly by New Vistas Investment
Corporation; 195,838 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 105,480 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 720,200 shares owned directly by Empire National II, LLC; and
51,759 shares that may be received upon the exercise of warrants owned
directly by Empire National II, LLC. The address for Empire National II,
LLC is 330 Garfield Street, Suite 200, Santa Fe, New Mexico 87501.
(13) Includes 688,149 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 666,666 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.
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<PAGE> 60
CERTAIN TRANSACTIONS
The following is a description of transactions since our inception, 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."
In September 1995 our predecessor, Electronics Accessory Specialists
International, L.L.C. ("Predecessor"), was capitalized with commitments from
members of our management, our directors and advisors and their respective
affiliates to subscribe for $970,000 of common and preferred interests in
Predecessor, at which time a group of outside investors committed to contribute
an additional $1,050,000 for such securities. In April 1996, we completed an
additional $1.0 million round of financing, $650,000 of which was subscribed for
by members of our management, our directors and advisors and their respective
affiliates, and $350,000 of which was subscribed for by outside investors, in
the form of a super preferred interests in Predecessor.
In connection with the merger of Predecessor with and into us 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,
and all outstanding options to purchase common interests in Predecessor were
converted into similar interests to purchase shares of common stock of us.
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 $3.86 per share, and
$565,000 of which was in the form of convertible subordinated debt (the
"Convertible Debentures")), and approximately $2.1 million from outside
investors ($846,458 of which was in the form of common stock, at a purchase
price of $3.86 per share, and approximately $1.3 million of which was in
Convertible Debentures). For a description of the Convertible Debentures, see
"Description of Capital Stock -- Convertible Debentures."
In 1996 the holders of Series A preferred stock converted such shares into
common stock, at the rate of $3.86 per share, and Convertible Debentures at the
rate of $3.86. Management and its affiliates converted all $605,772 of its
Series A preferred stock into common stock, and outside investors converted
$87,855 into common stock and $306,374 into Convertible Debentures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
From September through November 1997 we completed a $10.0 million private
placement, including $583,885 of notes which were converted at $4.00 per share,
approximately $1.1 million of already outstanding preferred stock which was
converted at $4.00 per share and the sale of 2,081,114 newly-issued shares of
common stock at $4.00 per share. Of these amounts, management converted notes of
$525,100, preferred stock of approximately $1.1 million and purchased $16,000 of
common stock, all at $4.00 per share.
In June 1998 we completed a private placement of approximately $8.5 million
and issued an aggregate of 1,485,000 shares of common stock at $5.75 per share.
Our management and their affiliates purchased an aggregate of 74,000 shares of
common stock ($425,000) in this private placement.
In December 1998 we offered to convert 100% of the Convertible Debentures
and accrued interest thereon to common stock at a price of $3.86 per share. Of
the approximately $2.1 million of principal outstanding, approximately $2.0
million plus accrued interest of $62,448 was converted into 551,443 shares of
common stock. Our management and their
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<PAGE> 61
affiliates converted $545,000 of principal and $16,476 accrued interest into
145,460 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 $975,000 was from our management and their affiliates and the
balance from outside investors. Of the amount held by management and their
affiliates $135,000 was converted to 33,750 shares of common stock at a price of
$4.00 per share in June 1999. The offering also included the issuance of
warrants to purchase 1,050,000 shares of common stock at a price of $0.01 per
share, of which 292,500 were issued to our management and their affiliates. See
"Description of Capital Stock -- Private Placement of 13% Bridge Promissory
Notes and Warrants and Series C Preferred Stock."
In January 2000 we completed a private placement of approximately $7.3
million and issued an aggregate of 1,222,450 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 two shares of common stock at a price of
$0.01 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 318,334 shares of common stock at a
price of $0.01 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 shareholders including Messrs. Mollo and Doss executed personal
guarantees to guarantee a total of approximately $1.8 million each. In April
1998 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 225,000 warrants to purchase common stock at a price of
$5.75 per share. Our management of the Company and their affiliates received an
aggregate of 173,241 of such warrants.
When the Bank of America line of credit was amended in November 1999,
certain shareholders including Messrs. Mollo and Doss executed personal
guarantees to guarantee a total of approximately $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 112,000 warrants to purchase common stock at a price of $2.00 per
share. Our management and their affiliates received an aggregate of 102,222 of
such warrants.
We have entered into an employment agreement with Messrs. Doss, Mollo and
Winterich. 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. 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
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<PAGE> 62
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.
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.
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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.
Our authorized capital stock consists of 100,000,000 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 December 31, 1999 we had 11,957,358 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 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 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 December 31, 1999 we had 4,500,000 shares of Series C preferred stock
authorized for issuance and 2,399,102 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
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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-1.3763 as of December 31, 1999. The initial
conversion rate is one for one, but is 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 will be entitled
to any payments. We are restricted from undertaking certain corporate actions
while any shares of Series C 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 171,698 shares of common stock,
at $0.01 per share, subject to the following adjustments: if the Finova Loan
remains outstanding on June 24, 1999, Finova would have the right to purchase
231,288 shares of common stock; if the Finova Loan remains outstanding on June
24, 2000, Finova would have the right to purchase 292,176 shares of common
stock; and if the Finova Loan remains outstanding on June 24, 2001, Finova would
have the right to purchase 354,322 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, the Put will terminate.
Additionally, we have
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granted certain registration rights to Finova in connection with the Finova
Warrants. 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, a
Stock Purchase Warrant to Finova the ("Second Finova Warrant") was issued which
provides that Finova may purchase 186,836 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 283,143 shares of common stock; if the
Finova Loan remains outstanding on June 24, 2001, Finova would have the right to
purchase 381,456 shares of common stock; and if the Finova Loan remains
outstanding on June 24, 2002, Finova would have the right to purchase 481,839
shares of common stock. This warrant is exercisable at any time until July 31,
2002 and the exercise price is $0.01 per share of common stock.
Other Warrants. To date we have issued and outstanding warrants to purchase
a total of 5,172,778 shares of common stock, at exercise prices ranging from
$0.01 per share to $7.00 per share.
Options. To date we have issued and outstanding options to purchase
1,919,851 shares of common stock. The exercise prices of these options range
from $0.01 to $5.75 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 $2.1 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 $3.86 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 $3.86 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. We have received commitments from the
holders of the Convertible Debentures to convert 60% of the outstanding
principal balance of each Convertible Debenture concurrent with the closing of
this offering.
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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.
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 187,000 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.
Private Placement of Common Stock and Warrants. In November 1997 we
completed a private placement of 2,500,000 shares of common stock and 625,000
warrants to various members of our management, other individuals and
institutional investors. In June 1998 we completed a private placement of
1,485,000 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 proposes 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
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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 1,050,000 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 were converted to 592,685
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 898,400 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 788,125
shares of common stock. In January 2000 we completed the private placement of
2,085,732 shares of our Series C preferred stock and warrants to purchase
2,444,900 shares of our common stock. Pursuant to the note and warrant purchase
agreements executed in connection with the March Note Placement and the Series C
preferred stock 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 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 under warrants or less
than $10.0 million of common stock issuable upon conversion of the Series C
preferred stock 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 under the warrants 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 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 its securities on Form S-3, the
holders 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
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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 underwriters. If the offering is an underwritten initial
public offering, such a request will not be required and the holders of the
warrants 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) four years after we become a public company or (b) such time as the
holder is able to sell all of such holder's securities issued hereunder 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 or by a written consent
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted, and
that special meetings of stockholders may be called only by our Chairman of the
Board, the President, the Chief Executive Officer or the board of directors.
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.
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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 shares of
common stock. Of these shares, the 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 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.
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 this prospectus, 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 shares
will be eligible for sale pursuant to Rules 701, 144 and 144(k), of which
all but shares are held by affiliates;
- An additional shares will be eligible for sale pursuant to Rule 701
at various times beginning 180 days after the effective date of which all
but shares are held by affiliates; and
- An additional shares will be eligible for sale pursuant to Rule 144
on .
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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 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 12,482,281 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 shares of common stock 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.
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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. ..............................
Banc of America Securities LLC..............................
J.C. Bradford & Co..........................................
-----------
Total.............................................
===========
</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 $ per share and to certain dealers at a price that represents a
concession not in excess of $ 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 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 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 shares are being offered. If the
underwriters exercise their over-allotment option in full, the total public
offering price will be $ , the total underwriting discount will be $ and
the total proceeds to us will be $ .
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
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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 date of this prospectus, 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 $ .
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares for our vendors, customers and other
third parties. 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.
We have filed an application for our common stock to be quoted on the
Nasdaq National Market under the symbol "MOBE".
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.
70
<PAGE> 73
LEGAL MATTERS
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 239,425 shares of common
stock, warrants to purchase an additional 83,673 shares of common stock and
21,666 shares of Series C preferred stock, which will convert into 29,819 shares
of our common stock upon completion of this offering.
EXPERTS
Our consolidated financial statements as of December 31, 1997 and 1998 and
for each of the years in the three-year period ended December 31, 1998, 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. The report of KPMG LLP covering the
December 31, 1997 and 1998 consolidated financial statements contains an
explanatory paragraph that states that our recurring losses from operations and
net capital deficiency raise substantial doubt about our ability to continue as
a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
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.
71
<PAGE> 74
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1997, 1998
and September 30, 1999 (unaudited)..................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998, and the nine months
ended September 30, 1998 and 1999 (unaudited).......... F-4
Consolidated Statements of Stockholders' Deficiency and
Comprehensive Income (Loss) for the years ended
December 31, 1996, 1997 and 1998, and the nine months
ended September 30, 1998 and 1999 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998, and the nine months
ended September 30, 1998 and 1999 (unaudited).......... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Mobility Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Mobility
Electronics, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' deficiency and
comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 1998. 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, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
2 to the consolidated financial statements, the Company has a stockholders'
deficiency, a working capital deficiency and has suffered significant recurring
losses from operations. These matters raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 2. The consolidated financial statements do not
include any adjustments that might result from this uncertainty.
/s/ KPMG LLP
Phoenix, Arizona
February 4, 2000
F-2
<PAGE> 76
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1997 1998 1999
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 2,215,939 $ 2,432,703 $ 1,267,660
Accounts receivable, net....................... 2,648,470 2,796,787 3,031,264
Inventories.................................... 4,698,580 3,358,025 1,963,532
Prepaid expenses and other current assets...... 55,622 677,616 2,087,172
----------- ------------ ------------
Total current assets................... 9,618,611 9,265,131 8,349,628
----------- ------------ ------------
Property and equipment, net...................... 1,660,091 1,604,358 1,213,673
Other assets, net................................ 970,908 1,865,230 2,489,882
----------- ------------ ------------
$12,249,610 $ 12,734,719 $ 12,053,183
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Lines of credit................................ $ 2,922,609 $ 5,130,855 $ 5,000,417
Accounts payable............................... 3,620,795 5,557,303 2,472,513
Accrued expenses and other current
liabilities................................. 743,479 1,547,167 1,228,138
Notes payable.................................. -- -- 1,775,000
Current installments of long-term debt......... 239,287 15,250 176,471
Current installments of capital lease
obligations................................. 164,160 204,314 180,048
----------- ------------ ------------
Total current liabilities.............. 7,690,330 12,454,889 10,832,587
----------- ------------ ------------
Long-term debt, less current installments........ 3,918,593 3,587,221 3,415,500
Capital lease obligations, less current
installments................................... 210,301 188,972 58,118
----------- ------------ ------------
Total liabilities...................... 11,819,224 16,231,082 14,306,205
----------- ------------ ------------
Commitments, contingencies, and subsequent events
(notes 2, 7, 8, 12, 13, 14, 15, 17, 18 and 20)
Stockholders' equity (deficiency):
Convertible preferred stock -- Series C, $.01
par value; authorized 15,000,000 shares;
558,400 and 1,166,358 (unaudited) issued and
outstanding at December 31, 1998 and
September 30, 1999, respectively............ -- 5,584 11,664
Common stock, $.01 par value; authorized
100,000,000 shares; 7,452,377, 9,127,612 and
11,232,172 (unaudited) shares issued and
outstanding at December 31, 1997 and 1998,
and September 30, 1999, respectively........ 74,523 91,276 112,322
Additional paid-in capital..................... 12,913,928 26,619,153 41,191,823
Accumulated deficit............................ (12,020,812) (30,202,415) (43,596,112)
Accumulated other comprehensive income
(loss) -- foreign currency translation
adjustment.................................. (4,095) (9,961) 27,281
Treasury stock, 308,308 common shares, at cost
at December 31, 1997........................ (533,158) -- --
----------- ------------ ------------
Total stockholders' equity
(deficiency)......................... 430,386 (3,496,363) (2,253,022)
----------- ------------ ------------
$12,249,610 $ 12,734,719 $ 12,053,183
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 77
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 5,669,180 $12,743,984 $ 21,072,057 $ 18,107,258 $ 10,162,434
Cost of sales........................ 4,451,789 12,857,829 23,529,822 19,269,336 8,809,551
----------- ----------- ------------ ------------ ------------
Gross profit (loss)........ 1,217,391 (113,845) (2,457,765) (1,162,078) 1,352,883
----------- ----------- ------------ ------------ ------------
Operating expenses:
General and administrative......... 1,977,791 1,907,051 4,445,731 2,710,135 2,878,846
Research and development........... 711,138 1,985,750 4,361,365 2,613,531 2,616,503
Marketing and sales................ 535,025 2,625,560 5,130,955 3,136,971 3,672,258
Purchased research and
development..................... -- 965,081 -- -- --
----------- ----------- ------------ ------------ ------------
Total operating expenses... 3,223,954 7,483,442 13,938,051 8,460,637 9,167,607
----------- ----------- ------------ ------------ ------------
Loss from operations....... (2,006,563) (7,597,287) (16,395,816) (9,622,715) (7,814,724)
Other income (expense):
Interest expense................... (112,931) (711,245) (1,756,534) (1,248,355) (5,640,124)
Interest income.................... 899 34,977 118,439 105,775 55,084
Other, net......................... 6,783 (501,615) 1,053 (7,125) 6,067
----------- ----------- ------------ ------------ ------------
Loss before provision for income
taxes......................... (2,111,812) (8,775,170) (18,032,858) (10,772,420) (13,393,697)
Provision for income taxes........... -- -- -- -- --
----------- ----------- ------------ ------------ ------------
Net loss before preferred
dividends................ $(2,111,812) $(8,775,170) $(18,032,858) $(10,772,420) $(13,393,697)
Cumulative dividend on Series B
preferred stock.................... (159,960) -- -- -- --
----------- ----------- ------------ ------------ ------------
Net loss attributable to common
stockholders....................... $(2,271,772) $(8,775,170) $(18,032,858) $(10,772,420) $(13,393,697)
=========== =========== ============ ============ ============
Loss per share:
Basic.............................. $ (0.54) $ (1.66) $ (2.18) $ (1.32) $ (1.44)
=========== =========== ============ ============ ============
Diluted............................ $ (0.54) $ (1.66) $ (2.10) $ (1.28) $ (1.24)
=========== =========== ============ ============ ============
Weighted average common shares
outstanding:
Basic.............................. 4,198,791 5,277,153 8,271,150 8,136,798 9,324,001
=========== =========== ============ ============ ============
Diluted............................ 4,198,791 5,300,948 8,586,089 8,437,205 10,767,671
=========== =========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 78
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY AND COMPREHENSIVE INCOME
(LOSS)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK
PREFERRED ------------------------ PAID-IN SUBSCRIPTION ACCUMULATED
STOCK SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT
------------ ---------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995...... $ 1,310,500 4,070,000 $ 44,846 $ -- $ -- $ (787,569)
Issuance of preferred stock........ 1,689,000 -- -- -- -- --
Conversion of preferred stock to
common stock...................... (693,626) 177,672 693,626 -- -- --
Conversion of preferred stock to
convertible debenture............. (306,374) -- -- -- -- --
Issuance of common stock........... -- 274,824 1,839,388 -- -- --
Adjustment to par value at date of
incorporation..................... (1,999,458) -- (2,531,985) 4,531,443 -- --
Pledge of common stock............. -- -- -- -- (503,592) --
Preferred stock dividends
declared.......................... -- -- -- -- -- (28,896)
Repurchase of common stock......... -- -- -- -- -- --
Comprehensive income (loss):
Foreign currency translation
adjustment..................... -- -- -- -- -- --
Net loss........................ -- -- -- -- -- (2,111,812)
Total comprehensive loss.....
------------ ---------- ----------- ----------- --------- ------------
Balances at December 31, 1996...... 42 4,587,528 45,875 4,531,443 (503,592) (2,928,277)
Conversion of preferred stock to
common stock as part of private
placement......................... (21) 251,000 2,510 (2,489) -- --
Redemption of preferred stock for
cash.............................. (21) -- -- (995,479) -- --
Receipt of stock subscription
receivable........................ -- -- -- -- 503,592 --
Reclassification of par value of
common stock issued............... -- 138,117 1,381 (1,381) -- --
Issuance of common stock through
private placement................. -- 2,249,000 22,490 7,838,713 -- --
Issuance of common stock for asset
purchase.......................... -- 110,000 1,100 423,900 -- --
Issuance of common stock for
cash.............................. -- 116,732 1,167 449,913 -- --
Issuance of warrants............... -- -- -- 669,308 -- --
Preferred stock dividends
declared.......................... -- -- -- -- -- (317,365)
Comprehensive income (loss):
Foreign currency translation
adjustment...................... -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- (8,775,170)
Total comprehensive loss.....
------------ ---------- ----------- ----------- --------- ------------
Balances at December 31, 1997...... -- 7,452,377 74,523 12,913,928 -- (12,020,812)
Conversion of convertible
debentures to common stock........ -- 551,443 5,514 2,123,056 -- --
Issuance of common stock through
private placement................. -- 1,485,000 14,850 7,449,525 -- --
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....... -- (361,208) (3,611) (659,152) -- (148,745)
Comprehensive income (loss):
Foreign currency translation
adjustment...................... -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- (18,032,858)
Total comprehensive loss.....
------------ ---------- ----------- ----------- --------- ------------
Balances at December 31, 1998...... 5,584 9,127,612 91,276 26,619,153 -- (30,202,415)
Conversion of bridge loans to
common stock (unaudited).......... -- 1,380,810 13,808 5,393,645 -- --
Warrants exercised (unaudited)..... -- 646,750 6,468 176,245 -- --
Issuance of warrants (unaudited)... -- -- -- 5,388,243 -- --
Issuance of preferred stock through
private placement (unaudited)..... 2,746 -- -- 1,055,141 -- --
Issuance of preferred stock for
cash (unaudited).................. 3,334 -- -- 1,929,166 -- --
Issuance of common stock in asset
purchase (unaudited).............. -- 77,000 770 230,230 -- --
Stock options granted
(unaudited)....................... -- -- -- 400,000 -- --
Comprehensive income (loss):
Foreign currency translation
adjustment (unaudited).......... -- -- -- -- -- --
Net loss (unaudited).............. -- -- -- -- -- (13,393,697)
Total comprehensive loss
(unaudited)................
------------ ---------- ----------- ----------- --------- ------------
Balances at September 30, 1999
(unaudited)....................... $ 11,664 11,232,172 $ 112,322 $41,191,823 $ -- $(43,596,112)
============ ========== =========== =========== ========= ============
<CAPTION>
FOREIGN NET
CURRENCY STOCKHOLDERS'
TRANSLATION TREASURY EQUITY
ADJUSTMENT STOCK (DEFICIENCY)
----------- --------- -------------
<S> <C> <C> <C>
Balances at December 31, 1995...... $ -- $ -- $ 567,777
Issuance of preferred stock........ -- -- 1,689,000
Conversion of preferred stock to
common stock...................... -- -- --
Conversion of preferred stock to
convertible debenture............. -- -- (306,374)
Issuance of common stock........... -- -- 1,839,388
Adjustment to par value at date of
incorporation..................... -- -- --
Pledge of common stock............. -- -- (503,592)
Preferred stock dividends
declared.......................... -- -- (28,896)
Repurchase of common stock......... -- (533,158) (533,158)
Comprehensive income (loss):
Foreign currency translation
adjustment..................... (5,145) -- (5,145)
Net loss........................ -- -- (2,111,812)
------------
Total comprehensive loss..... (2,116,957)
------- --------- ------------
Balances at December 31, 1996...... (5,145) (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 -- 1,050
Net loss.......................... -- -- (8,775,170)
------------
Total comprehensive loss..... (8,774,120)
------- --------- ------------
Balances at December 31, 1997...... (4,095) (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) -- (5,866)
Net loss.......................... -- -- (18,032,858)
------------
Total comprehensive loss..... (18,038,724)
------- --------- ------------
Balances at December 31, 1998...... (9,961) -- (3,496,363)
Conversion of bridge loans to
common stock (unaudited).......... -- -- 5,407,453
Warrants exercised (unaudited)..... -- -- 182,713
Issuance of warrants (unaudited)... -- -- 5,388,243
Issuance of preferred stock through
private placement (unaudited)..... -- -- 1,057,887
Issuance of preferred stock for
cash (unaudited).................. -- -- 1,932,500
Issuance of common stock in asset
purchase (unaudited).............. -- -- 231,000
Stock options granted
(unaudited)....................... -- -- 400,000
Comprehensive income (loss):
Foreign currency translation
adjustment (unaudited).......... 37,242 -- 37,242
Net loss (unaudited).............. -- -- (13,393,697)
------------
Total comprehensive loss
(unaudited)................ (13,356,455)
------- --------- ------------
Balances at September 30, 1999
(unaudited)....................... $27,281 $ -- $ (2,253,022)
======= ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 79
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(2,111,812) $(8,775,170) $(18,032,858) $(10,772,420) $(13,393,697)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for accounts receivable.................... 10,000 164,230 997,217 606,663 590,002
Provision for obsolete inventory..................... 244,823 837,635 4,469,481 4,494,159 964,136
Depreciation and amortization........................ 280,822 695,952 965,086 698,558 481,247
Amortization on deferred loan costs.................. -- 79,762 633,398 475,049 4,718,797
Loss on sale of equipment............................ -- 28,537 -- -- --
Compensation expense for options granted............. -- 5,000 22,000 -- 85,500
Purchased research and development................... -- 965,081 -- -- --
Deposits in restricted cash.......................... -- (24,596) -- -- --
Changes in operating assets and liabilities, net of
acquisition:
Accounts receivable................................ (1,134,292) (1,960,503) (1,145,534) (2,628,226) (824,479)
Inventories........................................ (1,763,882) (3,846,587) (3,128,926) (3,525,595) 430,357
Prepaid expenses and other assets.................. (98,305) 84,208 (518,463) (325,800) (819,262)
Accounts payable................................... 557,240 2,518,295 1,936,508 1,883,796 (3,084,790)
Accrued expenses and other current liabilities..... 240,200 333,970 866,136 274,341 (319,029)
----------- ----------- ------------ ------------ ------------
Net cash used in operating activities............ (3,775,206) (8,894,186) (12,935,955) (8,819,475) (11,171,218)
----------- ----------- ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment..................... (1,111,506) (971,636) (902,951) (902,951) (90,562)
Proceeds from sale of property and equipment........... -- 169,597 -- -- --
Purchase of assets, net of cash acquired............... (33,683) -- -- -- --
Purchase of patent..................................... -- (3,380) -- -- --
----------- ----------- ------------ ------------ ------------
Net cash used in investing activities............ (1,145,189) (805,419) (902,951) (902,951) (90,562)
----------- ----------- ------------ ------------ ------------
Cash flows from financing activities:
Cash received from lines of credit..................... 1,200,225 2,922,609 2,208,246 2,153,246 --
Repayment of lines of credit........................... -- (1,200,225) -- -- (130,438)
Borrowings under long-term debt........................ 819,750 2,635,000 1,750,000 1,750,000 7,202,500
Repayment of long-term debt and capital lease
obligations.......................................... -- (86,664) (436,677) (325,722) (165,620)
Cash paid to acquire long-term debt.................... -- (128,287) -- -- --
Net proceeds from issuance of preferred stock.......... 1,689,000 -- 3,353,942 -- 2,970,340
Cash paid to redeem preferred stock.................... -- (995,500) -- -- --
Proceeds from sale of common stock..................... 1,185,786 8,223,583 7,464,375 7,227,984 --
Proceeds from exercise of warrants..................... -- -- -- -- 182,713
Cash paid for treasury stock........................... (23,158) -- (278,350) (264,600) --
Collection of stock subscription receivable............ -- 503,592 -- -- --
Dividends paid......................................... (7,926) (249,635) -- -- --
----------- ----------- ------------ ------------ ------------
Net cash provided by financing activities........ 4,863,677 11,624,473 14,061,536 10,540,908 10,059,495
----------- ----------- ------------ ------------ ------------
Effects of exchange rates on cash and cash equivalents... (5,145) 1,050 (5,866) 774 37,242
----------- ----------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... (61,863) 1,925,918 216,764 819,256 (1,165,043)
Cash and cash equivalents, beginning of year............. 351,884 290,021 2,215,939 2,215,939 2,432,703
----------- ----------- ------------ ------------ ------------
Cash and cash equivalents, end of year................... $ 290,021 $ 2,215,939 $ 2,432,703 $ 3,035,195 $ 1,267,660
=========== =========== ============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid.......................................... $ 34,939 $ 601,054 $ 1,230,890 $ 923,167 $ 772,453
=========== =========== ============ ============ ============
Supplemental schedule of noncash investing and financing
activities:
Acquisition of property and equipment and assumption of
capital lease obligations............................ $ -- $ 374,461 $ 216,215 $ 97,628 $ --
=========== =========== ============ ============ ============
Warrants issued in connection with the execution of
long-term debt....................................... $ -- 664,308 1,421,438 1,421,438 5,388,243
=========== =========== ============ ============ ============
Conversion of 2,101 shares of Series B preferred stock
into 251,000 shares of common stock.................. $ -- 2,489 -- -- --
=========== =========== ============ ============ ============
Conversion of preferred dividends and interest on
Series B preferred stock to 22,175 shares of common
stock................................................ $ -- 88,700 -- -- --
=========== =========== ============ ============ ============
Issuance of stock subscribed for 138,117 shares of
common............................................... -- 1,381 -- -- --
=========== =========== ============ ============ ============
Conversion of Series A preferred stock into convertible
debentures........................................... $ 306,374 -- -- -- --
=========== =========== ============ ============ ============
Conversion of Series A preferred stock into common
stock................................................ $ 693,626 -- -- -- --
=========== =========== ============ ============ ============
Repurchase of common stock for extinguishment of
outstanding accounts receivable...................... $ 510,000 -- -- -- --
=========== =========== ============ ============ ============
Stock subscribed 65,252 shares issued, but cash not
paid................................................. 503,592 -- -- -- --
=========== =========== ============ ============ ============
Dividends declared on preferred stock.................. $ 20,970 -- -- -- --
=========== =========== ============ ============ ============
Conversion of convertible debentures and accrued
interest to 551,443 shares of common stock........... $ -- -- 2,128,570 -- --
=========== =========== ============ ============ ============
Conversion of bridge loans and accrued interest to
1,380,810 shares of common stock..................... $ -- -- -- -- 5,509,432
=========== =========== ============ ============ ============
Retirement of treasury stock........................... $ -- -- 811,508 533,158 --
=========== =========== ============ ============ ============
Issuance of 77,000 shares of common stock as settlement
for contingent purchase price........................ $ -- -- -- -- 231,000
=========== =========== ============ ============ ============
Options issued......................................... $ -- -- -- -- 400,000
=========== =========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 80
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997, AND 1998 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
(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 manufactures and/or
distributes in-car and in-air DC power adapters, portable computer docking
stations, port replicators, and monitor stands. Mobility distributes products in
the United States, Canada and Europe.
(2) LIQUIDITY
The Company's consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company has an accumulated deficit from operations of $30,202,415 as of December
31, 1998, has a working capital deficiency of $3,189,758 as of December 31, 1998
and has generated significant losses from operations since inception. The
Company's business plan calls for an equity investment from a Private Placement
and extension of its line of credit and long-term debt, which management
believes will be adequate to provide the Company with operating cash flow to
meet its current obligations. However, there is no certainty that the Company's
plan will be successfully carried out. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
(3) 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 subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
F-7
<PAGE> 81
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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. Inventories are stated at the lower of
cost (first-in, first-out method) or market.
(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 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.
F-8
<PAGE> 82
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Revenue Recognition
Revenue from product sales is recognized upon shipment 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 $0, $50,000, $174,071 and
$264,071 (unaudited) as of December 31, 1996, 1997, 1998 and September 30, 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 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.
F-9
<PAGE> 83
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(p) Research and Development
The cost of research and development is charged to expense as incurred.
(q) Segment Reporting
The Company has only one operating business segment, the sale of peripheral
computer equipment.
(r) 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.
(s) Unaudited Interim Financial Information
The unaudited interim financial statements as of September 30, 1999 and for
the nine months ended September 30, 1998 and 1999, 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.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................... $3,516,831 $5,564,935 $4,973,213
Work-in-process............................. 362,560 175,185 240,913
Finished goods.............................. 1,901,647 3,111,530 2,768,222
---------- ---------- ----------
5,781,038 8,851,650 7,982,348
Less reserve for obsolete inventories....... 1,082,458 5,493,625 6,018,816
---------- ---------- ----------
$4,698,580 $3,358,025 $1,963,532
========== ========== ==========
</TABLE>
F-10
<PAGE> 84
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures...................... $ 143,248 $ 173,631 $ 151,823
Warehouse and related equipment........... 327,802 383,121 400,527
Computer equipment........................ 400,582 687,418 719,647
Capital lease assets...................... 374,461 590,676 581,641
Tooling................................... 1,234,019 1,242,206 1,313,976
Leasehold improvements.................... 59,758 63,239 63,239
---------- ---------- ----------
2,539,870 3,140,291 3,230,853
Less accumulated depreciation and
amortization........................... 879,779 1,535,933 2,017,180
---------- ---------- ----------
Property and equipment, net.......... $1,660,091 $1,604,358 $1,213,673
========== ========== ==========
</TABLE>
Capital lease assets consist of computers and furniture and fixtures.
(6) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred loan costs....................... $ 768,630 $2,275,344 $7,483,587
Goodwill.................................. 200,000 200,000 431,000
Patents and trademarks.................... 3,380 68,321 86,802
Other..................................... 128,393 103,309 113,909
---------- ---------- ----------
1,100,403 2,646,974 8,115,298
Less accumulated amortization............. 129,495 781,744 5,625,416
---------- ---------- ----------
Net other assets....................... $ 970,908 $1,865,230 $2,489,882
========== ========== ==========
</TABLE>
(7) LINES OF CREDIT
On December 16, 1996, the Company entered into a $2,167,000 line of credit
with a bank, which was due on January 13, 1998. At that time, the line of credit
was renewed and increased to $3,167,000 and was subject to renewal on May 31,
1998. The interest rate on amounts borrowed under the line of credit was 1.5%
plus the bank's corporate base rate (10% at December 31, 1997) per annum,
payable monthly. At December 31, 1997, $2,090,054 was outstanding under this
line of credit.
On January 13, 1997, the Company entered into a $833,000 line of credit,
with the same bank, which was due on March 15, 1998. The line of credit was
extended pending approval of a new line of credit with the same institution. The
interest rate on amounts borrowed under this line of credit was 1.5% plus the
bank's corporate base rate (10% at December 31, 1997) per annum, payable
monthly. The line of credit is secured by the Company's accounts receivable,
inventory, and property and equipment. At December 31, 1997, $832,555 was
outstanding under this line of credit. No amounts were outstanding under this
line of credit at December 31, 1998.
F-11
<PAGE> 85
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 proceeds from this line were used to extinguish the
previous described $2.2 million line of credit outstanding as of December 31,
1997. 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. The line matured August 31, 1999 and was
subsequently extended to March 31, 2000. At December 31, 1998, $4,338,054 was
outstanding under this line of credit. This line of credit and the $833,000 line
of credit are also guaranteed by certain stockholders of the Company and the
$833,000 line of credit is guaranteed by the U.S. Small Business Administration
and certain stockholders.
On May 6, 1998, the Company entered into a $1,500,000 line of credit with
the same 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.
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 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, payable monthly and
remaining principal and interest due March 31, 2000. In addition, the bank
issued new promissory notes 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 principal and interest payments of
$83,333, with $500,000 due at signing and any unpaid principal and interest due
March 31, 2000. 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.
The Company was in violation of certain restrictive debt covenants with
respect to the lines of credit and business loan agreement as of December 31,
1998 which have been subsequently waived by the bank.
(8) LONG-TERM DEBT
On November 6, 1996, the Company signed a two year note payable for $83,423
as part of the purchase of assets and a license. The note accrues interest at 8%
annually with quarterly payments of $11,388 including interest that began on
February 1, 1997 and continuing through November 1, 1998. At December 31, 1997,
$43,362 was outstanding. This note was paid in full in 1998.
During 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
F-12
<PAGE> 86
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $3.86 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, $2,066,122 of the Debentures and related accrued interest of $62,493 were
converted into 551,443 shares of common stock at a conversion price of
approximately $3.86. Principal payments totaling $95,000 on the remaining
Debentures are due in quarterly installments of $3,813 plus interest, commencing
January 31, 1999 with interest only payments due quarterly until that date.
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 1997, $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, $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
continued 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 (the "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, 1997, $353,396 was outstanding under this
promissory note. At December 31, 1998, $157,471 was outstanding under this
promissory note.
Long term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Convertible debentures...................... $2,161,122 $ 95,000 $ 84,500
Notes payable............................... 1,996,758 3,507,471 3,507,471
---------- ---------- ----------
4,157,880 3,602,471 3,591,971
Less current installments................... 239,287 15,250 176,471
---------- ---------- ----------
Long-term debt, excluding current
installments.............................. $3,918,593 $3,587,221 $3,415,500
========== ========== ==========
</TABLE>
F-13
<PAGE> 87
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
1999..................................................... $ 15,250 $ 176,471
2000..................................................... 176,471 4,750
2001..................................................... 19,000 19,000
2002..................................................... 3,369,000 3,369,000
2003..................................................... 19,000 19,000
Thereafter............................................... 3,750 3,750
---------- ---------
$3,602,471 $3,591,971
========== =========
</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 as of December 31, 1998 follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
1999.................................................. $275,237 $67,852
2000.................................................. 170,524 164,272
2001.................................................. 41,461 39,433
-------- -------
Total minimum capital lease payments................ 487,222 271,557
Less amount representing interest (17.7% to 37.3%).... 93,936 33,391
-------- -------
Capital lease obligations........................... 393,286 238,166
Less current installments of capital lease
obligations......................................... 204,314 180,048
-------- -------
Capital lease obligations, less current
installments..................................... $188,972 $58,118
======== =======
</TABLE>
The leased furniture and equipment has been included in property and
equipment at a total cost of $374,461, $590,676 and $581,641 (unaudited) at
December 31, 1997 and 1998 and September 30, 1999, respectively.
(10) STOCKHOLDERS' DEFICIENCY
In August 1996, the Company became a C Corporation and the beginning shares
were stated at 4,070,000 shares of common stock and 6,686 shares of preferred
stock.
In 1999, the Board of Directors authorized the Company's articles 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 September 1997 the Board of Directors approved a 44-for-1 stock
split. All share information included in the accompanying consolidated financial
statements has been adjusted to reflect these amendments.
F-14
<PAGE> 88
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(a) Preferred Stock
During 1996, the Company issued preferred stock for $1,689,000. As part of
the Company's financing activities, Series A preferred stockholders were offered
the opportunity to convert their Series A shares into common stock or
convertible debentures. The preferred stock was converted into common stock or
convertible debentures at $3.86 per share. All of the Series A holders elected
to convert their shares. During 1996, 1,734 Series A preferred shares were
converted into 177,672 shares of common stock with a face value of $693,626. The
remaining 766 shares of Series A preferred were converted into convertible
debentures with a face value of $306,374.
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 $4.00 per common share. During 1997, 2,101
shares of Series B preferred shares were converted into 251,000 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 22,175 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 $1,057,887, net of issuance costs of $136,188. An
additional 91,913 shares were issued as a result of repricing the Private
Placement from $6.75 per share to $6.00 per share and 5,800 shares were issued
as payment for broker commissions.
(b) Common Stock
During 1996, the Company subscribed (not issued at December 31, 1996)
38,852 shares of common stock for $150,010 ($3.86 per share) to acquire certain
assets. The Company issued the 38,852 shares in 1997.
During 1996, the Company subscribed common stock for $503,592 ($3.86 per
share) and issued 65,032 shares (the cash was not received at December 31,
1996). The remaining 65,252 shares were issued during 1997. During 1997, the
Company received $503,592 in cash.
During 1996, the Company received cash for 138,117 shares of common stock
to be issued. All proceeds were originally recorded to additional paid-in
capital. During 1997, the common stock was issued and accordingly $1,381 was
reclassified to common stock.
During 1996, the Company subscribed 308,088 shares of common stock and
issued 274,824 shares (32,164 not issued at December 31, 1996) for $1,185,786
cash ($3.86 per share).
In July 1997, the Company acquired certain assets from an unrelated party
by issuing 110,000 shares of common stock valued at $3.86 per share for a total
of $425,000. During May 1999, the Company issued an additional 77,000 shares of
common stock valued at $3.00 per share for a total of $231,000 to settle the
purchase price (unaudited).
F-15
<PAGE> 89
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the Company issued 116,732 shares of common stock for $451,080
cash ($3.86 per share).
During 1997, the Company held a Private Placement and issued 2,500,000
shares of common stock for $10,000,000. The common shares were recorded as
follows: 2,249,000 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 251,000 shares, valued at $1,004,000, were issued for converted
Series B preferred stock.
During 1998, the Company held a Private Placement and issued 1,485,000
shares of common stock for $7,464,373, 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 551,443 common shares at a
conversion price of approximately $3.86.
(c) Treasury Stock
During 1996, the Company entered into a non-cash transaction and reacquired
308,308 shares of common stock valued at $533,158 in exchange for a
distributor's outstanding trade receivable due to the Company. During 1998, this
treasury stock was retired.
During 1998, the Company repurchased and retired 52,900 shares of common
stock valued at $278,350 for cash.
(11) INCENTIVE STOCK OPTION PLAN AND WARRANTS (ALL REFERENCES TO DATES
SUBSEQUENT TO DECEMBER 31, 1998 ARE UNAUDITED.)
In 1995, the Board granted stock options to employees to purchase 264,396
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 common stock for which options may be
granted or for which stock grants may be made under the plan is 2,500,000.
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 Board approved 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 September 30, 1999, there were 1,807,968 and
1,745,748 shares available for grant under the Plan, respectively. The per share
weighted average fair value of stock options granted under the Plan for the
periods ended December 31, 1997 and 1998 and September 30, 1999 was $3.88, $5.75
and $2.85, 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.
F-16
<PAGE> 90
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of options was $1.76-$5.75 and 5 years, respectively.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding, December 31, 1996......................... 298,276 $1.99
Granted.............................................. 105,860 3.88
Canceled............................................. (29,260) 3.86
Exercised............................................ -- --
--------- -----
Outstanding, December 31, 1997......................... 374,876 2.38
Granted.............................................. 649,512 5.75
Canceled............................................. (67,960) 2.89
Exercised............................................ -- --
--------- -----
Outstanding, December 31, 1998......................... 956,428 4.63
Granted (unaudited).................................. 477,410 2.85
Canceled (unaudited)................................. (415,190) 5.51
Exercised (unaudited)................................ -- --
--------- -----
Outstanding, September 30, 1999 (unaudited)............ 1,018,648 $3.44
========= =====
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.76............................... 264,396 2.5 $1.76 231,348 $1.76
$3.86-$4.00......................... 57,120 4.8 $3.88 31,818 $3.87
$5.75............................... 634,912 6.0 $5.75 120,827 $5.75
------- ---- ----- ------- -----
$1.76-$5.75......................... 956,428 4.92 $4.54 383,993 $3.19
======= ==== ===== ======= =====
</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 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>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------------------- SEPTEMBER 30,
1996 1997 1998 1999
----------- ----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss:
As reported............... $(2,111,812) $(8,775,170) $(18,032,858) $(13,106,611)
=========== =========== ============ ============
Pro forma................. $(2,247,603) $(8,959,167) $(18,267,627) $(13,362,363)
=========== =========== ============ ============
</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
F-17
<PAGE> 91
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 9,900 and 30,000,
respectively, incentive stock options for services performed. The options are
exercisable at $3.86 and $5.75 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 162,536 warrants to purchase shares of
common stock in connection with long-term debt executed with a bank. The Company
issued an additional 9,162 warrants in September 1997 pursuant to the
anti-dilution clause of the loan agreement. The warrants are exercisable at $.01
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
59,590 warrants valued at $149,571 (unaudited) exercisable at $0.01 in
connection with the extension of this debt with the bank.
On October 7, 1997, the Company issued to the placement agent an option to
purchase 222,708 shares of common stock and 55,677 Warrants (111.354 units) in
connection with the Private Placement. The common shares are exercisable at
$4.80 per share ($9,600 per unit) and may be exercised from November 10, 1998
and prior to the earlier of (i) November 10, 2001; or (ii) the sale of
substantially all Company assets, merger, or the liquidation, dissolution,
winding-up or reorganization of the Company. The Warrants are exercisable at
$7.00 per share, subject to antidilution provisions. The Warrants are
exercisable as defined above.
On October 8, 1997, the Company issued 625,000 warrants to purchase shares
of common stock (the "Warrants") in connection with the Private Placement. The
Warrants are exercisable at $7.00 per share, subject to antidilution provisions.
The Warrants may be exercised prior to the earlier of (i) November 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 225,000 warrants to purchase shares of
common stock in connection with long-term debt executed with a bank. The
warrants are exercisable at $5.75 per share and expire after 5 years. 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 136,400 warrants to purchase common stock
in connection with the Private Placement of common stock. The warrants are
exercisable at $6.90 per share and expire after five years.
On March 25, 1998, the Company issued 186,836 warrants to purchase shares
of common stock in connection with long-term debt executed with a bank. The
warrants are exercisable at $.01 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.
F-18
<PAGE> 92
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 $310,673, $394,950 and $365,782 during the years
ended 1996, 1997 and 1998, respectively, and $339,394 (unaudited) for the nine
months ended September 30, 1999.
A summary of the minimum future lease payments for the years ending
December 31 follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
1999..................................................... $ 456,306 $ 116,912
2000..................................................... 471,707 483,037
2001..................................................... 492,927 505,113
2002..................................................... 99,724 479,937
---------- ----------
$1,520,664 $1,584,999
========== ==========
</TABLE>
(13) INCOME TAXES
The Company has generated net operating losses for both financial and
income tax reporting purposes since inception. At December 31, 1997 and 1998,
the Company had net operating loss carryforwards for federal income tax purposes
of approximately $7,453,000 and $11,842,000, respectively, which, subject to
annual limitations, are available to offset future taxable income, if any,
through 2018 and net operating loss carryforwards for state income tax purposes
of approximately $7,453,000 and $11,842,000, which are available to offset
future taxable income through 2003.
F-19
<PAGE> 93
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, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward for federal income
taxes.............................................. $ 3,103,000 $ 6,092,700
Net operating loss carryforward for state income
taxes.............................................. 548,000 1,119,019
Depreciation and amortization......................... 100,000 57,224
Section 263A inventory................................ 90,000 63,132
Accrued liabilities................................... -- 272,295
Reserves.............................................. -- 215,465
Bad debts............................................. -- 263,117
Investment tax credits................................ -- 161,022
Inventory obsolescence................................ -- 2,366,033
----------- ------------
Total gross deferred tax assets............... 3,841,000 10,610,007
----------- ------------
Deferred tax liabilities................................ -- --
----------- ------------
Net deferred tax assets....................... 3,841,000 10,610,007
Less valuation allowance................................ (3,841,000) (10,610,007)
----------- ------------
Net deferred tax assets....................... $ -- $ --
=========== ============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1997 and
1998 was $3,841,000 and $10,610,007, respectively. The net change in the total
valuation allowance for the years ended December 31, 1997 and 1998 was an
increase of $2,998,000 and $6,769,007, 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
F-20
<PAGE> 94
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
During 1996, the Company had an agreement with Extend Microproducts, Inc.
(Xtend) to market and distribute the Company's products in the United States.
During 1996, the Company sold a substantial portion (approximately 53%) of its
products through Xtend. In September 1996, the distribution agreement with Xtend
was terminated. The Company has expanded its U.S. distribution network and is
building a United States sales team to directly serve U.S. customers. This
termination has diversified the Company's customer base and reduced their credit
risk.
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. Two customers accounted for 25% and 10%
(unaudited) of net sales for the nine months ended September 30, 1999.
(15) RELATED PARTY TRANSACTIONS
During 1996, the Company had an agreement with Xtend to market and
distribute the Company's products. Xtend held an ownership interest in the
Company. In September 1996, that agreement was terminated and the Company
repurchased a portion, 308,308 shares of common stock, of Xtend's ownership
interest of $510,000 for forgiveness of outstanding trade receivables of
$510,000.
The Company has an agreement with a related entity under which this entity
provides management services. The Company paid the consultant approximately
$5,000, $32,000 and $52,000 for the years ended December 31, 1996, 1997 and
1998, respectively, and approximately $27,000 (unaudited) for the nine months
ended September 30, 1999.
(16) EXPORT SALES
Export sales were approximately 31% and 34% of the Company's net sales for
the years ended December 31, 1997 and 1998, respectively, and 19% (unaudited) of
the Company's net sales for the nine months ended September 30, 1999. The
principal international market served by the Company was Europe.
(17) 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 consolidated financial
statements do not include a provision for losses, if any, that might result from
the ultimate disposition of these matters.
(18) YEAR 2000 ISSUE
In 1998, the Company developed a plan to deal with the Year 2000 related
issues and began modifying and/or converting its computer systems to be Year
2000 compliant. The plan provides for the modification and conversion efforts to
be completed by December 31, 1999. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Management is in the process of assessing Year 2000 remediation
efforts of the Company's significant suppliers. Although management believes its
F-21
<PAGE> 95
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
efforts minimize the potential adverse effects on the Company, there can be no
absolute assurance that all its suppliers will become Year 2000 compliant on
time or in a way that will be compatible with the Company's systems. The Company
will evaluate appropriate courses of action, including replacement of certain
systems whose associated costs would be recorded as assets and subsequently
amortized, or modification of its existing systems which costs would be expensed
as incurred. The Company does not believe expenditures to be Year 2000 compliant
have been material. However, there can be no assurance that the Company will be
able to completely resolve all Year 2000 issues or that the ultimate cost to
identify and implement solutions to all Year 2000 issues will not be material to
the Company.
(19) SUPPLEMENTAL FINANCIAL INFORMATION
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended December 31, 1996, 1997,
1998 and the nine months ended September 30, 1999 (unaudited) 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, 1996............ $ -- $ 10,000 $ -- $ 10,000
========== ========== ======== ==========
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
========== ========== ======== ==========
Nine months ended September 30, 1999
(unaudited).......................... $ 648,152 $ 90,002 $ 62,472 $ 675,682
========== ========== ======== ==========
Allowance for sales returns:
Year ended December 31, 1996............ $ -- $ 9,942 $ -- $ 9,942
========== ========== ======== ==========
Year ended December 31, 1997............ $ 9,942 $ 223,242 $111,487 $ 121,697
========== ========== ======== ==========
Year ended December 31, 1998............ $ 121,697 $ 235,000 $ -- $ 356,697
========== ========== ======== ==========
Nine months ended September 30, 1999
(unaudited).......................... $ 356,697 $ 500,000 $421,695 $ 435,002
========== ========== ======== ==========
Reserve for obsolescence of inventories:
Year ended December 31, 1996............ $ -- $ 244,823 $ -- $ 244,823
========== ========== ======== ==========
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
========== ========== ======== ==========
Nine months ended September 30, 1999
(unaudited).......................... $5,493,625 $ 964,136 $438,945 $6,018,816
========== ========== ======== ==========
</TABLE>
(20) SUBSEQUENT EVENTS (UNAUDITED)
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 30,000 shares of
common stock at an exercise price of $0.01 per share. This resulted in the
issuance of warrants to purchase 1,050,000 shares of common stock valued at
$3,150,000. The warrants are exercisable at any time after July 1, 1999 but on
F-22
<PAGE> 96
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $4.00 per
share, provided such conversion was made by June 30, 1999, $2,275,000 of the
Existing Bridge Notes and $95,740 of related accrued interest was converted into
592,685 shares of common stock.
In April 1999, the Company entered into agreements with VLSI Technologies
and Seligman Communications and Information Fund, Inc. 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 to each investor for a total of
$1,932,500, net of issuance costs of $67,500.
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 June 30, 2000. Bridge Notes of $3,702,500
were issued. In conjunction with this issuance, the Company issued 898,400
warrants valued at $1,796,800 to purchasers of Bridge Notes based on the
principal amounts of notes subscribed; for each $100,000 of Bridge Notes
subscribed, 22,000 warrants per $100,000 invested and for investments of
$100,000 or more, 25,000 warrants per $100,000 invested. The warrants have an
exercise price of $0.01 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 $4.00 per share, provided such
conversion was made by June 30, 1999. $3,036,713 was converted into 788,125
shares of common stock net of issuance costs of $115,787.
During October 1999, the Company sold its European subsidiary (Mobility
Electronics LLC, which maintained offices in Versailles, France and offices and
a warehouse/distribution center in Nuremburg, Germany) for nominal consideration
resulting in a loss on sale of the subsidiary of approximately $160,000.
In January 1999, the Company issued 65,000 warrants to purchase common
stock in connection with the Private Placement of Series C preferred stock. The
warrants are exercisable at $6.00 per share and expire January 2004.
In April 1999, 150,000 options to purchase common stock at a weighted
average exercise price of $1.34 were issued to an officer. The Company
recognized $400,000 of deferred compensation related to the issuance of the
options which were charged to operations over the vesting period through March
2002.
In June 1999, 116,000 warrants (valued at $291,872) were issued to purchase
common stock for an exercise price of $0.01.
During December 1999, the Company granted a consultant 70,000 incentive
stock options for services performed. The options are exercisable at $2.00 per
share and expire in December 2003. The options were valued at $23,000 and were
charged to compensation expense in 1999.
During January 2000, the Company completed a Private Placement and issued
1,222,450 shares of Series C preferred stock at $6.00 per share for $7,300,000
million, net of legal and issuance costs fees of $92,000. 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 2,444,900 are exercisable at $0.01 per common stock share and expire
December 2004.
F-23
<PAGE> 97
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1999, the Company issued 112,000 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 $224,000 are exercisable at $2.00 and expire April 20, 2003.
In July and March 1999, 596,250 and 50,500 warrants were exercised at $0.01
and $3.50 per share, respectively, for a total of $182,713. During the fourth
quarter of 1999, 715,436 warrants were exercised at $0.01 per share.
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 purchase price of
$6.00 per share. The Company issued a warrant for each share of preferred stock
to purchase two shares of common stock at an exercise price of $0.01 per common
share.
F-24
<PAGE> 98
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(21) NET LOSS PER SHARE
The computation of basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER
---------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net loss................. $(2,111,812) $(8,775,170) $(18,032,858) $(10,772,420) $(13,393,697)
Less cumulative dividend
on 8% Series B
preferred stock........ (159,960) -- -- -- --
----------- ----------- ------------ ------------ ------------
Net loss attributable to
common stockholders.... $(2,271,772) $(8,775,170) $(18,032,858) $(10,772,420) $(13,393,697)
=========== =========== ============ ============ ============
Weighted average common
shares
outstanding -- basic... 4,198,791 5,277,153 8,271,150 8,136,798 9,324,001
=========== =========== ============ ============ ============
Basic loss per share..... $ (0.54) $ (1.66) $ (2.18) $ (1.32) $ (1.44)
=========== =========== ============ ============ ============
Weighted average common
shares
outstanding -- basic... 4,198,791 5,277,153 8,271,150 8,136,798 9,324,001
Effect of dilutive
securities............. -- 23,795 314,939 300,407 1,443,670
----------- ----------- ------------ ------------ ------------
Weighted average common
shares outstanding --
diluted................ 4,198,791 5,300,948 8,586,089 8,437,205 10,767,671
=========== =========== ============ ============ ============
Diluted loss per share... $ (0.54) $ (1.66) $ (2.10) $ (1.28) $ (1.24)
=========== =========== ============ ============ ============
Stock options and
warrants not included
in diluted EPS since
antidilutive........... 298,276 1,278,261 2,221,213 2,221,213 2,147,933
=========== =========== ============ ============ ============
Convertible preferred
stock not included in
diluted EPS since
antidilutive........... 4,186 -- 558,400 -- 1,166,358
=========== =========== ============ ============ ============
</TABLE>
The dilutive securities used in the diluted weighted average common shares
outstanding represents issuances of options and warrants at a nominal value.
F-25
<PAGE> 99
MOBILITY ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(22) QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the quarterly data for the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1999 (unaudited) follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Net sales................... $ 1,962,365 $ 3,340,485 $ 3,019,591 $ 4,421,543
=========== =========== =========== ===========
Gross profit (loss)......... $ (44,615) $ 131,837 $ (50,928) $ (150,139)
=========== =========== =========== ===========
Operating expenses.......... $(1,297,487) $(1,562,063) $(2,771,177) $(1,852,775)
=========== =========== =========== ===========
Operating loss.............. $(1,342,102) $(1,430,226) $(2,822,045) $(2,002,914)
=========== =========== =========== ===========
Net loss.................... $(1,433,361) $(1,556,878) $(3,535,971) $(2,248,960)
=========== =========== =========== ===========
Loss per share:
Basic.................... $ (0.31) $ (0.34) $ (0.76) $ (0.31)
=========== =========== =========== ===========
Diluted.................. $ (0.31) $ (0.34) $ (0.76) $ (0.31)
=========== =========== =========== ===========
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.................... $(1,838,670) $(1,480,253) $(7,453,497) $(7,260,438)
=========== =========== =========== ===========
Loss per share:
Basic.................... $ (0.25) $ (0.18) $ (0.87) $ (0.84)
=========== =========== =========== ===========
Diluted.................. $ (0.24) $ (0.17) $ (0.83) $ (0.80)
=========== =========== =========== ===========
Nine months ended September
30, 1999 (unaudited):
Net sales................... $ 3,227,784 $ 3,560,417 $ 3,374,233
=========== =========== ===========
Gross profit................ $ 432,909 $ 96,298 $ 823,676
=========== =========== ===========
Operating expenses.......... $(3,455,748) $(3,303,559) $(2,408,300)
=========== =========== ===========
Operating loss.............. $(3,022,839) $(3,207,261) $(1,584,624)
=========== =========== ===========
Net loss.................... $(3,606,179) $(6,847,078) $(2,940,440)
=========== =========== ===========
Loss per share:
Basic.................... $ (0.39) $ (0.74) $ (0.31)
=========== =========== ===========
Diluted.................. $ (0.37) $ (0.62) $ (0.26)
=========== =========== ===========
</TABLE>
F-26
<PAGE> 100
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.......................... 7
FORWARD-LOOKING STATEMENTS............ 21
USE OF PROCEEDS....................... 21
DIVIDEND POLICY....................... 22
CAPITALIZATION........................ 23
DILUTION.............................. 24
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 27
BUSINESS.............................. 36
MANAGEMENT............................ 49
PRINCIPAL STOCKHOLDERS................ 56
CERTAIN TRANSACTIONS.................. 58
DESCRIPTION OF CAPITAL STOCK.......... 61
SHARES ELIGIBLE FOR FUTURE SALE....... 67
UNDERWRITING.......................... 69
LEGAL MATTERS......................... 71
EXPERTS............................... 71
ADDITIONAL INFORMATION AVAILABLE TO
YOU................................. 71
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.
Shares
Common Stock
Deutsche Banc Alex. Brown
Banc of America Securities LLC
J.C. Bradford & Co.
PROSPECTUS
, 2000
<PAGE> 101
[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(TM) 1000, the EasiDock(TM) 2000
and the EasiDock(TM) 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> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses 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.......................... *
Blue Sky Qualification Fees and Expenses.................... *
Printing Costs.............................................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Transfer Agent and Registrar Fees and Expenses.............. *
Miscellaneous............................................... *
----------
Total............................................. $ *
==========
</TABLE>
- ------------
* To be provided by amendment.
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
II-1
<PAGE> 103
which such person shall have been adjudged to be liable to the corporation
unless and only 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> 104
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 enterprises 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> 105
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 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
From October 1996 through June 1997 the Company issued approximately $2.1
million in aggregate principal amount of its 12% Convertible Debentures (the
"Convertible Debentures") to 22 individual and institutional investors. In
December 1998 approximately $2.1 million of the Convertible Debentures were
converted to common stock at a price of $4.00 per share. The remaining
Convertible Debentures require the Company to pay quarterly 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
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<PAGE> 106
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 177,672 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 251,000 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 22,175 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 418,124 shares of common stock, at
an exercise price of $0.01 per share. The Finova Warrants expire on July 31,
2002.
BANK GUARANTEE
In November 1999 Messrs. Mollo and Doss and certain other individuals
guaranteed a total of approximately $7.3 million, or $1,830,000 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 112,500 warrants were issued to
these officers, directors, individuals and entities. The warrants are
exercisable at $2.00 per share and expire on November 1, 2004.
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 225,000 warrants were issued to these
individuals and entities. The warrants are exercisable at $5.75 per share and
expire on April 20, 2003.
PRIVATE PLACEMENTS
In November 1997 the Company completed a private placement of approximately
$10 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 2,249,000
shares of Common Stock were issued for approximately $9.0 million, or $4.00 per
share, and 251,000 shares were issued for converted Series B Preferred Stock
referenced above, for approximately $1.0 million. Additionally, warrants to
purchase 278,385 shares of Common Stock were issued to the placement agents and
625,000 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 $4.80 to $7.00 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
$7.00 per share and expire on September 30, 2001.
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<PAGE> 107
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, 1,485,000
shares of Common Stock were issued at $5.75 per share. Additionally, warrants to
purchase 136,400 shares of Common Stock were issued to the placement agents.
These warrants are exercisable at $6.90 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, 827,209
shares of Series C Preferred Stock was issued at a price of $6.00 per share.
In January 2000 the Company completed a private placement of approximately
$7.3 million to various members of management of the Company, other individuals
and institutional investors. As a result of this private placement, 1,222,450
shares of Series C Preferred Stock were issued at a price of $6.00 per share.
Additionally, warrants were issued to investors to purchase 2,444,900 shares of
Common Stock at $0.1 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 is 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 1,050,000 shares of Common Stock at a price of $0.01
per share, which will expire December 31, 2000. In June 1999 approximately $2.3
million of the Bridge Notes and accrued interest thereon of approximately
$96,000 were converted to 592,685 shares of Common Stock at $4.00 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
898,400 shares of Common Stock at a price of $.01 per share. Immediately upon
issuance, approximately $3.2 million of the Bridge Notes were converted to
788,125 shares of Common Stock at $4.00 per share.
ISSUANCE OF OTHER OPTIONS
In November 1996 the Company issued options to purchase 22,440 shares of
Common Stock at $3.86 per share, 8,096 of which are currently vested, to six
individual investors. These options expire in November 2002.
In 1997 the Company issued options to purchase 75,280 shares of Common
Stock at prices ranging from $.01 to $4.00 per share, 15,300 of which are
currently vested, to various individual investors. These options expire on
various dates from 2000 through 2004.
In 1998 the Company issued options to purchase 782,912 shares of Common
Stock at a price of $5.75 per share, 206,064 of which are currently vested, to
various individual investors. These options expire on various dates in 2004.
In 1999 the Company issued options to purchase 1,338,477 shares of Common
Stock at prices ranging from $.01 to $5.75 per share, 57,107 of which are
currently vested, to various individual investors. These options expire on
various dates from 2002 to 2010.
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<PAGE> 108
OTHER COMMON STOCK ISSUANCES
From September 1996 through May 1997 the Company issued 336,475 shares of
Common Stock for an aggregate consideration of $1,298,793, or $3.86 per share,
to members of management of the Company. During this same time period the
Company issued 219,290 shares of Common Stock for an aggregate consideration of
$846,458, or $3.86 per share, to individual and institutional investors.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation of the Company.
3.2 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of June 17, 1997.
3.3 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of September 10, 1997.
3.4 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of July 20, 1998.
3.5 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of February 3, 2000.
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.
3.7 -- Amended Bylaws of the Company.
4.1 -- Specimen of Common Stock Certificate.
4.2 -- Form of 12% Convertible Debenture of the Company.
4.3 -- Registration Rights Agreement by and between the Company
and Miram International, Inc. dated July 29, 1997.
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.
4.5 -- Form of Unit Purchase Agreement used in 1999 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's common stock.
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.
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.
4.9 -- Form of 13% Bridge Note.
4.10 -- 13% Bridge Note Conversion Notice expired June 30, 1999.
4.11 -- Form of Series C Preferred Stock Purchase Agreement used
in 1998 and 1999 Private Placements.
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreement used in 1999 and 2000 Private Placements.
</TABLE>
II-7
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.13 -- Series C Preferred Stock Purchase Agreement dated April
20, 1999, between the Company, Philips Semiconductors
VLSI, Inc. (f/k/a VLSI Technology, Inc.) and Seligman
Communications and Information Fund, Inc.
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.
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.
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999, between the Company, Philips
Semiconductors VLSI, Inc. (f/k/a VLSI Technology, Inc.)
and Seligman Communications and Information Fund, Inc.
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.
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.
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.*
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.
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.
10.3 -- Lease dated May 1, 1998 by and between Airpark Holdings
I, LLC and the Company.
10.4 -- Asset Purchase Agreement and Plan of Reorganization
between Miram International, Inc., John Moroz, Mykola
Moroz and the Company dated July 29, 1997.
10.5 -- Promissory Note made by Miram International, Inc. to
Mykola Moroz dated July 3, 1997 in the amount of
$400,000.
10.6 -- Amended and Restated 1996 Long Term Incentive Plan, as
amended on January 13, 2000.
10.7 -- Richard W. Winterich Employment Agreement dated November
20, 1998.
10.8 -- Richard W. Winterich Option Agreement dated April 12,
1999.
10.9 -- Richard W. Winterich Option Agreement dated April 12,
1999.
10.10 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.
10.11 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.
10.12 -- Charles R. Mollo Employment Agreement dated December 1,
1999.
10.13 -- Charles R. Mollo Option Agreement dated December 1, 1999.
10.14 -- Jeffrey S. Doss Employment Agreement dated December 1,
1999.
10.15 -- Jeffrey S. Doss Option Agreement dated December 1, 1999.
</TABLE>
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<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16 -- Jeffrey S. Doss Pledge Agreement dated December 1, 1999.
10.17 -- Jeffrey S. Doss Promissory Note in favor of the Company
dated December 1, 1999 in the principal amount of
$300,000.
10.18 -- First Amendment to Option Agreement dated December 1,
1999 between Jeffrey S. Doss and the Company.
10.19 -- Robert P. Dilworth Consulting Agreement dated May 21,
1999.
10.20 -- Robert P. Dilworth Nonqualified Stock Option Agreement
dated May 21, 1999.
10.21 -- William O. Hunt Consulting Agreement dated December 8,
1999.*
10.22 -- William O. Hunt Non-qualified Stock Option Agreement
dated December 8, 1999.*
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.
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.
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.
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.
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.
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.
10.29 -- Restated Continuing Guaranty of Janice Breeze dated
November 2, 1999.
10.30 -- Restated Continuing Guaranty of Jeffrey S. Doss dated
November 2, 1999.
10.31 -- Restated Continuing Guaranty of Charles R. Mollo dated
November 2, 1999.
10.32 -- Restated Continuing Guaranty of Cameron Wilson dated
November 2, 1999.
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.
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.
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.
21.1 -- Subsidiaries.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Jackson Walker L.L.P. (Contained in Exhibit
5.1).*
24.1 -- Power of Attorney (contained on the signature page of
this Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
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.
II-9
<PAGE> 111
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
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.
II-10
<PAGE> 112
(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-11
<PAGE> 113
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 February 11, 2000.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
----------------------------------
Charles R. Mollo,
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Charles R. Mollo
and Richard W. Winterich, and each of them, each of whom may act without joinder
of the other, as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to execute in the name of each such person who is then
an officer or director of the Registrant, and to file any amendments (including
post-effective amendments) to this Registration Statement and any registration
statement for the same offering filed pursuant to Rule 462 under the Securities
Act of 1933, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing appropriate or necessary to be done, as fully and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement 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 Officer February 11, 2000
- ----------------------------------------------------- and Chairman of the Board
Charles R. Mollo (Principal Executive Officer)
/s/ RICHARD W. WINTERICH Chief Financial Officer and Vice February 11, 2000
- ----------------------------------------------------- President (Principal Financial
Richard W. Winterich and Accounting Officer)
/s/ JEFFREY S. DOSS Executive Vice President and February 11, 2000
- ----------------------------------------------------- Director
Jeffrey S. Doss
/s/ ROBERT P. DILWORTH Director February 11, 2000
- -----------------------------------------------------
Robert P. Dilworth
/s/ WILLIAM O. HUNT Director February 11, 2000
- -----------------------------------------------------
William O. Hunt
</TABLE>
II-12
<PAGE> 114
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ KENNETH A. STEEL, JR. Director February 11, 2000
- -----------------------------------------------------
Kenneth A. Steel, Jr.
/s/ JEFFREY R. HARRIS Director February 11, 2000
- -----------------------------------------------------
Jeffrey R. Harris
</TABLE>
II-13
<PAGE> 115
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation of the Company.
3.2 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of June 17, 1997.
3.3 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of September 10, 1997.
3.4 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of July 20, 1998.
3.5 -- Articles of Amendment to the Certificate of Incorporation
of the Company dated as of February 3, 2000.
3.6 -- Certificate of Designations, Preferences, Rights and
Limitations of Series C Preferred Stock.
3.7 -- Amended Bylaws of the Company.
4.1 -- Specimen of Common Stock Certificate.
4.2 -- Form of 12% Convertible Debenture of the Company.
4.3 -- Registration Rights Agreement by and between the Company
and Miram International, Inc. dated July 29, 1997.
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.
4.5 -- Form of Unit Purchase Agreement used in 1999 Private
Placements for the Purchase of Up To 875 Units, Each
Consisting of 2,000 shares of the Company's common stock.
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.
4.7 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in March 1999 Private Placement.
4.8 -- Form of 13% Bridge Promissory Note and Warrant Purchase
Agreement used in July 1999 Private Placement.
4.9 -- Form of 13% Bridge Note.
4.10 -- 13% Bridge Note Conversion Notice expired June 30, 1999.
4.11 -- Form of Series C Preferred Stock Purchase Agreement used
in 1998 and 1999 Private Placements.
4.12 -- Form of Series C Preferred Stock and Warrant Purchase
Agreement used in 1999 and 2000 Private Placements.
4.13 -- Series C Preferred Stock Purchase Agreement dated April
20, 1999, between the Company, Philips Semiconductors
VLSI, Inc. (f/k/a VLSI Technology, Inc.) and Seligman
Communications and Information Fund, Inc.
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.
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.
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.16 -- Series C Preferred Stock and Warrant Purchase Agreement
dated October 29, 1999, between the Company, Philips
Semiconductors VLSI, Inc. (f/k/a VLSI Technology, Inc.)
and Seligman Communications and Information Fund, Inc.
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.
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.
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.*
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.
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.
10.3 -- Lease dated May 1, 1998 by and between Airpark Holdings
I, LLC and the Company.
10.4 -- Asset Purchase Agreement and Plan of Reorganization
between Miram International, Inc., John Moroz, Mykola
Moroz and the Company dated July 29, 1997.
10.5 -- Promissory Note made by Miram International, Inc. to
Mykola Moroz dated July 3, 1997 in the amount of
$400,000.
10.6 -- Amended and Restated 1996 Long Term Incentive Plan, as
amended on January 13, 2000.
10.7 -- Richard W. Winterich Employment Agreement dated November
20, 1998.
10.8 -- Richard W. Winterich Option Agreement dated April 12,
1999.
10.9 -- Richard W. Winterich Option Agreement dated April 12,
1999.
10.10 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.
10.11 -- First Amendment to Incentive Stock Option Agreement dated
August 23, 1999 between Richard W. Winterich and the
Company.
10.12 -- Charles R. Mollo Employment Agreement dated December 1,
1999.
10.13 -- Charles R. Mollo Option Agreement dated December 1, 1999.
10.14 -- Jeffrey S. Doss Employment Agreement dated December 1,
1999.
10.15 -- Jeffrey S. Doss Option Agreement dated December 1, 1999.
10.16 -- Jeffrey S. Doss Pledge Agreement dated December 1, 1999.
10.17 -- Jeffrey S. Doss Promissory Note in favor of the Company
dated December 1, 1999 in the principal amount of
$300,000.
10.18 -- First Amendment to Option Agreement dated December 1,
1999 between Jeffrey S. Doss and the Company.
10.19 -- Robert P. Dilworth Consulting Agreement dated May 21,
1999.
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 -- Robert P. Dilworth Nonqualified Stock Option Agreement
dated May 21, 1999.
10.21 -- William O. Hunt Consulting Agreement dated December 8,
1999.*
10.22 -- William O. Hunt Non-qualified Stock Option Agreement
dated December 8, 1999.*
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.
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.
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.
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.
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.
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.
10.29 -- Restated Continuing Guaranty of Janice Breeze dated
November 2, 1999.
10.30 -- Restated Continuing Guaranty of Jeffrey S. Doss dated
November 2, 1999.
10.31 -- Restated Continuing Guaranty of Charles R. Mollo dated
November 2, 1999.
10.32 -- Restated Continuing Guaranty of Cameron Wilson dated
November 2, 1999.
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.
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.
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.
21.1 -- Subsidiaries.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Jackson Walker L.L.P. (Contained in Exhibit
5.1).*
24.1 -- Power of Attorney (contained on the signature page of
this Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
EASI, INC.
FIRST. The name of the Corporation is EASI, Inc.
SECOND. The Corporation will have perpetual existence.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH.
4.A. General. The aggregate number of shares of capital stock that the
Corporation will have authority to issue is 206,686, 200,000 of which will be
shares of Common Stock, having a par value of $0.01 per share, and 6,686 of
which will be shares of preferred stock, having a par value of $0.01 per share.
Preferred stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. All shares of any one
series of preferred stock will be identical except as to the dates of issue and
the dates from which dividends on shares of the series issued on different dates
will cummulate, if cumulative. Authority is hereby expressly granted to the
Board of Directors to authorize the issuance of one or more series of preferred
stock, and to fix by resolution or resolutions providing for the issue of each
such series the voting powers, designations, preferences, and relative,
participating, optional, redemption, conversion, exchange or other special
rights, qualifications, limitations or restrictions of such series, and the
number of shares in each series, to the full extent now or hereafter permitted
by law.
4.B. Series A Preferred Stock. The Corporation is authorized to issue
2,500 shares of "Series A Preferred Stock" (the "Series A Preferred"). The
preferences, voting powers, qualifications, special or relative rights or
privileges of the shares of Series A Preferred are as follows:
(1) Definitions. As used in this Article 4.B. and in Article 4.C., the
following terms shall have the meanings set forth below:
(a) "Board of Directors" shall mean the Board of Directors of
the Corporation.
(b) "Common Stock" shall mean the common stock, par value $.01
per share, of the Corporation.
<PAGE> 2
(c) "Distributable Cash" means all funds of the Corporation on
hand or in bank accounts of the Corporation as, in the discretion of the Board
of Directors of the Corporation, is available for distribution to the
stockholders of the Corporation after provision has been made for: (i) payment
of all operating expenses of the Corporation as of such time; (ii) provision for
payment of all outstanding and unpaid current obligations of the Corporation as
of such time; and (iii) provision for such reserves as the Board of Directors of
the Corporation deems necessary or appropriate for the Corporation's operations.
(d) "Initial Series A Capital Contribution" shall mean the
initial contribution paid by a holder of Series A Preferred for shares of Series
A Preferred (or any securities which have been converted, exchanged or
surrendered for shares of Series A Preferred (the "Prior A Securities")), plus
any accrued but unpaid return on any Prior A Securities.
(e) "Initial Series B Capital Contribution" shall mean the
initial contribution paid by a holder of Series B Preferred for shares of Series
B Preferred (or any securities which have been converted, exchanged or
surrendered for shares of Series B Preferred (the "Prior B Securities)), plus
any accrued but unpaid return on any Prior B Securities.
(f) "Liquidation" shall mean any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary.
(g) "Preferred Stock" shall mean the preferred stock, par
value $0.01 per share, of the Corporation.
(h) "Recapitalization" shall mean any stock split, stock
dividend, combination, recapitalization and the like involving, or undertaken
by, the Corporation.
(i) "Sales Transaction" means: (i) the consolidation or merger
of the Corporation with or into any other corporation or business entity; (ii)
the sale or other transfer in a single transaction or a series of related
transactions of all or substantially all of the assets of the Corporation; (iii)
the liquidation, dissolution, winding-up or reorganization of the Corporation;
or (iv) the consummation of a Qualified Public Offering.
(j) "Series B Preferred" shall have the meaning ascribed
thereto in Article 4.C. below.
(k) "Unrecovered Initial Series A Capital Contribution" shall
mean the excess, if any, of (i) the amount of the Initial Series A Capital
Contribution less (ii) the cumulative sum of money and the net market value of
any other property previously distributed to such holder other than as a
dividend pursuant to Section 4.B.(2)(a) below.
-2-
<PAGE> 3
(l) "Unrecovered Initial Series B Capital Contribution" shall mean the
excess, if any, of (i) the amount of the Initial Series B Capital Contribution
less (ii) the cumulative sum of money and the net market value of any other
property previously distributed to such holder other than as a dividend pursuant
to Section 4.C.(2)(a) below.
(2) Dividends and Distributions.
(a) Regular Dividends. Each holder of shares of Series A
Preferred shall be entitled to receive dividends at a rate of ten percent (10%)
per annum on the average daily balance of its Unrecovered Initial Series A
Capital Contribution, which shall be fully cumulative. The dividends payable
hereunder shall be payable to holders of record as they appear on the stock
books of the Corporation on the applicable record date, which shall be not more
than 60 nor less than 10 days preceding the payment date for such dividends, as
fixed by the Board of Directors. The foregoing dividends on the Series A
Preferred shall accrue from the date of issuance of each share, but shall be
payable only when, as and if declared by the Board of Directors out of funds
legally available therefor. The dividends shall be payable in cash. The amount
of dividends payable shall be computed on the basis of a 360-day year of twelve
30-day months. All accrued but unpaid dividends shall continue to accrue
interest at the above rate from each dividend date until paid. Except as
provided in Section 2(b) below, the Corporation may not pay any dividend or make
any distribution to the holders of Series B Preferred or Common Stock until the
holders of Series A Preferred have received an amount equal to: (i) all
dividends payable to such holders under this Section 2(a); and (ii) their
Unrecovered Initial Series A Capital Contributions (collectively, the "Series A
Preferred Return"). Once the holders of Series A Preferred have received their
Series A Preferred Return, then the 10% dividend provided for in this Section
2(a) shall cease.
(b) Other Permitted Dividends. Notwithstanding Section 2(a)
hereof, the Corporation may at any time, out of funds legally available
therefor, repurchase shares of Common Stock (i) issued to or held by employees,
directors or consultants of the Corporation or its subsidiaries upon termination
of their employment or services, pursuant to any agreement providing for such
right of repurchase, or (ii) issued to or held by any person subject to the
Corporation's right of first refusal to purchase such shares where the purchase
is pursuant to the exercise of such right of first refusal, in either case
whether or not dividends on the Series A Preferred shall have been declared and
paid or funds set aside therefor, subject to any other contractual restrictions
entered into by the Corporation.
(3) Liquidation Rights. In the event of any Liquidation, distributions
shall be made to the holders of Series A Preferred in respect of such Series A
Preferred before any amount shall be paid to the holders of any other class or
series of capital stock of the Corporation in the following manner:
(a) Series A Preferred. The holders of Series A Preferred
shall be entitled to be paid first out of the assets of the corporation
available for distribution to holders of its capital stock an amount per share
equal to each holder of Series A Preferred's Unrecovered
-3-
<PAGE> 4
Initial Series A Capital Contribution, plus any accrued but unpaid dividends. If
the proceeds from a Liquidation are not sufficient to pay to the holders of
Series A Preferred the preference amount set forth above, then such holders
shall instead be entitled to receive the entire assets and funds of the
Corporation legally available for distribution to the holders of capital stock,
which assets and funds shall be distributed ratably among the holders of the
Series A Preferred.
(b) Events Deemed a Liquidation. For purposes of this Section 3, the
holders of a majority of the Series A Preferred may, by written notice to the
Corporation, elect to have treated as a Liquidation the consolidation or merger
of the Corporation with or into any other corporation or legal entity or the
sale or other transfer in a single transaction or a series of related
transactions of all or substantially all of the assets of the Corporation, or
any other reorganization of the Corporation, unless the stockholders of the
Corporation immediately prior to any such transaction are holders of a majority
of the voting securities of the surviving or acquiring corporation immediately
thereafter (and for purposes of this calculation, equity securities which any
stockholder of the Corporation owned immediately prior to such merger or
consolidation as a stockholder of another party to the transaction shall be
disregarded).
(c) Valuation of Securities and Property. In the event the
Corporation proposes to distribute assets other than cash in connection with any
Liquidation, the value of the assets to be distributed to the holders of shares
of Series A Preferred shall be determined in good faith by the Board of
Directors. Any securities not subject to an investment letter or similar
restrictions on free marketability shall be valued as follows:
(i) if traded on a national securities exchange or
the Nasdaq National Market ("Nasdaq"), the value shall be deemed to be
the average of the security's closing prices on such exchange or Nasdaq
over the thirty (30) trading-day period ending three (3) days prior to
the distribution;
(ii) if actively traded over-the-counter (other than
Nasdaq), the value shall be deemed to be the average of the closing bid
prices over the thirty (30) day period ending three (3) days prior to
the distribution; or
(iii) if there is no active public market, the value
shall be the fair market value thereof as determined in good faith by
the Board of Directors.
The method of valuation of securities subject to an investment letter or other
restrictions on free marketability shall be adjusted to make an appropriate
discount from the market value determined as above in clauses (i), (ii) or (iii)
to reflect the fair market value thereof as determined in good faith by the
Board of Directors. The holders of more than 50% of the outstanding shares of
Series A Preferred shall have the right to challenge any determination by the
Board of Directors of fair market value pursuant to this Section 3(c), in which
case the determination of fair value shall be made by an independent appraiser
selected jointly by the Board of Directors and the challenging parties, the cost
of such appraisal to be borne equally by the Corporation and the challenging
parties.
-4-
<PAGE> 5
(4) Redemption.
(a) The Series A Preferred shall be redeemable, in whole or in
part, out of legally available funds, at the option of the Corporation, at any
time upon giving notice as provided in (b) below, at a redemption price equal to
the Series A Preferred Return of the Series A Preferred up to the Series A
Redemption Date (as defined below).
(b) At least 30 days but not more than 60 days prior to the
date fixed for the redemption of shares of Series A Preferred pursuant to (a)
above (the "Series A Redemption Date"), written notice of such redemption shall
be mailed to each holder of record of shares of Series A Preferred to be
redeemed in a postage prepaid envelope addressed to such holder at his post
office address as shown on the records of the Corporation; provided, however,
that no defect in such notice shall affect the validity of the proceeding for
the redemption of the shares of Series A Preferred to be redeemed. Each such
notice shall state: (i) the Series A Redemption Date; (ii) the number of shares
of Series A Preferred to be redeemed and, if less than all the shares held by
such holder are to be redeemed from such holder, the number of shares to be
redeemed from such holder or their method of calculating such number; (iii) the
cash redemption price; and (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price. On or after
the Series A Redemption Date, each holder of shares of Series A Preferred to be
redeemed shall present and surrender his certificate or certificates for such
shares to the Corporation at the place designated in such notice and thereupon
the redemption price of such shares shall be paid to or on the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled. In case less than
all the shares represented by such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares. From and after the Series A
Redemption Date (unless default shall be made by the Corporation in payment of
the redemption price) all rights to dividends on the shares of Series A
Preferred designated for redemption in such notice shall cease and all rights of
the holders thereof as stockholders of the Corporation, except the right to
receive the redemption price thereof (including all declared and unpaid
dividends up to the Series A Redemption Date), without interest, upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred (except with the consent of the
Corporation) on the books of the Corporation and such shares shall not be deemed
to be outstanding for any purpose whatsoever.
(c) If less than all of the shares of Series A Preferred are
to be redeemed, the Board of Directors shall allocate the aggregate Series A
Preferred Return of shares to be redeemed pro rata (or as nearly pro rata as
practicable), by lot, or by any other method that complies with the requirements
of the principal national securities exchange, if any, on which the shares being
redeemed are listed, at the direction of the Board of Directors. Regardless of
the method used, the calculation of the number of shares to be redeemed shall be
based upon whole shares, such that the Corporation shall in no event be required
to issue fractional shares of Series A Preferred or cash in lieu thereof. In the
event a method required proration is used, shares shall be rounded downward to
the nearest whole number of shares.
-5-
<PAGE> 6
(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 perceeding
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.
(5) Voting Rights. Except as otherwise required by law or by Section 8
below, the holder of each share of Series A Preferred will not be entitled to
vote on any matters.
(6) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Series A Preferred, at least ten (10) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(7) Notices. Any notice required by the provisions of this Certificate
of Incorporation to be given to the holders of Series A Preferred shall be
deemed given when deposited in the United States mail, postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
(8) Approval of Certain Transactions While Any Series A Preferred is
Outstanding. So long as any shares of Series A Preferred are outstanding, the
Corporation shall not, without first obtaining the approval of the holders of at
least a majority of the shares of Series A Preferred then outstanding, voting as
a separate class, take any action that:
(a) alters the rights, preferences or privileges of the Series
A Preferred;
(b) creates any new class or series of shares that has a
preference over or is on a parity with the Series A Preferred with respect to
dividends or liquidation preferences;
(c) reclassifies or amends the term of any capital stock into
shares having a preference over or parity with the Series A Preferred with
respect to dividends or liquidation preferences; or
-6-
<PAGE> 7
(d) repurchases, redeems or retires any shares of capital
stock of the Corporation other than as permitted in Section 2(b) above.
4.C. Series B Preferred Stock. The Corporation is authorized to issue
4,186 shares of "Series B Preferred Stock" (the "Series B Preferred"). The
preferences, voting powers, qualifications, special or relative rights or
privileges of the shares of Series B Preferred are as follows:
(1) Definitions. Terms defined in Article 4.B. Section 1 above shall
have the same meaning in this Article 4.C.
(2) Dividends and Distributions.
(a) Regular Dividends. Each holder of shares of Series B
Preferred shall be entitled to receive dividends at a rate of eight percent (8%)
per annum on the average daily balance of its Unrecovered Initial Series B
Capital Contribution, which shall be fully cumulative. The dividends payable
hereunder shall be payable to holders of record as they appear on the stock
books of the Corporation on the applicable record date, which shall be not more
than 60 nor less than 10 days preceding the payment date for such dividends, as
fixed by the Board of Directors. The foregoing dividends on the Series B
Preferred shall accrue from the date of issuance of each share, but shall be
payable only when, as and if declared by the Board of Directors out of funds
legally available therefor. The dividends shall be payable in cash. The amount
of dividends payable shall be computed on the basis of a 360-day year of twelve
30-day months. All accrued but unpaid dividends shall continue to accrue
interest at the above rate from each dividend date until paid. Except as
provided in Section 2(b) below, the Corporation may not pay any dividend or make
any distribution to the holders of Common Stock until the holders of Series B
Preferred have received an amount equal to: (i) all dividends payable to such
holders under this Section 2(a); and (ii) their Unrecovered Initial Series B
Capital Contributions (collectively, the "Series B Preferred Return"). Once the
holders of Series B Preferred have received their Series B Preferred Return,
then the 8% dividend provided for in this Section 2(a) shall cease.
(b) Other Permitted Dividends. Notwithstanding Section 2(a)
hereof, the Corporation may at any time, out of funds legally available
therefor, repurchase shares of Common Stock (i) issued to or held by employees,
directors or consultants of the Corporation or its subsidiaries upon termination
of their employment or services, pursuant to any agreement providing for such
right of repurchase, or (ii) issued to or held by any person subject to the
Corporation's right of first refusal to purchase such shares where the purchase
is pursuant to the exercise of such right of first refusal, in either case
whether or not dividends on the Series B Preferred shall have been declared and
paid or funds set aside therefor, subject to any other contractual restrictions
entered into by the Corporation.
(3) Liquidation Rights. In the event of any Liquidation, distributions
shall be made to the holders of Series B Preferred in respect of such Series B
Preferred after all amounts due
-7-
<PAGE> 8
pursuant to Article 4.B. are paid to holders of Series A Preferred but before
any amount shall be paid to the holders of any other class or series of capital
stock of the Corporation in the following manner:
(a) Series B Preferred. The holders of Series B Preferred
shall be entitled to be paid out of the assets of the Corporation available for
distribution to holders of its capital stock an amount per share equal to each
holder of Series B Preferred's Unrecovered Initial Series B Capital
Contribution, plus any accrued but unpaid dividends. If the proceeds from a
Liquidation are not sufficient to pay to the holders of Series B Preferred the
preference amount set forth above, then such holders shall instead be entitled
to receive the entire assets and funds of the Corporation legally available for
distribution to the holders of capital stock, which assets and funds shall be
distributed ratably among the holders of the Series B Preferred.
(b) Events Deemed a Liquidation. For purposes of this Section
3, the holders of a majority of the Series B Preferred may, by written notice to
the Corporation, elect to have treated as a Liquidation the consolidation or
merger of the Corporation with or into any other corporation or legal entity or
the sale or other transfer in a single transaction or a series of related
transactions of all or substantially all of the assets of the Corporation, or
any other reorganization of the Corporation, unless the stockholders of the
Corporation immediately prior to any such transaction are holders of a majority
of the voting securities of the surviving or acquiring corporation immediately
thereafter (and for purposes of this calculation, equity securities which any
stockholder of the Corporation owned immediately prior to such merger or
consolidation as a stockholder of another party to the transaction shall be
disregarded).
(c) Valuation of Securities and Property. In the event the
Corporation proposes to distribute assets other than cash in connection with any
Liquidation, the value of the assets to be distributed to the holders of shares
of Series B Preferred shall be determined in good faith by the Board of
Directors. Any securities not subject to an investment letter or similar
restrictions on free marketability shall be valued as follows:
(i) if traded on a national securities exchange or
the Nasdaq National Market ("Nasdaq"), the value shall be deemed to be
the average of the security's closing prices on such exchange or Nasdaq
over the thirty (30) trading-day period ending three (3) days prior to
the distribution;
(ii) if actively traded over-the-counter (other than
Nasdaq), the value shall be deemed to be the average of the closing bid
prices over the thirty (30) day period ending three (3) days prior to
the distribution; or
(iii) if there is no active public market, the value
shall be the fair market value thereof as determined in good faith by
the Board of Directors.
The method of valuation of securities subject to an investment letter or other
restrictions on free marketability shall be adjusted to make an appropriate
discount from the market value
-8-
<PAGE> 9
determined as above in clauses (i), (ii) or (iii) to reflect the fair market
value thereof as determined in good faith by the Board of Directors. The holders
of more than 50% of the outstanding shares of Series B Preferred shall have the
right to challenge any determination by the Board of Directors of fair market
value pursuant to this Section 3(c), in which case the determination of fair
value shall be made by an independent appraiser selected jointly by the Board of
Directors and the challenging parties, the cost of such appraisal to be borne
equally by the Corporation and the challenging parties.
(4) Redemption.
(a) After the full payment of the Series A Preferred Return,
the Series B Preferred shall be redeemable, in whole or in part, out of legally
available funds, at the option of the Corporation, at any time upon giving
notice as provided in (b) below, at a redemption price equal to the Series B
Preferred Return of the Series B Preferred up to the Series B Redemption Date
(as defined below).
(b) At least 30 days but not more than 60 days prior to the
date fixed for the redemption of shares of Series B Preferred pursuant to (a)
above (the "Series B Redemption Date"), written notice of such redemption shall
be mailed to each holder of record of shares of Series B Preferred to be
redeemed in a postage prepaid envelope addressed to such holder at his post
office address as shown on the records of the Corporation; provided, however,
that no defect in such notice shall affect the validity of the proceeding for
the redemption of the shares of Series B Preferred to be redeemed. Each such
notice shall state: (i) the Series B Redemption Date; (ii) the number of shares
of Series B Preferred to be redeemed and, if less than all the shares held by
such holder are to be redeemed from such holder, the number of shares to be
redeemed from such holder or their method of calculating such number; (iii) the
cash redemption price; and (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price. On or after
the Series B Redemption Date, each holder of shares of Series B Preferred to be
redeemed shall present and surrender his certificate or certificates for such
shares to the Corporation at the place designated in such notice and thereupon
the redemption price of such shares shall be paid to or on the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled. In case less than
all the shares represented by such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares. From and after the Series B
Redemption Date (unless default shall be made by the Corporation in payment of
the redemption price) all rights to dividends on the shares of Series B
Preferred designated for redemption in such notice shall cease and all rights of
the holders thereof as stockholders of the Corporation, except the right to
receive the redemption price thereof (including all declared and unpaid
dividends up to the Series B Redemption Date), without interest, upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred (except with the consent of the
Corporation) on the books of the Corporation and such shares shall not be deemed
to be outstanding for any purpose whatsoever.
-9-
<PAGE> 10
(c) If less than all of the shares of Series B Preferred are
to be redeemed, the Board of Directors shall allocate the aggregate Series B
Preferred Return of shares to be redeemed pro rata (or as nearly pro rata as
practicable), by lot, or by any other method that complies with the requirements
of the principal national securities exchange, if any, on which the shares being
redeemed are listed, at the direction of the Board of Directors. regardless of
the method used, the calculation of the number of shares to be redeemed shall be
based upon whole shares, such that the Corporation shall in no event be required
to issue fractional shares of Series B Preferred or cash in lieu thereof. In the
event a method required proration is used, shares shall be rounded downward to
the nearest whole number of shares.
(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 perceeding 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.
(5) Voting Rights. Except as otherwise required by law or by Section 8
below, the holder of each share of Series B Preferred will not be entitled to
vote on any matters.
(6) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Series B Preferred, at least ten (10) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(7) Notices. Any notice required by the provisions of this Certificate
of Incorporation to be given to the holders of Series B Preferred shall be
deemed given when deposited in the United States mail, postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
(8) Approval of Certain Transactions While Any Series B Preferred is
Outstanding. So long as any shares of Series B Preferred are outstanding, the
Corporation shall not, without
-10-
<PAGE> 11
first obtaining the approval of the holders of at least a majority of the shares
of Series B Preferred then outstanding, voting as a separate class, take any
action that:
(a) alters the rights, preferences or privileges of the Series
B Preferred;
(b) creates any new class or series of shares that has a
preference over or is on a parity with the Series B Preferred with respect to
dividends or liquidation preferences;
(c) reclassifies or amends the term of any capital stock into
shares having a preference over or parity with the Series B Preferred with
respect to dividends or liquidation preferences; or
(d) repurchases, redeems or retires any shares of capital
stock of the Corporation other than as permitted in Section 2(b) above.
FIFTH. No stockholder of the Corporation will, solely by reason of
holding shares of any class, have any preemptive or preferential right to
purchase or subscribe for any shares of the Corporation, now or hereafter to be
authorized, or any notes, debentures, bonds or other securities convertible into
or carrying warrants, rights or options to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares or
such notes, debentures, bonds or other securities would adversely affect the
dividend, voting or any other rights of such stockholder. The Board of Directors
may authorize the issuance of, and the Corporation may issue, shares of any
class of the Corporation, or any notes, debentures, bonds or other securities
convertible into or carrying warrants, rights or options to purchase any such
shares, without offering any shares of any class to the existing holders of any
class of stock of the Corporation.
SIXTH. Stockholders of the Corporation will not have the right of
cumulative voting for the election of directors or for any other purpose.
SEVENTH. The Board of Directors is expressly authorized to alter, amend
or repeal the Bylaws of the Corporation or to adopt new Bylaws.
EIGHTH. (a) The Corporation will, to the fullest extent permitted by
the Delaware General Corporation Law, as the same exists or may hereafter be
amended, indemnify any and all persons it has power to indemnify under such law
from and against any and all of the expenses, liabilities or other matters
referred to in or covered by such law. Such indemnification may be provided
pursuant to any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his director or officer capacity
and as to action in another capacity while holding such office, will continue as
to a person who has ceased to be a director, officer, employee or agent, and
will inure to the benefit of the heirs, executors and administrators of such a
person.
-11-
<PAGE> 12
(b) If a claim under the preceding paragraph (a) is not paid in full by
the Corporation within 30 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant will be entitled to be paid also the expense of
prosecuting such claim. It will be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct that make it permissible under the laws of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense will be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the laws of the State of Delaware nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, will be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
NINTH. To the fullest extent permitted by the laws of the State of
Delaware as the same exist or may hereafter be amended, a director of the
Corporation will not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this Article will not increase the personal liability of any
director of the Corporation for any act or occurrence taking place before such
repeal or modification, or adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
The provisions of this Article Nine shall not be deemed to limit or preclude
indemnification of a director by the Corporation for any liability of a director
that has not been eliminated by the provisions of this Article Nine.
TENTH: The address of the Corporation's initial registered office is
1209 Orange Street, Wilmington, Delaware 19801, County of New Castle, and the
name of its initial registered agent at that address is The Corporation Trust
Company.
ELEVENTH. The number of directors constituting the initial Board of
Directors of the Corporation is seven and the names and mailing addresses of
such persons, who are to serve as directors until the first annual meeting of
the stockholders or until their successors are elected and qualified, are:
-12-
<PAGE> 13
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Charles R. Mollo 7855 East Evans Road, Suite A
Scottsdale, Arizona 85260
Cameron Wilson 7855 East Evans Road, Suite A
Scottsdale, Arizona 85260
Karl Lautman 7855 East Evans Road, Suite A
Scottsdale, Arizona 85260
Jeffrey Harris 7855 East Evans Road, Suite A
Scottsdale, Arizona 85260
Tom Wilson 7855 East Evans Road, Suite A
Scottsdale, Arizona 85260
Steve Love 7855 East Evans Road, Suite A
Scottsdale, Arizona 85260
Jeffrey Doss 7855 East Evans Road, Suite A
Scottsdale, Arizona 85260
</TABLE>
Hereafter, the number of directors will be determined in accordance
with the Bylaws of the Corporation.
TWELFTH. The powers of the incorporator will terminate upon the filing
of this Certificate. The name and mailing address of the incorporator are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Richard F. Dahlson Suite 6000
901 Main Street
Dallas, Texas 75202
</TABLE>
EXECUTED as of the 12th day of August, 1996.
/s/ RICHARD F. DAHLSON
----------------------
Richard F. Dahlson
-13-
<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. MOTTO
------------------------------
Charles R. Motto,
President
<PAGE> 1
EXHIBIT 3.3
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 242 of the
Delaware General 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
The first paragraph of Article 4.A of the Company's Certificate of
Incorporation, as amended, shall be amended so that it reads its entirety as
follows:
4.A. General. The aggregate number of shares of capital stock that the
Corporation will have authority to issue is 25,000,000, 20,000,000 of
which will be shares of common stock, having a par value of $0.01 per
share, and 5,000,000 of which will be preferred stock, having a par
value of $0.01 per share.
ARTICLE III
The amendments made by these Articles of Amendment have been effected
in conformity with the provisions of the Act, and the amendment made by these
Articles of Amendment (the "Amendment") were duly adopted pursuant to Section
228 of the Act (a) by a majority of the stockholders of the Corporation by
written consent dated as of August 29, 1997, (b) a majority of the holders of
the Series B Preferred Stock, by written consent dated as of August 29, 1997,
and (c) all of the directors of the Corporation by written consent dated as of
August 29, 1997.
ARTICLE V
The number of shares of common stock outstanding is 105,547; the number
of shares of common stock entitled to vote on the Amendments was 105,547. The
holders of 62,288 (59.02%) shares of common stock outstanding and entitled to
vote on the Amendment consented to the Amendment. The number of shares of Series
B Preferred Stock outstanding is 4,186; the number
Articles of Amendment to the Certificate of Incorporation
Page 1
<PAGE> 2
of shares of Series B Preferred Stock entitled to vote on the Amendment was
4,186. The holders of 3,225 (75.94%) shares of Series B Preferred Stock
outstanding and entitled to vote on the Amendment consented to the Amendment.
There is no Series A Preferred Stock outstanding.
No other class of common or preferred stock of the Company was entitled
to vote on the Amendment.
Dated as of the 10th day of September, 1997.
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
By: /s/ CHARLES R. MOLLO
----------------------------------
Charles R. Mollo,
President
Articles of Amendment to the Certificate of Incorporation
Page 2
<PAGE> 1
EXHIBIT 3.4
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 242 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
Article I of the Company's Certificate of Incorporation, as amended,
shall be amended and restated so that it reads in its entirety as follows:
"FIRST. The name of the Corporation is Mobility Electronics,
Inc."
ARTICLE II
The first paragraph of Article 4.A of the Company's Certificate of
Incorporation, as amended, shall be amended and restated so that it reads in its
entirety as follows:
"FOURTH 4.A. General. The aggregate number of shares of
capital stock that the Corporation will have authority to issue is
80,000,000, of which 75,000,000 will be shares of common stock, having
a par value of $0.01 per share, and of which 5,000,000 will be
preferred stock, having a par value of $0.01 per share."
ARTICLE III
A new Article XIII shall be added to the Company's Certificate of
Incorporation that reads in its entirety as follows:
"THIRTEENTH. Stockholders of the Corporation may not take
action or actions by written consent."
1
<PAGE> 2
ARTICLE IV
The amendments made by these Articles of Amendment 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 by a majority of the
stockholders of the Company by written consent dated as of June 12, 1998 and by
all of the directors of the Company by written consent dated as of June 12,
1998.
ARTICLE V
The number of shares of common stock outstanding is 8,578,669, the
number of shares of common stock entitled to vote on the Amendments was
8,578,669. The holders of 7,459,100 (87%) shares of common stock outstanding and
entitled to vote on the Amendments consented to the Amendments. There is no
Series A or Series B preferred stock outstanding. No other class of common or
preferred stock of the Company was entitled to vote on the Amendments.
Dated as of the 20th day of July, 1998.
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
By: /s/ Charles R. Mollo
-----------------------------------
Charles R. Mollo, President
2
<PAGE> 1
EXHIBIT 3.5
ARTICLES OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
MOBILITY ELECTRONICS, INC.
Mobility Electronics, Inc., a Delaware corporation (the "Company"),
pursuant to the provisions of Section 242 of the Delaware General 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 first paragraph of Article 4.A of the Company's Certificate of
Incorporation, as amended, shall be amended so that it reads its entirety as
follows:
4.A. General. The aggregate number of shares of capital stock that the
Corporation will have authority to issue is 115,000,000, 100,000,000 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.
ARTICLE II
The amendment made by these Articles of Amendment have been effected in
conformity with the provisions of the Act, and the amendment made by these
Articles of Amendment (the "Amendment") were duly adopted pursuant to Section
228 of the Act (a) by the affirmative vote of a majority of the shares of common
stock and Series C Preferred Stock outstanding and entitled to vote thereon, as
a class, and the affirmative vote of a majority of the shares of Series C
Preferred Stock outstanding and entitled to vote thereon, in each case, at a
meeting held on January 13, 2000, (b) all of the directors of the Corporation at
a meeting held on December 8, 1999.
ARTICLE III
The number of shares of common stock outstanding is 11,918,590; the number
of shares of common stock entitled to vote on the Amendment was 11,918,590. The
number of shares of Series C Preferred Stock outstanding is 2,312,340; the
number of shares of Series C Preferred Stock entitled to vote on the Amendment
was 2,312,340. The holders of 7,671,988 shares of common stock and 1,513,397
shares of Series C Preferred Stock (68.4% of the total voting shares of the
Company and 65.4% of the issued and outstanding shares of Series C Preferred
Stock) voted in favor of the Amendment. There is no Series A Preferred Stock or
Series B Preferred Stock outstanding.
Articles of Amendment to the Certificate of Incorporation Page 1
[STAMP]
<PAGE> 2
No other class of common or preferred stock of the Company was entitled to
vote on the Amendment.
Dated as of the 3rd day of February, 2000.
MOBILITY ELECTRONICS, INC.
By: /s/ RICK DAHLSON
-------------------------------
Richard F. Dahlson,
Secretary
Articles of Amendment to the Certificate of Incorporation Page 2
<PAGE> 1
EXHIBIT 3.6
CERTIFICATE OF THE DESIGNATIONS, PREFERENCES,
RIGHTS AND LIMITATIONS OF SERIES C PREFERRED STOCK
OF
MOBILITY ELECTRONICS, INC.
-----------------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
-----------------------
MOBILITY ELECTRONICS, INC., a corporation organized and existing under
the General Corporation Law of the state of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
That, pursuant to the authority expressly vested in the Board of
Directors by Article Fourth of the Certificate of Incorporation of the
Corporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors duly adopted at
a meeting held on October 15, 1998, a resolution providing for the issuance of
up to Four Million Five Hundred Thousand (4,500,000) shares of Series C
Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of Article
Fourth of the Certificate of Incorporation of the Corporation, this Board of
Directors hereby creates a series of the Preferred Stock, $0.01 par value, of
the Corporation to consist of Four Million Five Hundred Thousand (4,500,000)
shares, and this Board of Directors hereby fixes the designation and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereon, of the shares of such series (in addition to the powers, preferences
and rights, and the qualifications, limitations or restrictions thereon, set
forth in the Certificate of Incorporation, as amended, which are applicable to
all series of the Preferred Stock, $0.01 par value, of the Corporation) as
follows:
Four Million Five Hundred Thousand (4,500,000) shares of Preferred
Stock, par value $0.01 per share, of the Corporation are hereby constituted as a
series of Preferred Stock designated as "Series C Preferred Stock" (hereinafter
called the "Series C Stock") with the powers, preferences and rights hereinafter
set forth.
1. Definitions. As used herein:
"Additional Stock" means all capital stock issued by the Corporation
after the date of the first issuance of shares of Series C Stock, other than (i)
Common Stock issuable upon conversion of Series C Stock, (ii) capital stock of
the Corporation issued at a per share consideration equal to or greater than the
Issuance Consideration, (iii) Series C Stock issued in the Offering, (iv) Common
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Stock issued as a dividend or distribution on the Series C Stock or (v) Common
Stock issued as a result of Exempt Issuances.
"Board of Directors" means the Board of Directors of the Corporation.
"Certificate of Designations" means the Certificate of the
Designations, Preferences, Rights and Limitations of Series C Preferred Stock of
the Corporation.
"Common Stock" means (i) the class of stock designated as the common
stock of the Corporation as of October 15, 1998, or (ii) any other class of
stock resulting from successive changes or reclassification of such stock
consisting solely of changes in par value, or from par value to no par value or
from no par value to par value.
"Conversion Event"shall have the meaning ascribed thereto in Paragraph
5(b) below.
"Conversion Price" means the Issuance Consideration divided by the
Conversion Rate in effect at such time.
"Conversion Rate" means the number of shares of Common Stock into which
a single share of Series C Stock is convertible at such time. The initial
Conversion Rate shall be one. Thereafter, the Conversion Rate shall be subject
to adjustment as provided in Paragraph 5 below.
"Convertible Securities" means capital stock or other securities,
options, rights or warrants which are convertible into or exchangeable or
exercisable for, with or without payment of additional consideration of cash or
property, Common Stock or rights to acquire Common Stock, either immediately or
upon the arrival of a specified date or the happening of a specified event.
"Exempt Issuances" means any issuance of capital stock of the
Corporation or Convertible Securities: (i) pursuant to any plan or arrangement
approved by the Board of Directors; (ii) pursuant to any option, warrants, right
or convertible or exchangeable security of the Corporation outstanding as of the
date of filing of this Certificate of Designations with the Secretary of State
of Delaware (although the terms of which may be changed after said date); or
(iii) issued in connection with the Offering (including, without limitation,
warrants and stock issued in connection therewith and the securities underlying
such warrants); or the issuance of any warrants for nominal consideration in
connection with a debt private placement to institutional investors.
"Issuance Consideration" means the consideration received by the
Corporation for the issuance of a single share of the Series C Stock (as such
consideration may subsequently be changed pursuant to the terms of the Offering,
and subject to adjustment in the event of a stock split, stock dividend,
recapitalization or the like). The Issuance Consideration is initially $9.00 per
share. To the extent that shares of Series C Stock are issued in the Offering at
a lower price per share, then the Issuance Consideration will be changed to such
lower dollar amount, and all holders of Series C
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Stock who paid $9.00 per share will receive additional shares of Series C Stock
to give effect to such lower Issuance Consideration.
"Liquidation Event" shall mean any liquidation, dissolution or
winding-up of the Corporation or, at the option of the holders of a majority of
the outstanding Series C Stock, voting as a single class, a consolidation or
merger of the Corporation with or into any other corporation or other business
organization, or the sale, lease or transfer of all or substantially all of the
assets of the Corporation, except for a Surviving Combination.
"Liquidation Preference" shall have the meaning ascribed thereto in
Paragraph 3 below.
"Non-Surviving Combination" shall mean any merger, consolidation or
other business combination between the Corporation and one or more other Persons
which is not a Surviving Combination, or a sale of all or substantially all of
the assets of the Corporation and its subsidiaries, taken as a whole, to one or
mores such other Persons.
"Offering" means that certain private placement of Series C Stock
undertaken by the Corporation commencing on September 28, 1998.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
"Preferred Stock" means the preferred stock, par value $0.01 per share,
of the Corporation.
"Surviving Combination" means any merger or consolidation in which the
Corporation is the surviving corporation, the holders of the Series C Stock
outstanding immediately prior to such transaction will hold the same number of
shares of Series C Stock with substantially identical designations and
preferences after such transaction as they held immediately prior to such
transaction, the voting power or the number of voting shares outstanding
immediately after such transaction plus the number of shares issued as a result
of such transaction does not exceed by more than 49% the voting power of the
total number of voting shares of the Corporation outstanding immediately prior
to such transaction, and the number of voting shares issuable as a result of
such transaction will not exceed by more than 49% the number of voting shares of
the Corporation outstanding immediately prior to the merger.
2. Dividends.
(a) In the event the Board of Directors shall declare a cash dividend
payable upon the outstanding shares of Common Stock out of funds of the
Corporation legally available therefor pursuant to the General Corporation Law
of the State of Delaware ("Legally Available Funds"), the Board of Directors
shall at the same time declare a dividend payable on each share of Series C
Stock equal to the amount of the dividend payable on the number of shares of
Common Stock into which
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each such share of Series C Stock could then be converted into pursuant to the
provisions of Section 5 below, such number to be determined as of the record
date for the determination of holders of Common Stock entitled to receive such
dividends.
3. Preference on Dissolution, Liquidation or Winding Up.
(a) In the event of the occurrence of a Liquidation Event, the holders
of Series C Stock shall be entitled to receive, in preference to the holders of
Common Stock or any other class of stock or series thereof ranking junior to the
Series C Stock with respect to the distribution of assets, an amount equal to
the product of the number of shares of Series C Stock held multiplied by the
Issuance Consideration, plus an amount equal to all dividends accrued and unpaid
thereon (including interest accrued thereon, if applicable) to the date fixed
for distribution, and no more (the "Liquidation Preference"). If Legally
Available Assets for distribution upon the occurrence of a Liquidation Event are
insufficient to satisfy in full the Liquidation Preference, then the Liquidation
Preference shall be reduced to such amount as can be satisfied out of the
Legally Available Assets, and such amounts shall be paid to the holders of the
Series C Stock on a pari passu basis (based on the number of shares of Series C
Stock held).
(b) Written notice of the occurrence of a Liquidation Event, stating a
payment date and the place where the distributable amounts shall be payable
shall be given by mail, postage prepaid, not less than 20 days prior to the
payment date stated therein, to the holders of record of the Series C Stock at
their respective addresses as the same shall appear on the books of the
Corporation.
(c) No payment on account of such Liquidation Event shall be made to
the holders of any class or series of capital stock ranking on a parity with the
Series C Stock in respect of the distribution of assets, unless there shall
likewise be paid at the same time to the holders of the Series C Stock like
proportionate distributive amounts, ratably, in proportion to the full
distributive amounts to which they and the holders of such parity stock are
respectively entitled with respect to such preferential distribution.
4. Voting Rights. Except as otherwise provided in this Certificate of
Designations, each holder of Series C Stock shall be entitled to vote on all
matters submitted for a vote of the holders of Common Stock a number of votes
equal to the number of full shares of Common Stock into which such holder's
shares of Series C Stock could then be converted pursuant to the provisions of
Paragraph 5 below, such number to be determined as of the record date for the
determination of holders of Common Stock entitled to vote on any such matter,
or, if no record date is fixed , then the record date for determination of
holders of Series C Stock entitled to vote at a meeting of stockholders shall be
at the close of business on the day next preceding the day on which such meeting
is held. Except as otherwise required in this Certificate of Designations or by
the Delaware General Corporation Law, the holders of the Series C Stock shall
vote with the holders of outstanding Common Stock and any other preferred shares
entitled to vote on any such matter, and not as a separate class or series.
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5. Conversion Rights. Each share of Series C Stock may be converted
into shares of Common Stock on the terms and conditions set forth in this
Section 5:
(a) Each share of Series C Stock shall be convertible at the option of
the holder thereof, at any time and from time to time, in the manner hereinafter
set forth, into a number of fully-paid and nonassessable shares of Common Stock
(rounded to the nearest whole number) at the Conversion Rate in effect at the
time of conversion determined as hereinafter provided.
(b) Each share of Series C Stock shall convert automatically, and
without any action on the part of the holder thereof, into the number of
fully-paid and nonassessable shares of Common Stock (rounded to the nearest
whole number) determined by applying the Conversion Rate then in effect upon the
earliest to occur of the following: (i) immediately prior to the consummation of
a firm commitment underwritten public offering of Common Stock pursuant to a
registration statement filed with the Securities and Exchange Commission and
having a per share price equal to or exceeding $12.00 per share (as adjusted for
stock splits, stock dividends, recapitalizations and the like) and a total gross
offering amount of not less than $15 million; (ii) the date that, through
redemption or conversion, fewer than 150,000 shares of Series C Stock remain
outstanding (as adjusted for stock splits, stock dividends, recapitalizations
and the like); (iii) immediately prior to the consummation of a Non-Surviving
Combination; provided, that the value received by the holders of Series C Stock
equals or exceeds $15.00 per share; or (iv) upon the vote of the holders of a
majority of the then issued and outstanding shares of Series C Stock (each of
the above is sometimes referred to herein as a "Conversion Event" and
collectively, as the "Conversion Events").
(c) Upon conversion of any Series C Stock, all accrued and unpaid
dividends on the Series C Stock so converted shall be paid in cash.
(d) Upon the occurrence of a Conversion Event, the Corporation shall
prepare a notice stating that a Conversion Event has occurred and setting forth
in detail the facts, and such notice shall forthwith be mailed by first class
mail to the holders of the Series C Stock at their last known address shown on
the stock books of the Corporation.
(e) Upon receipt of written notice of a Conversion Event, each holder
of Series C Stock shall (i) surrender the certificate or certificates therefor,
duly endorsed, at the office of any transfer agent for such Series C Stock, or
if there is no such transfer agent, then at the principal executive offices of
the Corporation and (ii) state in writing therein the name or names in which
such holder wishes the certificate or certificates for the Common Stock to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at the last known address of each holder of the Series C Stock, or to
his nominee or nominees, certificates for the number of full shares of Common
Stock to which he shall be entitled, as aforesaid, together with cash in lieu of
any fraction of a share as hereinafter provided. Such conversion shall be deemed
to have been made on the date of the Conversion Event, and the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Stock on
said date.
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(f) If the Corporation shall at any time (i) pay or make a dividend or
other distribution on any class or series of capital stock of the Corporation in
Common Stock, (ii) subdivide (by means of a stock split or otherwise) its
outstanding Common Stock into a larger number of shares or (iii) combine (by
means of a reverse stock split or otherwise) its outstanding Common Stock into a
smaller number of shares, the Conversion Rate for the Series C Stock in effect
immediately prior thereto shall be adjusted so that each share of Series C Stock
shall thereafter be convertible into the number of shares of Common Stock which
the holder of one share of Series C Stock would have been entitled to receive
after the happening of any of the events described above had such stock been
converted into Common Stock immediately prior to the record date, if any, in the
case of a dividend, distribution, subdivision or combination with respect to
which the Corporation has fixed a record date for the determination of
stockholders entitled to receive such dividend, distribution, subdivision or
combination or, if no such record date has been fixed, the effective date of
such dividend, distribution, subdivision or combination. An adjustment made
pursuant to this subparagraph (f) shall be effected at the time such dividend or
distribution is made or paid or such subdivision or combination is effected and
shall be effective retroactively with respect to conversions effected subsequent
to any record date described in the immediately preceding sentence.
(g) In case at any time or from time to time the Corporation shall pay
any dividend or make any other distribution to the holders of Common Stock of
(i) any securities or property of any nature whatsoever (other than cash or as
provided in subparagraph (f) above), or (ii) any warrants or other rights to
subscribe for or purchase capital stock of the Corporation, then the Conversion
Rate shall be adjusted to that number determined by multiplying the Conversion
Rate immediately prior to such adjustment by a fraction (A) the numerator of
which shall be the fair value (as determined in good faith by the Board of
Directors) per share of Common Stock at the date of taking such record and (B)
the denominator of which shall be such fair value per share of Common Stock
minus the portion applicable to one share of Common Stock of the fair value (as
determined in good faith by the Board of Directors) of any and all such
securities or property to be distributed. A reclassification of the Common Stock
into Common Stock and shares of any other class of securities shall be deemed a
distribution by the Corporation to the holders of its Common Stock of such other
Common Stock and of such other class of securities within the meaning of this
subparagraph and, if the outstanding Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, an the case may be, of
the outstanding Common Stock within the meaning of subparagraph (f) above.
(h) In case at any time or from time to time the Corporation shall
issue or sell any Additional Stock for a consideration per share less than the
Issuance Consideration, then the Conversion Rate shall be adjusted to that
number determined by multiplying the Conversion Rate immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the number of
shares of Common Stock (including shares of Common Stock underlying the Series C
Stock) outstanding immediately prior to the issuance of such shares of
Additional Stock plus the number of such shares of Additional Stock so issued
and (ii) the denominator of which shall be the number of shares of Common Stock
(including shares of Common Stock underlying the Series C Stock)
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outstanding immediately prior to the issuance of the shares of Additional Stock
plus the number of shares of Common Stock which the aggregate consideration for
the total number of such shares of Additional Stock so issued would purchase at
the Conversion Price in effect immediately prior to the issuance of the
Additional Stock. For the purposes of this subparagraph, the date as of which
the Conversion Price of the Common Stock shall be computed shall be the earlier
of (i) the date on which the Corporation shall enter into a firm contract for
the issuance of such Additional Stock or (ii) the date of actual issuance of
such Additional Stock. The provisions of this subparagraph shall not apply to
any issuance of Additional Stock for which an adjustment to provided under
subparagraph (g) above. No adjustment of the Conversion Rate shall be made under
this subparagraph upon the issuance of any shares of Additional Stock which are
issued pursuant to the exercise of any warrants or any other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Convertible Securities, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to subparagraph 6(f) or (g) above.
(i) In case at any time or from time to time the Corporation shall
distribute or shall in any manner (whether directly or indirectly) issue or sell
any Convertible Securities (excluding Exempt Issuances), whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
consideration per share for which additional Common Stock may at any time
thereafter be issuable pursuant to such warrants, options or other rights or
pursuant to the terms of such Convertible Securities shall be less than the
Issuance Consideration, then the Conversion Rate shall adjusted as provided in
subparagraph (h) above on the basis that (i) the maximum number of shares of
Additional Stock issuable pursuant to all such Convertible Securities on the
date of issuance of such Convertible Securities shall be deemed to have been
issued as of the date of the determination of the Conversion Price as
hereinafter provided, and (ii) the aggregate consideration for such maximum
number of shares of Additional Stock shall be deemed to be the minimum
consideration received and receivable by the Corporation for the issuance of
such Convertible Securities. For the purposes of this subparagraph, the date on
which the Conversion Price shall be computed shall be the earliest of (i) the
date on which the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive any such Convertible
Securities, (ii) the date on which the Corporation shall enter into a firm
contract for the issuance of such Convertible Securities or (iii) the date of
actual issuance of such Convertible Securities. No adjustment of the Conversion
Rate shall be made under this subparagraph upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or any
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to any of the above subparagraphs.
(j) If, at any time after any adjustment of the Conversion Rate shall
have been made pursuant to any of the above subparagraphs on the basis of the
issuance of Convertible Securities, or after any new adjustments of the
Conversion Rate shall have been made pursuant to this subparagraph (j),
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(i) such warrants or rights or the right of conversion or
exchange in such other Convertible Securities shall expire, and a
portion of such warrants or rights, or the right of conversion or
exchange in respect of a portion of such other Convertible Securities,
as the came may be, shall not have been exercised, and/or
(ii) the consideration per share, of which shares of Common
Stock are issuable pursuant to such warrants or rights or the terms of
such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the arrival of a specified date or the
happening of a specified event,
such previous adjustment shall be rescinded and annulled as to any shares of
Series C Stock then outstanding and the shares of Common Stock which were deemed
to have been issued by virtue of the computation made in connection with the
adjustment so rescinded and annulled, shall no longer be deemed have been issued
by virtue of such computation. Thereupon, a recomputation (assuming that all
shares of Series C Stock on the date of the initial computation are outstanding
on the date of such recomputation) shall be made of the affect of such rights or
options or other Convertible Securities on the basis of
(i) treating the number of shares of Common Stock, if any,
theretofore issued or issuable pursuant to the previous exercise of
such warrants or rights or right of conversion or exchange, as having
been issued on the date or dates of such exercise and for the
consideration actually received and receivable therefor, and
(ii) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock are issuable
under such warrants or rights or other Convertible Securities; and, if
and to the extent called for by the foregoing provisions of this
Paragraph on the basis aforesaid, a new adjustment of the Conversion
Rate shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.
(k) The following provisions of this subparagraph (k) shall also be
applicable to the making of adjustments to the Conversion Rate:
(i) To the extent that any Additional Stock or any Convertible
Securities or any warrants or other rights to subscribe for or purchase
any Additional Stock or any Convertible Securities shall be issued for
a cash consideration, the consideration received by the Corporation
therefor shall be deemed to be the amount of the cash received by the
Corporation therefor, or, if such Additional Stock or Convertible
Securities are offered by the Corporation for subscription, the
subscription price, or, if such Additional Stock or Convertible
Securities are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price, in
any such case without deduction of
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any compensation, discounts or expenses paid or incurred by the
Corporation for and in the underwriting of, or otherwise in connection
with, the issuance thereof. To the extent that such issuance shall be
for a consideration other than cash, then except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to
be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors. In case any shares
of Additional Stock or any Convertible Securities or warrants or other
rights to subscribe for or purchase such Additional Stock or
Convertible Securities shall be issued in connection with any
consolidation or merger in which the Corporation issues any securities,
the amount of consideration therefor shall be deemed to be the fair
value, as determined in good faith by the Board of Directors, of such
portion of the assets and business of the non-surviving corporation as
such Board of Directors in good faith shall determine to be
attributable to such Additional Stock, Convertible Securities, warrants
or other rights, as the case may be. The consideration for any
Additional Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received
by the Corporation for issuing such warrants or other rights, plus the
minimum additional consideration payable to the Corporation upon the
exercise of such warrants or other rights. The consideration for any
Additional Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Corporation for
issuing any warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the minimum consideration paid or payable
to the Corporation in respect of the subscription for or purchase of
such Convertible Securities, plus the minimum additional consideration,
if any, payable to the Corporation upon the exercise of the right of
conversion or exchange in such Convertible Securities. In case of the
issuance at any time of any Additional Stock or Convertible Securities
in payment or satisfaction of any dividends upon any class of capital
stock other than Common Stock, the Corporation shall be deemed to have
received for such Additional Stock or Convertible Securities
consideration equal to the amount of such dividend so paid or
satisfied.
(ii) The adjustments required by this Paragraph 5 shall be
made whenever and as often as any specified event requiring an
adjustment shall occur, except that no adjustment shall be made (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in subparagraph(f) above) unless and until such
adjustment either by itself or with other adjustments not previously
made adds or subtracts at least 1/20th of a share to or from the
Conversion Rate in effect immediately prior to the making of such
adjustment. Any adjustment representing a change of less than such
minimum amount (except as aforesaid) shall be carried forward and made
so soon as such adjustment, together with other adjustments required by
this Paragraph 5 and not previously made, would result in a minimum
adjustment. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date
of its occurrence.
(iii) If the Corporation shall take a record of the holder of
its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally
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abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(l) In the case of a merger, or the sale or conveyance of all or
substantially all of the assets of the Corporation for which approval of the
holders of the Common Stock is necessary, or in the case of any capital
reorganization or any reclassification or similar change of the outstanding
Common Stock (other than as at forth in subparagraph (f) above), each share of
Series C Stock, if any, outstanding following such transaction shall thereafter
be convertible into the kind and amount of securities or other securities or
cash or other property receivable upon such merger, sale, conveyance,
reorganization, reclassification or change by a holder of the number of shares
of Common Stock into which such Series C Stock might have been converted
immediately prior to such merger, sale, conveyance reorganization,
reclassification or change, assuming such holder of Common Stock failed to
exercise his rights of election, if any, as to the kind and amount of stock or
other securities or cash or other property receivable upon such merger, sale,
conveyance, reorganization, reclassification or change (provided that if the
kind and amount of stock or other securities or cash or other property
receivable upon such merger, sale, conveyance, reorganization, reclassification
or change is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("non-electing shares")
then for the purpose of this subparagraph the kind and amount of stock or other
securities or cash or other property receivable upon such merger, sale,
conveyance, reorganization, reclassification or change by each non-electing
share shall be deemed to be the kind and amount so receivable by a plurality of
the non-electing share); and, in any such case, appropriate adjustments (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of the Series C Stock to the and that the
provisions set forth heroin (including provisions with respect to changes in and
other adjustments of the Conversion Rate) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any stock or other property
thereafter deliverable upon the conversion of the Series C Stock.
(m) Whenever the Conversion Rate or terms of conversion are adjusted or
readjusted as herein provided, the Corporation shall prepare a notice setting
forth such adjustment or readjustment and showing in detail the facts upon which
each adjustment or readjustment is based, and such notice shall forthwith be
mailed by first class mail to the holders of shares of Series C Stock so
affected at their last known address shown on the stock books of the
Corporation.
(n) The Corporation shall at all times reserve and keep available, out
of its authorized but unissued Common Stock or out of Common Stock held in its
treasury, solely for the purpose of effecting the conversion of the Series C
Stock, the full number of shares of Common Stock deliverable upon the conversion
of all Series C Stock from time to time outstanding. The Corporation shall from
time to time in accordance with the General Corporation Law of the State of
Delaware increase the authorized amount of its Common Stock if at any time the
authorized number of share of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the Series C Stock outstanding
from time to time.
10
<PAGE> 11
(o) No fractional shares of Common Stock are to be delivered upon
conversion, but the Corporation shall pay a cash adjustment in respect of any
fraction of a share which would otherwise be deliverable in an amount equal to
the same fraction of the current market price per share of Common Stock on the
date of conversion, such current market price to be determined in good faith by
the Board of Directors.
(p) The Corporation will pay any issue and other taxes (other than
income taxes) that may be payable in respect of any issue or delivery of Common
Stock on conversion of Series C Stock pursuant hereto. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in a name other than that
in which the shares of Series C Stock so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting such
issue or delivery has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
6. Notices of Record Date. In the event that the Corporation shall
propose at any time:
(a) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription pro rata to the holders of Common Stock
any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all of its property or business, or
to liquidate, dissolve or wind up;
then, in connection with any such event, the Corporation shall send to the then
holders of record of Series C Stock (the "Record Holders"):
(i) in the case of the matters referred to in (a) and (b)
above, at least ten (10) days prior written notice of the date on which
a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock
shall be entitled thereto) or for determining rights to vote in respect
of the matters referred to in (a) or (b) above; and
(ii) in the case of the matters referred to in (c) and (d), at
least ten (10) days prior written notice of the date when the same
shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
11
<PAGE> 12
securities or other property deliverable upon the occurrence of such
event) or for determining rights to vote in respect of the matters
referred to in (c) or (d) above.
Each such written notice shall be delivered or given by first class
mail, postage prepaid, addressed to the Record Holders at the address for each
such holder as shown on the books and records of the Corporation.
7. Restrictions on Corporate Actions. So long as any shares of Series C
Stock are outstanding, the Corporation shall not, without obtaining the prior
approval of the holders of a majority of the shares of Series C Stock
outstanding from time to time, take any of the following actions:
(a) except for a Surviving Combination, effect any sale, lease,
assignment, transfer or other conveyance of all or substantially all of the
assets of the Corporation, or any consolidation or merger involving the
Corporation or any reclassification or other change of any stock, or any
recapitalization, or any dissolution, liquidation or winding up of the
Corporation, unless, in any such case, the holders of Series C Stock are
entitled to receive consideration of at least $15.00 per share (as adjusted for
stock dividends, stock splits, recapitalizations and the like);
(b) purchase, redeem or otherwise acquire for value (or pay into or set
aside as a sinking fund for such purpose) any of the Common Stock; provided,
that this provision shall not apply to the purchase of shares of Common Stock
from directors, officers, employees or consultants of or advisers to the
Corporation upon any termination of employment or their affiliation with the
Corporation or pursuant to agreements under which the Corporation has the option
to repurchase such shares upon the occurrence of certain events, including the
termination of employment by or service to the Corporation;
(c) authorize or issue, or obligate itself to issue, any other equity
securities ranking senior to or on a parity with the Series C Stock as to
dividend or redemption rights, liquidation preferences, conversion rights,
voting rights or otherwise;
(d) declare or pay dividends or declare or make any other distribution,
direct or indirect (other than a dividend payable solely in shares of Common
Stock) on account of the Common Stock or set apart any sum for any such
purposes; or
(e) increase or decrease (other than by redemption or conversion of the
Preferred Stock) the total number of authorized shares of Preferred Stock or
Common Stock.
8. Information Rights: So long as a any Person continues to hold at
least 100,000 shares of Series C Stock, the Corporation shall deliver to such
Person audited annual and unaudited quarterly financial statements; provided,
however, that such information rights shall: (i) terminate at such time that the
Corporation becomes a "reporting company" under the Securities Exchange Act of
1934, as amended; and (ii) be transferable only to a transferee obtaining from
the transferor at
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<PAGE> 13
least 100,000 shares of Series C Stock and provided that the Corporation does
not reasonably believe that such transferee is a competitor of the Corporation
and such transferee agrees in writing to non-disclosure provisions prepared by
the Corporation with respect to such information.
IN WITNESS WHEREOF, Mobility Electronics, Inc. has caused hereunto this
certificate to be signed by its Chief Executive Officer and Secretary this 23rd
day of November, 1998.
MOBILITY ELECTRONICS, INC.
By: /s/ Richard F. Dahlson
----------------------------------
Richard F. Dahlson, Secretary
13
<PAGE> 1
EXHIBIT 3.7
BYLAWS
OF
MOBILITY ELECTRONICS, INC.
(Effective as of January 27, 2000)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE I
<S> <C> <C>
OFFICES
Section 1. Registered Office...................................1
Section 2. Other Offices.......................................1
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings...................................1
Section 2. Annual Meeting......................................1
Section 3. List of Stockholders................................1
Section 4. Special Meetings....................................2
Section 5. Notice..............................................2
Section 6. Quorum..............................................2
Section 7. Voting..............................................2
Section 8. Method of Voting....................................2
Section 9. Record Date.........................................3
Section 10. Action by Consent...................................3
ARTICLE III
BOARD OF DIRECTORS
Section 1. Management..........................................3
Section 2. Qualification; Election; Term.......................3
Section 3. Number; Election; Term; Qualification...............3
Section 4. Changes in Number...................................4
Section 5. Removal.............................................4
Section 6. Vacancies...........................................4
Section 7. Place of Meetings...................................5
Section 8. Annual Meeting......................................5
Section 9. Regular Meetings....................................5
Section 10. Special Meetings....................................5
Section 11. Quorum..............................................5
Section 12. Interested Directors................................5
Section 13. Committees..........................................6
Section 14. Action by Consent...................................6
Section 15. Compensation of Directors...........................6
</TABLE>
<PAGE> 3
<TABLE>
ARTICLE IV
<S> <C> <C>
NOTICE
Section 1. Form of Notice.....................................6
Section 2. Waiver.............................................6
ARTICLE V
OFFICERS AND AGENTS
Section 1. In General.........................................7
Section 2. Election...........................................7
Section 3. Other Officers and Agents..........................7
Section 4. Compensation.......................................7
Section 5. Term of Office and Removal.........................7
Section 6. Employment and Other Contracts.....................7
Section 7. Chairman of the Board of Directors.................7
Section 8. President..........................................8
Section 9. Vice Presidents....................................8
Section 10. Secretary..........................................8
Section 11. Assistant Secretaries..............................8
Section 12. Treasurer..........................................8
Section 13. Assistant Treasurers...............................8
Section 14. Bonding............................................9
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates...............................9
Section 2. Lost Certificates..................................9
Section 3. Transfer of Shares.................................9
Section 4. Registered Stockholders...........................10
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends.........................................10
Section 2. Reserves..........................................10
Section 3. Telephone and Similar Meetings....................10
Section 4. Books and Records.................................10
Section 5. Fiscal Year.......................................11
Section 6. Seal..............................................11
Section 7. Advances of Expenses..............................11
Section 8. Indemnification...................................12
Section 9. Insurance.........................................12
Section 10. Resignation.......................................12
Section 11. Amendment of Bylaws...............................12
Section 12. Invalid Provisions................................12
Section 13. Relation to the Certificate of Incorporation......12
</TABLE>
<PAGE> 4
BYLAWS
OF
MOBILITY ELECTRONICS, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office and registered
agent of Mobility Electronics, Inc. (the "Corporation") will be as from time to
time set forth in the Corporation's Certificate of Incorporation or in any
certificate filed with the Secretary of State of the State of Delaware, and the
appropriate county Recorder or Recorders, as the case may be, to amend such
information.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for the
election of Directors will be held at such place, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors. Meetings
of stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as may be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the stockholders will
be held at such time as may be determined by the Board of Directors, at which
meeting the stockholders will elect a Board of Directors, and transact such
other business as may properly be brought before the meeting.
Section 3. List of Stockholders. At least ten days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order, with the address of and the number of
voting shares registered in the name of each, will be prepared by the officer or
agent having charge of the stock transfer books. Such list will be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
will be specified in the notice of the meeting, or if not so specified at the
place where the meeting is to be held. Such list will be produced and kept open
at the time and place of the meeting during the whole time thereof, and will be
subject to the inspection of any stockholder who may be present.
<PAGE> 5
Section 4. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law, the Certificate of
Incorporation or these Bylaws, may be called by the Chairman of the Board, the
President or the Board of Directors. Business transacted at all special meetings
will be confined to the purposes stated in the notice of the meeting unless all
stockholders entitled to vote are present and consent.
Section 5. Notice. Written or printed notice stating the place, day and
hour of any meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, will be delivered not less
than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board, the
President, the Secretary, or the officer or person calling the meeting, to each
stockholder of record entitled to vote at the meeting. If mailed, such notice
will be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid.
Section 6. Quorum. At all meetings of the stockholders, the presence in
person or by proxy of the holders of a majority of the shares issued and
outstanding and entitled to vote will be necessary and sufficient to constitute
a quorum for the transaction of business except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws. If, however, such quorum is
not present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, will have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting will
be given to each stockholder of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
notified.
Section 7. Voting. When a quorum is present at any meeting of the
Corporation's stockholders, the vote of the holders of a majority of the shares
entitled to vote on, and voted for or against, any matter will decide any
questions brought before such meeting, unless the question is one upon which, by
express provision of law, the Certificate of Incorporation or these Bylaws, a
different vote is required, in which case such express provision will govern and
control the decision of such question. The stockholders present in person or by
proxy at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 8. Method of Voting. Each outstanding share of the
Corporation's capital stock, regardless of class, will be entitled to one vote
on each matter submitted to a vote at a meeting of stockholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the Certificate of Incorporation, as amended from time to time. At
any meeting of the stockholders, every stockholder having the right to vote will
be entitled to vote in person, or by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date
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<PAGE> 6
not more than three years prior to such meeting, unless such instrument provides
for a longer period. Each proxy will be revocable unless expressly provided
therein to be irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally. Such
proxy will be filed with the Secretary of the Corporation prior to or at the
time of the meeting. Voting on any question or in any election, other than for
directors, may be by voice vote or show of hands unless the presiding officer
orders, or any stockholder demands, that voting be by written ballot.
Section 9. Record Date. The Board of Directors may fix in advance a
record date for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, which record date will not precede the
date upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date will not be less than ten nor more than sixty
days prior to such meeting. In the absence of any action by the Board of
Directors, the close of business on the date next preceding the day on which the
notice is given will be the record date, or, if notice is waived, the close of
business on the day next preceding the day on which the meeting is held will be
the record date.
Section 10. Action by Consent. Any action required or permitted by law,
the Certificate of Incorporation or these Bylaws to be taken at a meeting of the
stockholders of the Corporation may be taken without a meeting if a consent or
consents in writing, setting forth the action so taken, is signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and will be delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business or an officer or agent of the Corporation having custody of
the minute book.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Management. The business and affairs of the Corporation will
be managed by or under the direction of its Board of Directors who may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law, by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 2. Qualification; Election; Term. None of the Directors need be
a stockholder of the Corporation or a resident of the State of Delaware. The
Directors will be elected by written ballot, by plurality vote at the annual
meeting of the stockholders, except as hereinafter provided, and each Director
elected will hold office until whichever of the following occurs first: his
successor is elected and qualified, his resignation, his removal from office by
the stockholders or his death.
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<PAGE> 7
Section 3. Number; Election; Term; Qualification. The number of
Directors which shall constitute the Board of Directors shall be not less than
one. The first Board of Directors shall consist of the number of Directors named
in the Certificate of Incorporation. Thereafter, the number of Directors which
shall constitute the entire Board of Directors shall be determined by resolution
of the Board of Directors at any meeting thereof, but shall never be less than
one. The Board of Directors of the Corporation shall be divided into three
classes which shall be as nearly equal in number as is possible. At the first
election of Directors to such classified Board of Directors, each Class I
Director shall be elected to serve until the next ensuing annual meeting of
stockholders, each Class II Director shall be elected to serve until the second
ensuing annual meeting of stockholders, each Class III Director shall be elected
to serve until the third ensuing annual meeting of stockholders. At each annual
meeting of stockholders following the meeting at which the Board of Directors is
initially classified, the number of Directors equal to the number of the class
whose term expires at the time of such meeting shall be elected to serve until
the third ensuing annual meeting of stockholders. At each annual meeting of
stockholders, Directors shall be elected to hold office until their successors
are elected and qualified or until their earlier resignation, removal from
office or death. No Director need be a stockholder, a resident of the State of
Delaware, or a citizen of the United States.
Section 4. Changes in Number. In the event of any change in the
authorized number of Directors, the number of Directors in each class shall be
adjusted so that thereafter each of the three classes shall be composed, as
nearly as may be possible, of one-third of the authorized number of Directors;
provided that any change in the authorized number of Directors shall not
increase or shorten the term of any Director, and any decrease shall become
effective only as and when the term or terms of office of the class or classes
of Directors affected thereby shall expire, or a vacancy or vacancies in such
class or classes shall occur. Any directorship to be filled by reason of an
increase in the number of Directors may be filled by (i) the stockholders at any
annual or special meeting of stockholders called for that purpose or (ii) the
Board of Directors for a term of office continuing only until the next election
of one or more Directors by the stockholders. Notwithstanding the foregoing,
whenever the holders of any class or series of shares are entitled to elect one
or more Directors by the provisions of the Certificate of Incorporation, any
newly created directorship(s) of such class or series to be filled by reason of
an increase in the number of such Directors may be filled by the affirmative
vote of a majority of the Directors elected by such class or series then in
office or by a sole remaining Director so elected or by the vote of the holders
of the outstanding shares of such class or series, and such directorship(s)
shall not in any case be filled by the vote of the remaining Directors or by the
holders of the outstanding shares of the Corporation as a whole unless otherwise
provided in the Certificate of Incorporation.
Section 5. Removal. Any Director may be removed either for or without
cause, at any special meeting of stockholders by the affirmative vote of a
majority in number of shares of the stockholders present in person or
represented by proxy at such meeting and entitled to vote for the election of
such Director; provided that notice of the intention to act upon such matter has
been given in the notice calling such meeting.
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<PAGE> 8
Section 6. Vacancies. Vacancies occurring in the Board of Directors
caused by death, resignation, retirement, disqualification or removal from
office of any Directors or otherwise, may be filled by the vote of a majority of
the Directors then in office, though less than a quorum, or a successor or
successors may be chosen at a special meeting of the stockholders called for
that purpose, and each successor Director so chosen will hold office until the
next election of the class for which such Director has been chosen or until
whichever of the following occurs first: his successor is elected and qualified,
his resignation, his removal from office by the stockholders or his death.
Section 7. Place of Meetings. Meetings of the Board of Directors,
regular or special, may be held at such place within or without the State of
Delaware as may be fixed from time to time by the Board of Directors.
Section 8. Annual Meeting. The first meeting of each newly elected
Board of Directors will be held without further notice immediately following the
annual meeting of stockholders and at the same place, unless by unanimous
consent, the Directors then elected and serving change such time or place.
Section 9. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as is from time to time
determined by resolution of the Board of Directors.
Section 10. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on oral or
written notice to each Director, given either personally, by telephone, by
telegram or by mail; special meetings will be called by the Chairman of the
Board, President or Secretary in like manner and on like notice on the written
request of at least two Directors. The purpose or purposes of any special
meeting will be specified in the notice relating thereto.
Section 11. Quorum. At all meetings of the Board of Directors the
presence of a majority of the number of Directors fixed by these Bylaws will be
necessary and sufficient to constitute a quorum for the transaction of business,
and the affirmative vote of at least a majority of the Directors present at any
meeting at which there is a quorum will be the act of the Board of Directors,
except as may be otherwise specifically provided by law, the Certificate of
Incorporation or these Bylaws. If a quorum is not present at any meeting of the
Board of Directors, the Directors present thereat may adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum is present.
Section 12. Interested Directors. No contract or transaction between
the Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of the Corporation's Directors or officers are
directors or officers or have a financial interest, will be void or voidable
solely for this reason, solely because the Director or officer is present at or
participates in the meeting of the Board
-5-
<PAGE> 9
of Directors or committee thereof that authorizes the contract or transaction,
or solely because his or their votes are counted for such purpose, if: (i) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested Directors, even though the disinterested Directors be less than a
quorum, (ii) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee that authorizes the contract
or transaction.
Section 13. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board, designate committees, each committee
to consist of two or more Directors of the Corporation, which committees will
have such power and authority and will perform such functions as may be provided
in such resolution. Such committee or committees will have such name or names as
may be designated by the Board and will keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 14. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee of the Board of
Directors may be taken without such a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be.
Section 15. Compensation of Directors. Directors will receive such
compensation for their services and reimbursement for their expenses as the
Board of Directors, by resolution, may establish; provided that nothing herein
contained will be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
NOTICE
Section 1. Form of Notice. Whenever by law, the Certificate of
Incorporation or of these Bylaws, notice is to be given to any Director or
stockholder, and no provision is made as to how such notice will be given, such
notice may be given in writing, by mail, postage prepaid, addressed to such
Director or stockholder at such address as appears on the books of the
Corporation. Any notice required or permitted to be given by mail will be deemed
to be given at the time the same is deposited in the United States mails.
Section 2. Waiver. Whenever any notice is required to be given to any
stockholder or Director of the Corporation as required by law, the Certificate
of Incorporation or these Bylaws, a
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<PAGE> 10
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated in such notice, will be
equivalent to the giving of such notice. Attendance of a stockholder or Director
at a meeting will constitute a waiver of notice of such meeting, except where
such stockholder or Director attends for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
ARTICLE V
OFFICERS AND AGENTS
Section 1. In General. The officers of the Corporation will be elected
by the Board of Directors and will be a President, a Vice President, a Secretary
and a Treasurer. The Board of Directors may also elect a Chairman of the Board,
additional Vice Presidents, Assistant Vice Presidents and one or more Assistant
Secretaries and Assistant Treasurers. Any two or more offices may be held by the
same person.
Section 2. Election. The Board of Directors, at its first meeting after
each annual meeting of stockholders, will elect the officers, none of whom need
be a member of the Board of Directors.
Section 3. Other Officers and Agents. The Board of Directors may also
elect and appoint such other officers and agents as it deems necessary, who will
be elected and appointed for such terms and will exercise such powers and
perform such duties as may be determined from time to time by the Board.
Section 4. Compensation. The compensation of all officers and agents of
the Corporation will be fixed by the Board of Directors or any committee of the
Board, if so authorized by the Board.
Section 5. Term of Office and Removal. Each officer of the Corporation
will hold office until his death, his resignation or removal from office, or the
election and qualification of his successor, whichever occurs first. Any officer
or agent elected or appointed by the Board of Directors may be removed at any
time, for or without cause, by the affirmative vote of a majority of the entire
Board of Directors, but such removal will not prejudice the contract rights, if
any, of the person so removed. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors.
Section 6. Employment and Other Contracts. The Board of Directors may
authorize any officer or officers or agent or agents to enter into any contract
or execute and deliver any instrument in the name or on behalf of the
Corporation, and such authority may be general or confined to specific
instances. The Board of Directors may, when it believes the interest of the
Corporation will best be served thereby, authorize executive employment
contracts that will have terms no longer than ten years and contain such other
terms and conditions as the Board of Directors deems appropriate.
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<PAGE> 11
Nothing herein will limit the authority of the Board of Directors to authorize
employment contracts for shorter terms.
Section 7. Chairman of the Board of Directors. If the Board of
Directors has elected a Chairman of the Board, he will preside at all meetings
of the stockholders and the Board of Directors. Except where by law the
signature of the President is required, the Chairman will have the same power as
the President to sign all certificates, contracts and other instruments of the
Corporation. During the absence or disability of the President, the Chairman
will exercise the powers and perform the duties of the President.
Section 8. President. The President will be the chief executive officer
of the Corporation and, subject to the control of the Board of Directors, will
supervise and control all of the business and affairs of the Corporation. He
will, in the absence of the Chairman of the Board, preside at all meetings of
the stockholders and the Board of Directors. The President will have all powers
and perform all duties incident to the office of President and will have such
other powers and perform such other duties as the Board of Directors may from
time to time prescribe.
Section 9. Vice Presidents. Each Vice President will have the usual and
customary powers and perform the usual and customary duties incident to the
office of Vice President, and will have such other powers and perform such other
duties as the Board of Directors or any committee thereof may from time to time
prescribe or as the President may from time to time delegate to him. In the
absence or disability of the President and the Chairman of the Board, a Vice
President designated by the Board of Directors, or in the absence of such
designation the Vice Presidents in the order of their seniority in office, will
exercise the powers and perform the duties of the President.
Section 10. Secretary. The Secretary will attend all meetings of the
stockholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose. The Secretary will perform like duties for the
Board of Directors and committees thereof when required. The Secretary will
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors. The Secretary will keep in safe
custody the seal of the Corporation. The Secretary will be under the supervision
of the President. The Secretary will have such other powers and perform such
other duties as the Board of Directors may from time to time prescribe or as the
President may from time to time delegate to him.
Section 11. Assistant Secretaries. The Assistant Secretaries in the
order of their seniority in office, unless otherwise determined by the Board of
Directors, will, in the absence or disability of the Secretary, exercise the
powers and perform the duties of the Secretary. They will have such other powers
and perform such other duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to them.
Section 12. Treasurer. The Treasurer will have responsibility for the
receipt and disbursement of all corporate funds and securities, will keep full
and accurate accounts of such receipts and disbursements, and will deposit or
cause to be deposited all moneys and other valuable
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<PAGE> 12
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. The Treasurer will render to the
Directors whenever they may require it an account of the operating results and
financial condition of the Corporation, and will have such other powers and
perform such other duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to him.
Section 13. Assistant Treasurers. The Assistant Treasurers in the order
of their seniority in office, unless otherwise determined by the Board of
Directors, will, in the absence or disability of the Treasurer, exercise the
powers and perform the duties of the Treasurer. They will have such other powers
and perform such other duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to them.
Section 14. Bonding. The Corporation may secure a bond to protect the
Corporation from loss in the event of defalcation by any of the officers, which
bond may be in such form and amount and with such surety as the Board of
Directors may deem appropriate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. Certificates, in such form as may be
determined by the Board of Directors, representing shares to which stockholders
are entitled will be delivered to each stockholder. Such certificates will be
consecutively numbered and will be entered in the stock book of the Corporation
as they are issued. Each certificate will state on the face thereof the holder's
name, the number, class of shares, and the par value of such shares or a
statement that such shares are without par value. They will be signed by the
President or a Vice President and the Secretary or an Assistant Secretary, and
may be sealed with the seal of the Corporation or a facsimile thereof. If any
certificate is countersigned by a transfer agent, or an assistant transfer agent
or registered by a registrar, either of which is other than the Corporation or
an employee of the Corporation, the signatures of the Corporation's officers may
be facsimiles. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on such certificate or
certificates, ceases to be such officer or officers of the Corporation, whether
because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the Corporation or its agents, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct that a
new certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost
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<PAGE> 13
or destroyed certificate, or his legal representative, to advertise the same in
such manner as it may require and/or to give the Corporation a bond, in such
form, in such sum, and with such surety or sureties as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or destroyed. When a
certificate has been lost, apparently destroyed or wrongfully taken, and the
holder of record fails to notify the Corporation within a reasonable time after
such holder has notice of it, and the Corporation registers a transfer of the
shares represented by the certificate before receiving such notification, the
holder of record is precluded from making any claim against the Corporation for
the transfer of a new certificate.
Section 3. Transfer of Shares. Shares of stock will be transferable
only on the books of the Corporation by the holder thereof in person or by such
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it will be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 4. Registered Stockholders. The Corporation will be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, will not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it has express or other notice thereof, except as otherwise
provided by law.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the outstanding shares of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be declared and paid in cash, in property, or in shares
of the Corporation, subject to the provisions of the General Corporation Law of
the State of Delaware and the Certificate of Incorporation. The Board of
Directors may fix in advance a record date for the purpose of determining
stockholders entitled to receive payment of any dividend, such record date will
not precede the date upon which the resolution fixing the record date is
adopted, and such record date will not be more than sixty days prior to the
payment date of such dividend. In the absence of any action by the Board of
Directors, the close of business on the date upon which the Board of Directors
adopts the resolution declaring such dividend will be the record date.
Section 2. Reserves. There may be created by resolution of the Board of
Directors out of the surplus of the Corporation such reserve or reserves as the
Directors from time to time, in their discretion, deem proper to provide for
contingencies, or to equalize dividends, or to repair or
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<PAGE> 14
maintain any property of the Corporation, or for such other purpose as the
Directors may deem beneficial to the Corporation, and the Directors may modify
or abolish any such reserve in the manner in which it was created. Surplus of
the Corporation to the extent so reserved will not be available for the payment
of dividends or other distributions by the Corporation.
Section 3. Telephone and Similar Meetings. Stockholders, directors and
committee members may participate in and hold meetings by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other. Participation in such a meeting will
constitute presence in person at the meeting, except where a person participates
in the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
Section 4. Books and Records. The Corporation will keep correct and
complete books and records of account and minutes of the proceedings of its
stockholders and Board of Directors, and will keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
Section 5. Fiscal Year. The fiscal year of the Corporation will be
fixed by resolution of the Board of Directors.
Section 6. Seal. The Corporation may have a seal, and the seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. Any officer of the Corporation will have authority to
affix the seal to any document requiring it.
Section 7. Advances of Expenses. The Corporation will advance to its
directors and officers expenses incurred by them in connection with any
"Proceeding," which term includes any threatened, pending or completed action,
suit or proceeding, whether brought by or in the right of the Corporation or
otherwise and whether of a civil, criminal, administrative or investigative
nature (including all appeals therefrom), in which a director or officer may be
or may have been involved as a party or otherwise, by reason of the fact that he
is or was a director or officer of the Corporation, by reason of any action
taken by him or of any inaction on his part while acting as such, or by reason
of the fact that he is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
("Official," which term also includes directors and officers of the Corporation
in their capacities as directors and officers of the Corporation), whether or
not he is serving in such capacity at the time any liability or expense is
incurred; provided that the Official undertakes to repay all amounts advanced
unless:
(i) in the case of all Proceedings other than a Proceeding by
or in the right of the Corporation, the Official establishes to the
satisfaction of the disinterested members of the Board of Directors
that he acted in good faith or in a manner he
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<PAGE> 15
reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal proceeding, that he
did not have reasonable cause to believe his conduct was unlawful;
provided that the termination of any such Proceeding by judgment, order
of court, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not by itself create a presumption as to whether
the Official acted in good faith or in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation or,
with respect to any criminal proceeding, as to whether he had
reasonable cause to believe his conduct was unlawful; or
(ii) in the case of a Proceeding by or in the right of the
Corporation, the Official establishes to the satisfaction of the
disinterested members of the Board of Directors that he acted in good
faith or in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation; provided that if in such a
Proceeding the Official is adjudged to be liable to the Corporation,
all amounts advanced to the Official for expenses must be repaid except
to the extent that the court in which such adjudication was made shall
determine upon application that despite such adjudication, in view of
all the circumstances, the Official is fairly and reasonably entitled
to indemnity for such expenses as the court may deem proper.
Section 8. Indemnification. The Corporation will indemnify its
directors to the fullest extent permitted by the General Corporation Law of the
State of Delaware and may, if and to the extent authorized by the Board of
Directors, so indemnify its officers and any other person whom it has the power
to indemnify against any liability, reasonable expense or other matter
whatsoever.
Section 9. Insurance. The Corporation may at the discretion of the
Board of Directors purchase and maintain insurance on behalf of the Corporation
and any person whom it has the power to indemnify pursuant to law, the
Certificate of Incorporation, these Bylaws or otherwise.
Section 10. Resignation. Any director, officer or agent may resign by
giving written notice to the President or the Secretary. Such resignation will
take effect at the time specified therein or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
will not be necessary to make it effective.
Section 11. Amendment of Bylaws. These Bylaws may be altered, amended,
or repealed at any meeting of the Board of Directors at which a quorum is
present, by the affirmative vote of a majority of the Directors present at such
meeting.
Section 12. Invalid Provisions. If any part of these Bylaws is held
invalid or inoperative for any reason, the remaining parts, so far as possible
and reasonable, will be valid and operative.
Section 13. Relation to the Certificate of Incorporation. These Bylaws
are subject to, and governed by, the Certificate of Incorporation of the
Corporation.
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<PAGE> 1
EXHIBIT 4.1
[LOGO OF EAGLE AND U.S. FLAG APPEARS HERE]
ORGANIZED UNDER THE LAWS
OF THE STATE OF DELAWARE
[CERTIFICATE NUMBER PAR VALUE
APPEARS HERE] $.01 PER SHARE
Electronics Accessory Specialists International, Inc.
Common Stock
Authorized Shares 20,000,000 - Par Value $0.01 Per Share
THIS CERTIFIES THAT_____________________________________is the registered holder
of___________________________________Shares of the fully paid and non-assessable
Capital Stock of ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed. In Witness
Whereof, the said Corporation has caused this Certificate to be signed by its
duly authorized officers and its Corporate Seal to be hereunto affixed.
This ___________ day of __________A.D. 19________
[SEAL OF THE COMPANY APPEARS HERE]
- ----------------------------- ---------------------------
Secretary President
For value received ___________________________ hereby sell/, assign and transfer
unto __________________________________________________ shares of the capital
stock represented by the within certificate and do hereby irrevocably constitute
and appoint to transfer the said stock on the books of the within named
corporation with full power of substitution in the premises.
<PAGE> 2
Dated
----------------------
In the presence of -----------------------------------
- ---------------------------------
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.
<PAGE> 1
EXHIBIT 4.2
THIS DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES ACT. THIS DEBENTURE
MUST BE HELD INDEFINITELY AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS MAKER RECEIVES AN OPINION OF COUNSEL, OR OTHER
EVIDENCE, REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACTS.
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
FORM OF 12% CONVERTIBLE DEBENTURE
$________________ ______________________, 1996
FOR VALUE RECEIVED, the undersigned, Electronics Accessory Specialists
International, Inc., a Delaware corporation ("Maker"), hereby promises to pay
to the order of ____________________________ ("Payee"), the principal sum of
____________________ ($____________), together with interest thereon which
shall accrue at a rate equal to twelve percent (12%) per annum. The interest on
this Debenture shall be due and payable on March 31, June 30, September 30 and
December 31 of each year (the "Quarterly Payment Dates"), commencing on
_____________ and continuing until the Debenture has been paid in full. The
principal, together with all accrued but unpaid interest hereon shall be due
and payable in twenty (20) equal quarterly installments on each of the
Quarterly Payment Dates, beginning on the second anniversary of the date hereof
with the final payment being due and payable on ________. All payments on this
Debenture shall be due and payable in lawful money of the United States of
America.
THIS DEBENTURE IS ONE DEBENTURE OF A SERIES OF DEBENTURES OF EVEN DATE
HEREWITH.
1. Prepayments. Subject to the conversion rights set forth in
paragraph 3 below, at the option of Maker, the unpaid principal balance of this
Debenture may be prepaid in whole together with all accrued but unpaid interest
at any time upon thirty (30) days notice to Payee.
2. IPO Redemption Option. Unless prepaid by Maker as provided herein,
at the option of the holder of this Debenture (the "IPO Redemption Option"),
this Debenture will be redeemed, in whole or in part, at the closing (the
"Closing") of an initial public offering (the "IPO") of the Maker's common
stock, par value $0.01 per share (the "Common Stock"). Maker shall give written
notice to the holder of this Debenture at least thirty (30) days prior to the
date of Closing (the "Closing Date"). The redemption shall be made at the
redemption price equal to 100% of the principal amount of the Debentures to be
redeemed, plus accrued interest, if any, to the date of the Closing; provided
that the IPO Redemption Option will terminate at the close of business on the
Closing Date and will be lost if not exercised at that time. The IPO Redemption
Option may be exercised separately or in conjunction with the conversion right
set forth in paragraph 3 of this Debenture.
<PAGE> 2
3. Conversion.
(a) Unless prepaid by Maker as provided herein, sixty percent
(60%) of the outstanding principal balance of this Debenture is
convertible, at the option of the holder of this Debenture, into
Common Stock on the Closing Date at the rate of one share of Common
Stock for each $170.00 of principal of this Debenture (but just the
sixty percent (60%) convertible portion thereof); provided, however,
that to the extent that the equity/debt financing pursuant to which
this Debenture was issued is finished at a price for the equity of
less than $170 per share, then the $170 conversion price shall be
adjusted downward to such lower price; provided further, however, that
the right to convert the Debenture will terminate at the close of
business on the Closing Date and will be lost if not exercised prior
to that time.
(b) In order to exercise the conversion privilege, the holder
of this Debenture shall: (i) surrender this Debenture to Maker with
the form for conversion the form of which is attached hereto as
Exhibit A, duly executed; and (ii) execute and deliver to Maker a
signature page to the Stockholders Agreement of the Company, as may be
amended from time to time (the "Stockholders Agreement"), in the form
attached hereto as Exhibit B, no sooner than twenty (20) days and no
later than five (5) days prior to the proposed Closing Date. If the
Common Stock into which this Debenture is convertible is to be issued
in a name or names other than that of Payee, the Debenture must be
accompanied by proper assignment. If the Debenture is not prepaid
prior to the Closing Date, Maker will promptly after the Closing Date
issue to the holder of the Debenture the shares of Common Stock into
which this Debenture is convertible. Maker shall furnish to the holder
of this Debenture, upon written request, a copy of the Stockholders
Agreement.
4. Events of Default and Remedies. At the option of the holder of this
Debenture, the entire amount of the unpaid balance of this Debenture, shall
immediately become due and payable upon the occurrence of one or more of the
following events of default ("Events of Default"):
(a) Failure of Maker to make any payment on this Debenture as
and when the same becomes due and payable in accordance with the terms
hereof, and such failure continues for a period of (30) days after the
receipt by Maker of written notice from Payee of the occurrence of
such failure; or
(b) Maker shall (i) become insolvent, (ii) voluntarily seek,
consent to or acquiesce in the benefit or benefits of any Debtor
Relief Law (as hereinafter defined) or (iii) become party to (or be
made the subject of) any proceeding provided by any Debtor Relief Law,
other than as a creditor or claimant, that could suspend or otherwise
adversely affect the rights of Payee granted hereunder (unless in the
event such proceeding is involuntary, the petition instituting the
same is dismissed within 90 days of the filing of same). As used
herein, the term "Debtor Relief Law" means the Bankruptcy Code of the
United States of America and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization or similar debtor relief laws from time to
time in effect affecting the rights of creditors generally.
2
<PAGE> 3
In the event any one or more of the Events of Default specified above
shall have happened, the holder of this Debenture may proceed to protect and
enforce its rights either by suit in equity or by action at law, or by other
appropriate proceedings, whether for the specific performance of any covenant
or agreement contained in this Debenture or in aid of the exercise of any power
or right granted by this Debenture, or to enforce any other legal or equitable
right of the holder of this Debenture.
5. Cumulative Rights. No delay on the part of the holder of this
Debenture in the exercise of any power or right under this Debenture, or under
any other instrument executed pursuant hereto, shall operate as a waiver
thereof, nor shall a single or partial exercise of any such power or right
preclude any other or further exercise thereof or the exercise of any other
right or power hereunder. Enforcement by the holder of this Debenture of any
security for the payment hereof shall not constitute any election by it of
remedies so as to preclude the exercise of any other remedy available to it.
6. Waiver. Except as otherwise specifically provided for herein,
Maker, and each security, endorser, guarantor and other party ever liable for
the payment of any sum of money payable on this Debenture, jointly and
severally waive demand, presentment, protest, notice of non-payment, notice of
intention to accelerate, notice of protest and any and all lack of diligence or
delay in collection or the filing of suit hereon which may occur, and agree
that their liability on this Debenture shall not be affected by any renewal or
extension in the time of payment hereof, by any indulgences, or by any release
or change in any security for the payment of this Debenture; and hereby consent
in any and all renewals, extensions, indulgences, releases or changes,
regardless of the number of such renewals, extensions, indulgences, releases or
changes.
7. Subordination. Notwithstanding anything herein to the contrary, the
payment of principal and interest on this Debenture shall be subordinate and
junior to the prior payment of the indebtedness of Maker now existing or
hereafter created constituting borrowed money from financial institutions or
lenders approved by the Board of Directors of Maker and designated as being
senior to this Debenture (but only to the extent so designated), together with
all obligations issued in renewal, deferral, extension, refunding, amendment or
modification of any such indebtedness (collectively, the "Senior
Indebtedness"). Accordingly, as a condition of accepting this Debenture, the
holder of this Debenture hereby irrevocably appoints the officers of Maker, or
any of them, as its power-of-attorney to execute and deliver any subordination
agreement required by any holder of Senior Indebtedness. If any payment or
distribution shall be received in respect of this Debenture in contravention of
the terms of this Section 7, such payment or distribution shall be held in
trust for the holders of the Senior Indebtedness, and shall be immediately
delivered to such holders in the same form as received.
8. Attorneys' Fees and Costs. In the event an Event of Default shall
occur, and in the event that thereafter this Debenture is placed in the hands
of any attorney for collection, or in the event this Debenture is collected in
whole or in part through legal proceedings of any nature, then and in any such
case Maker promises to pay all costs of collection, including, but not limited
to, reasonable attorneys' fees and court costs incurred by the holder hereof on
account of such collection, whether or not suit is filed.
3
<PAGE> 4
9. Successors and Assigns. All of the covenants, stipulations,
promises and agreements in this Debenture made by or on behalf of Maker shall
bind its successors and assigns, whether so expressed or not; provided,
however, that Maker may not, without the prior written consent of Payee, assign
any of its rights, powers, duties or obligations under this Debenture.
10. Maximum Interest. Regardless of any provision contained herein,
Maker shall never be required to pay and the holder hereof shall never be
entitled to receive, collect or apply as interest hereon, any amount in excess
of the highest lawful interest rate permitted under applicable law, and in the
event the holder hereof receives, collects or applies, as interest, any such
excess, such amounts which would be excessive interest shall be deemed a
partial prepayment of principal and treated hereunder as such for all purposes;
and, if the principal hereof is paid in full, any remaining excess shall be
refunded to Maker. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the highest lawful interest rate, Maker
and the holder hereof shall, to the maximum extent permitted under applicable
law (a) characterize any nonprincipal payment as an expense, fee or premium
rather than as interest, (b) exclude prepayments and the effects thereof, and
(c) pro rate, allocate and spread the total amount of interest throughout the
entire contemplated term hereof; provided that if the indebtedness evidenced
hereby is paid and performed in full prior to the end of the full contemplated
term hereof, and if the interest received for the actual period of existence
thereof exceeds the highest lawful interest rate, the holder shall either apply
as principal reduction or refund to Maker the amount of such excess, and in
such event, the holder shall not be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the
highest lawful interest rate.
11. Restrictions on Transferability. By taking this Debenture, the
Payee hereof acknowledges that (a) this Debenture has been acquired for
investment and has not been registered under the Securities Act of 1933, as
amended (the "Securities Act") or any state securities act, (b) this Debenture
must be held indefinitely unless subsequent disposition thereof is registered
under the Securities Act and all applicable state securities laws or unless an
exemption from such registration is available, or unless the Maker receives an
opinion of counsel, or other evidence, reasonably satisfactory to Maker stating
that such disposition is made in compliance with an exemption from such
registration, and prospectus delivery requirements, (c) Maker hereby informs
Payee that it has made a notation on its transfer books to such effect; and (d)
that the shares of Common Stock underlying this Debenture will be acquired for
investment and have not been registered under the Securities Act or any state
securities act, and are subject to restrictions as provided in such laws and as
provided in the Stockholders Agreement.
12. Governing Law. This Debenture shall be governed by and construed
in accordance with the substantive laws (but not the rules governing conflicts
of laws) of the State of Delaware.
13. Notice. Any notice or demand given hereunder by the holder hereof
shall be deemed to have been given and received (a) when actually received by
Maker, if delivered in person, or (b) if mailed, on the earlier of the date
actually received or (whether ever received or not) three Business Days (as
hereinafter defined) after a letter containing such notice, certified or
registered with postage prepaid, addressed to Maker, is deposited in the United
States mail. The address of
4
<PAGE> 5
Maker is 5528 Eubank Boulevard, N.E., Suite 3, Albuquerque, New Mexico 87111,
or such other address as Maker shall advise the holder hereof by certified or
registered letter by this same procedure. "Business Day" means every day which
is not a Saturday, Sunday or legal holiday.
14. Severability. In case any one or more of the provisions contained
in this Debenture shall for any reason be held to be invalid, illegal and
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof.
EXECUTED as of the date set forth above.
MAKER:
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC.
By:
-------------------------------
Charles R. Mollo
Chief Executive Officer
Agreed to and accepted as
of the date first above
written:
- ---------------------------------------
(entity or individual name)
By:
------------------------------------
Title:
---------------------------------
(if applicable)
5
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of July
29, 1997, is by and between Electronics Accessory Specialists International,
Inc. a Delaware corporation ("Purchaser"), and Miram International, Inc., a
Minnesota corporation ("Securityholder"). All terms used herein but not
otherwise defined shall have the meanings ascribed thereto in the Purchase
Agreement (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, the Purchaser and Securityholder have entered an Asset
Purchase Agreement, of even date herewith (the "Purchase Agreement"), pursuant
to which, among other things, the Purchaser has agreed, upon the occurrence of
certain conditions, to issue to the Securityholder the Shares; and
WHEREAS, in order to induce the Securityholder to enter into the
Purchase Agreement, Purchaser has agreed to provide registration rights with
respect to the Shares;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
SECTION 1. DEFINITIONS.
1.1 Definitions. As used in this Agreement, the following terms shall
have the meanings set forth below:
"Closing Date" shall mean the date first written above.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect from time to time.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Reporting Company" shall mean a company which is filing
reports with the SEC under Section 13 of the Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
commission thereunder, all as the same shall be in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission.
<PAGE> 2
SECTION 2. REGISTRATIONS.
2.1 Registration Securities. As used in this Agreement, the term
"Registration Securities" means (i) the Shares and (ii) any other securities
issued, from time to time, in respect of or in exchange for any Shares by way of
a stock dividend or other distribution on the Common Stock, stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation, reclassification or exchange offer; provided, however, that such
Registration Securities shall cease to be Registration Securities when (i) they
have been registered under the Securities Act, the registration statement in
connection therewith has been declared effective, and such shares have been
disposed of by the holder of such shares pursuant to such registration statement
or (ii) such shares have ceased to be outstanding.
2.2 Piggyback Registration.
(a) If at any time after Purchaser becomes a Reporting
Company, Purchaser proposes to file a registration statement under the
Securities Act covering a proposed sale of any Common Stock, for itself (other
than a registration statement on Form S-4 or S-8, or any form substituting
therefor for securities to be offered in a transaction of the type referred to
in Rule 145 under the Securities Act or to employees of Purchaser pursuant to
any employee benefit plan, respectively), or for anyone else (i.e., a secondary
offering) Purchaser shall give each holder who then holds, beneficially and of
record, Registration Securities written notice of such proposed filing at least
30 days prior to the anticipated filing date, and such notice shall offer each
such holder the opportunity to register such number of shares of Registration
Securities as they may request, subject to such holder's accepting the terms of
the underwriting, including the public offering price and underwriting discounts
and commissions, as agreed upon between Purchaser and the managing underwriter
selected by it; and such holder shall have 10 days after the date of such notice
to notify Purchaser in writing as to whether or not such holder desires to
participate in such offering. Purchaser shall use its best efforts to cause any
managing underwriter of a proposed underwritten offering to permit such holders
to include such Registration Securities as they may propose be included in such
offering on the same terms and conditions as any similar securities of Purchaser
included therein.
(b) Notwithstanding anything in this Section 2.2 to the
contrary: (i) no such registration hereunder shall be required if the managing
underwriter for the proposed offering shall determine that the inclusion of the
Registration Securities requested to be registered would have an adverse effect
on the marketability or the price of the securities proposed to be offered by
Purchaser, in which event Purchaser shall be obligated to include only such
limited number, if any, of Registration Securities in such offering as the
managing underwriter believes may be sold without causing such adverse effect,
which securities will be taken from those held by a group consisting of the
holders proposing to sell Registration Securities and other holders of
securities of Purchaser having similar registration rights to those of the
holders, on a pro rata basis and (ii) Purchaser may at any time withdraw or
cease proceeding with the registration of such Registration Securities if it
shall at the time withdraw or cease proceeding with the
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<PAGE> 3
registration of such other securities originally proposed to be registered
without obligation to any holder seeking to include Registration Securities
therein (except the obligation to pay expenses under Section 2.5). In the event
that the contemplated registration does not involve an underwritten public
offering, the determination that the inclusion of such Registration Securities
would have an adverse effect on the marketability or the price of the securities
proposed to be offered by Purchaser shall be made by Purchaser in its reasonable
discretion.
2.3 Further Obligations of Purchaser. Whenever, under this Agreement,
Purchaser is required to register Registration Securities, it agrees that it
shall also do the following:
(a) prepare and file with the SEC a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become effective at the earliest practicable time and
remain effective;
(b) prepare and file with the SEC such 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
current;
(c) furnish to each holder offering Registration Securities
under such registration statement such number of copies of a prospectus,
including a preliminary prospectus complying with the requirements of the
Securities Act, as such holder may reasonably request and such other documents
as such seller may reasonably request to facilitate the public sale of such
Registration Securities;
(d) use all reasonable efforts to register or qualify the
securities covered by such registration statement under the securities or blue
sky laws of such states within the United States as the underwriter or manager
shall request or in the event that the registration does not involve an
underwritten public offering as each such holder shall reasonably request;
provided, however, that Purchaser shall not be obligated to register or qualify
such securities in any jurisdiction in which such registration or qualification
would require Purchaser to qualify as a foreign corporation or file any general
consent to service of process where it is not then so qualified or otherwise
required to be qualified or has not theretofore so consented;
(e) subject to the other provisions of this Agreement, enter
into customary agreements (including an underwriting agreement in customary form
in the case of an underwritten public offering) and take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
such Registration Securities;
(f) promptly notify each seller of Registration Securities
covered by such registration statement and each underwriter under such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus included in such
registration statement, as then in effect, contains an untrue statement of a
material fact or omits
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<PAGE> 4
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made, and at the request of any such seller or holder promptly prepare
and furnish to such seller or holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such 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 light of the circumstances under which they were made;
(g) furnish to each holder of Registration Securities
participating in the offering and to each underwriter, if any, (i) an opinion of
counsel to the Purchaser, dated the effective date of such registration
statement (or, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting agreement) and (ii)
in the case of an underwritten public offering, a "cold comfort" letter dated
the date of the closing under the underwriting agreement signed by the
independent public accountants who have issued a report on the Purchaser's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registrations (and
the prospectus included therein) and in the case of such accountant's letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities;
(h) otherwise comply with all applicable rules and regulations
of the SEC, and make generally available to its security holders (within the
meaning of Rule 158 under the Securities Act), as soon as reasonably practicable
after the effective date of the registration statement, and in any event within
15 months thereafter, an earnings statement, which need not be audited, covering
the period of at least 12 months, but not more than 15 months, beginning with
the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act, and will furnish to each such seller at least five
business days prior to the filing thereof a copy of any amendment or supplement
to such registration statement or prospectus; and
(i) promptly furnish each holder offering Registration
Securities under such registration statement notice of the issuance of any stop
order suspending the effectiveness of such registration statement.
2.4 Holdback Agreement. If any registration in which any holder of
Registration Securities is participating shall be in connection with an
underwritten public offering, each such holder agrees, if requested by the
managing underwriter or underwriters, to the extent permitted by law, not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Registration Securities, and to use such
holder's best efforts not to effect any such public sale or distribution of any
equity security of Purchaser or of any security convertible into or exchangeable
or exercisable for any equity security, of Purchaser (in each case, other than
as part of such underwritten public offering) within 10 days before or 90 days
after the
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<PAGE> 5
effective date of such registration. If requested by the managing underwriter in
any such registration, Purchaser shall cause the directors and executive
officers of Purchaser to execute and deliver similar holdback agreements.
2.5 Expenses. All expenses incurred in complying with this Agreement,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for Purchaser, expenses of any special audits incident
to or required by any such registration and expenses of complying with the
securities or blue sky laws of any jurisdictions pursuant to Section 2.5(d),
shall be paid by Purchaser, except that Purchaser shall not be liable for any
underwriting discounts or commissions or transfer taxes on shares being sold by
such holder of Registration Securities or for any fees or expenses of any
attorney of any such holder.
It shall be a condition precedent to the obligation of Purchaser to
take any action pursuant to this Agreement in respect of the securities that are
to be registered at the request of any holder of Registration Securities that
such holder shall furnish to Purchaser such information regarding such holder
and the Registration Securities held by such holder as Purchaser shall
reasonably request and shall be required in connection with the action taken by
Purchaser.
2.6 Indemnification; Notice of Claims.
(a) Subject to applicable law, Purchaser will indemnify each
underwriter and the holders of Registration Securities and each of their
respective officers, directors, partners, controlled or controlling persons
against all claims, losses, damages and liabilities, including legal and other
expenses reasonably incurred, arising out of any untrue or allegedly untrue
statement of a material fact (including those incurred in connection with
investigating or defending such claim) contained in the registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto or any other document, or any
omission to state a material fact required to be stated therein or necessary to
make the statements not misleading, or arising out of any violation by Purchaser
of the Securities Act, any state securities or "blue sky" laws or any applicable
rule or regulation. This indemnification will not apply to any claims, losses,
damages or liabilities if and to the extent they may have been caused by an
untrue statement or omission based upon information furnished in writing to
Purchaser by, and pertaining to, such underwriter, holder of Registration
Securities, or their respective officers, directors, partners, controlled or
controlling persons, expressly for use in the registration statement. With
respect to such untrue statement or omission in the information furnished in
writing to Purchaser by any holder of Registration Securities, such holder will
indemnify the underwriters, Purchaser, its directors and officers, the other
persons selling securities under the registration statement and each person
controlling any of them against any losses, claims, damages, expenses or
liabilities to which any of them may become subject as a result of such untrue
statement or omission (including those incurred in connection with investigating
or defending against such claims). The rights of indemnification under this
Section 2.6 shall be in addition to any other rights to indemnification that the
holders of Registration
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<PAGE> 6
Securities may have by law, contract or otherwise.
(b) Promptly after receipt by an indemnified party of notice
of the commencement of any action or proceeding involving a claim referred to in
this Section 2.6, such indemnified party will, if a claim in respect thereof is
to be made against an indemnifying party, promptly give written notice to the
latter of the commencement of such action, provided that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 2.6, except and to the
extent that the indemnifying party is prejudiced by such failure to give notice.
2.7 Termination of Agreement and Certain Rights. This Agreement and the
rights of any holder of Registration Securities to cause Purchaser to file a
registration statement under this Agreement above shall terminate upon the
earlier of: (a) the sale of all or substantially all of the assets of Purchaser
or the merger of Purchaser with and into another business entity; or (b)
December 31, 2000.
SECTION 3. MISCELLANEOUS
3.1 Remedies. Each holder of Registration Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. Purchaser agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate. In any action or
proceeding brought to enforce any provision of this Agreement or where any
provision hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
3.2 Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless Purchaser has obtained the written consent of holders of at least a
majority of the Registration Securities then outstanding.
3.3 Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Agreement shall be sufficiently given or made if done in
accordance with Section 9.8 of the Purchase Agreement.
3.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto
to the extent Registration Securities have been transferred to such successors
or assigns and provided that such successor or assign executes and delivers to
Purchaser a signature page, in the form of Exhibit A attached hereto.
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<PAGE> 7
3.5 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
3.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REGARD TO PROVISIONS THEREOF RELATING TO CONFLICT OF
LAWS.
3.7 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision on this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
3.8 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement (including the exhibits
hereto) supersede all prior agreements and understandings between the parties
with respect to such subject matter.
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<PAGE> 8
IN WITNESS WHEREOF, Purchaser and Securityholder have executed this
Agreement as of the date first above written.
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
By: /s/ Charles R. Mollo
----------------------
Charles R. Mollo,
Chief Executive Officer
MIRAM INTERNATIONAL, INC.
By: /s/ John A. Moroz
----------------------
Name: John A. Moroz
--------------------
Title: President
-------------------
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<PAGE> 9
EXHIBIT A
SIGNATURE PAGE OF
SECURITYHOLDER
TO THE REGISTRATION RIGHTS AGREEMENT OF
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
The Signature Page to that certain Registration Rights Agreement, dated
as of July __, 1997 by and between Electronics Accessory Specialists
International, Inc. and Miram International, Inc. (the "Registration Rights
Agreement") is hereby executed by the undersigned, as a Securityholder (as
defined therein).
Dated as of .
---------------
If an individual:
----------------------------------------
Printed Name:
--------------------------
If a legal entity:
----------------------------------------
(type in name)
By:
------------------------------------
Title:
---------------------------------
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<PAGE> 1
EXHIBIT 4.4
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
d/b/a Mobility Electronics
(A Delaware corporation)
FORM OF UNIT PURCHASE AGREEMENT
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC., a Delaware
corporation (the "Company"), whose address is 7955 East Redfield Road,
Scottsdale, Arizona 85260, hereby agrees with the undersigned Purchaser as
follows:
1. TRANSACTION
The Company, by due action of its Board of Directors, has authorized
the offer and sale to you under this Unit Purchase Agreement ("Agreement" or
"Purchase Agreement") and to other purchasers under similar Purchase Agreements
("Other Purchasers") of up to 900 Units (1,210 if the Company's over-allotment
option is exercised in full), each consisting of 1,000 shares of common stock,
par value $ .01 per share ("Common Stock"), of the Company ("Common Shares").
The Unit price shall be $5,750 and no fractional Units shall be sold unless
agreed to by the Company and Spelman & Co., Inc., Paradise Valley Securities,
Inc., and Sentra Securities Corporation, the Company's placement agents in this
offering (collectively, the "Placement Agents"). The Common Shares underlying
the Units shall conform to the description thereof in the Memorandum (as
defined below).
2. PURCHASE AND SALE
2.1 Units. Subject to all of the terms and conditions of this
Agreement, the Company will issue and sell to you (sometimes referred to as
"Holder") the number of Units shown on the signature page hereof and you will
purchase the same from the Company; provided that Units in the aggregate amount
of at least $ 1,150,000 have been subscribed and paid for by you and the Other
Purchasers and all other terms and conditions set forth in this Purchase
Agreement are satisfied. You acknowledge that Units subscribed and paid for by
officers, directors or employees of the Company, or by holders of the Company's
outstanding securities, or by officers or employees of any Placement Agent for
their own account, or by an affiliate of any of the foregoing, shall be counted
in determining whether all or any part of Units in the aggregate amount of at
least $1,150,000 have been subscribed and paid for.
2.2 Funds Escrow Account. The funds tendered by you pursuant to this
Agreement will be deposited in a special escrow account (the "Fund") at the
First Arizona Savings and Loan Association ("Funds Escrow Agent"), whose
address is 4141 North Scottsdale Road, Suite 140, Scottsdale, Arizona 85251,
and will be returned to you without interest or deduction for escrow fees and
expenses, if: (a) your subscription for the purchase of Units pursuant to this
Agreement has not been accepted by the Company or (b) if Purchase Agreements
for at least 200 Units and funds in the amount of at least $1,150,000 are not
deposited in the Fund before the close of business on May 31, 1998, which date
may be extended one or more times by agreement of the Company and the Placement
Agents, without notice to you and the Other Purchasers, to a date not later
than June 30, 1998 (the "Termination Date"). It is understood and agreed that
if this Agreement is accepted by the Company, and the funds in payment of a
minimum of 200 Units are received and accepted by the Company before the close
of business on the Termination Date, then at the Closing (as defined below)
with respect to the Units subscribed for by you, the funds tendered herewith
(less any fees paid to the Placement Agents), shall be delivered to the Company
by the Funds Escrow Agent in payment for the Units subscribed for by you, or
such lesser amount as may be allocated to you by the Company. If you are
allocated less than the full amount of the Units subscribed for by you and the
full amount of the Units subscribed for has been timely paid in full by you,
the Company shall instruct the Funds Escrow Agent to remit the overpayment of
the amount paid, without
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<PAGE> 2
interest or deduction, to you within fifteen days after such partial acceptance
of this Purchase Agreement. The Units are being offered by the Company subject
to the right of the Company and Placement Agents to reject, at their
discretion, any subscription, in whole or in part, for any reason, and to
accept subscriptions notwithstanding the order in which they are received.
2.3 Closing. The purchase by and sale and delivery to you and Other
Purchasers of the Units (the "Closing") shall take place at the offices of the
Placement Agents or of the Funds Escrow Agent at such date and time, or at such
other place, upon which the Company and the Placement Agents may agree (such
date being hereinafter called the "Closing Date"). At the Closing, the Company
shall deliver to a representative of the Placement Agents on your behalf,
instruments evidencing the Common Shares comprising the Units being purchased
by you and other items required to be delivered to it pursuant to this Purchase
Agreement. If at any time prior to the Termination Date, subscriptions for at
least 200 Units have been received and accepted by the Company, and the full
purchase price for such Units have been deposited into the Fund, the Company
may have an initial closing ("Initial Closing") with respect to such accepted
subscriptions and continue to offer the remaining Units until the Termination
Date or all 900 Units (1,210 if the Company's over-allotment option is
exercised in full) have been sold, whichever occurs earlier; provided, however,
that the final Closing shall take place not later than ten days after the
Termination Date.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
As an inducement to you to enter into this Agreement, the Company
represents, warrants and agrees that:
3.1 Disclosure Documents. The Company has prepared the Company's
Confidential Private Offering Memorandum ("Memorandum") dated April 8, 1998,
together with all exhibits annexed thereto (such Memorandum and exhibits
annexed thereto are called collectively herein the "Disclosure Documents",
which term shall include any additions or supplements thereto).
3.2 Description of Securities. The Common Shares when issued and
delivered will conform to the description thereof under the captions
"Description of Securities" and "Description of the Offering" in the
Memorandum.
3.3 Authority for Agreement. This Agreement has been duly authorized
by all necessary action of the Company and, when executed and delivered by the
Company, will be a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent that the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or by general
principles of equity, and except that the indemnification provisions of the
Agreement may be held to be violative of public policy under either federal or
state laws in the context of the offer or sale of securities.
3.4 Validity of Common Stock. The Common Shares, when issued and paid
for at the Closing, will constitute duly authorized, legally issued shares of
Common Stock.
3.5 No Conflicting Rights. The holders of the outstanding capital
stock of the Company are not entitled to pre-emptive or other rights to
subscribe for the Units. Other than as set forth in the Memorandum, the
offering of the Units as contemplated by the Memorandum does not give rise to
any rights relating to the registration of any outstanding capital stock.
3.6 Disclosure. The Company has provided you with all of the material
information which you have reasonably requested in deciding whether to invest
in the Units.
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<PAGE> 3
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY YOU
You hereby represent, warrant and agree that:
4.1 Authority. You have full power and authority to enter into this
Agreement and it constitutes your legal, valid and binding obligation,
enforceable in accordance with its terms.
4.2 Purchase For Own Account. You are acquiring the Units for your own
account, for investment purposes and not for resale or with a view to any
distribution, or in connection with any distribution thereof you are able to
(i) bear the economic risk of your investment in the Units, (ii) hold the Units
for an indefinite period of time, and (iii) afford a complete loss of your
investment.
4.3 Investment Experience. You have the requisite knowledge and
experience in financial and business matters, including investments of this
type, to be capable of evaluating the merits and risks of an investment in the
Units and of making an informed investment decision with respect thereto.
4.4 Receipt Of Information. You have received, read carefully,
considered and fully understood the Disclosure Documents and you have received
from the Company all of the information concerning the Company which you
consider to be material in making your investment decision, which information
has been requested by you if not already furnished by the Company. You have had
full access to the books and records of the Company and to its officers,
directors and accountants for the purpose of obtaining and verifying such
information and you have had an opportunity to ask questions and receive
answers from the officers of the Company regarding the terms and conditions of
this transaction and the Company's business and financial condition.
Except as expressly set forth in the Disclosure Documents, no
representations or warranties, oral or otherwise, have been made to you,
including without limitation, any representations concerning the future
prospects of the Company, by the Company, any Placement Agent or any agent
employee or affiliate of the Company or of any Placement Agent or any other
person whether or not associated with this action, and in entering into this
action you are not relying upon any information other than that contained in
the Disclosure Documents, and the results of your own independent
investigation. You have obtained sufficient information to evaluate the merits
and risks of your investment and to make an informed investment decision.
4.5 Restricted Securities. You understand and acknowledge that the
Common Shares you are purchasing hereunder are "restricted securities" under
United States federal and state securities laws insofar as they have not been
registered under the Securities Exchange Act of 1933, as amended (the "1933
Act"), or the securities laws of any other jurisdiction, that they may not be
resold or transferred without compliance with the registration or qualification
provisions of the 1933 Act or applicable federal and state securities laws of
any state or other jurisdiction or an opinion of counsel acceptable to the
Company that an exemption from such registration and qualification requirements
is available.
4.6 Limitations on Disposition. Without in any way limiting the
representations set forth above, you further agree not to make any disposition
of all or any portion of the Common Shares unless and until:
(a) There is then in effect a registration statement under the 1933
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) You shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition and (ii) you have furnished
the Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such securities under
the 1933 Act and applicable securities laws of any state or other jurisdiction.
3
<PAGE> 4
4.7 Illiquid Investments. Your overall commitment to investments which
are not readily marketable is not disproportionate to your net worth and your
investment in the Units will not cause such overall commitment to become
excessive. You have adequate means of providing for your current needs and
personal contingencies.
4.8 Accredited Investor. You are an "Accredited Investor" as such term
is defined in the Memorandum and Rule 501(a) promulgated under the 1933 Act.
4.9 Company Reliance On Questionnaire. You understand, acknowledge and
agree that the Company, in entering into and performing under this Agreement,
is relying on the accuracy of the responses by you to the Purchaser
Questionnaire heretofore delivered by you to the Company, which responses you
warrant to be true, complete and correct.
5. CONDITIONS TO YOUR OBLIGATIONS
Your obligations to purchase the Units under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 3 above shall be true as of the Closing.
5.2 Company Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement,
which performance or compliance are required of it on or before the Closing.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to sell and issue the Units to you are
subject to the fulfillment on or before the Closing of each of the following
conditions by you:
6.1 Representations and Warranties. Your representations and
warranties contained in Section 4 above shall be true on and as of the Closing
with the same effect as though made on and as of the date thereof.
6.2 Payment. You shall have delivered into the Fund the amount of the
purchase price of the Units being purchased by you.
6.3 Blue Sky Qualification. The Company shall have received any
permits or authorization from any state securities law authority which may be
necessary to qualify the offer and sale of the Units to you.
7. REGISTRATION RIGHTS
The Company covenants and agrees with you as follows:
7.1 Definitions. For purposes of this Section 7:
(a) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in
accordance with Section 7.10 hereof.
(b) The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
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<PAGE> 5
(c) 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.
(d) 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 1933
Act, and the declaration or ordering of effectiveness of such
registration statement or document.
(e) The term "Registrable Securities" means (i) the Common
Shares purchased by a Purchaser or Other Purchaser under this or
similar Purchase Agreement and (ii) any Common Stock of the Company
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 (1) sold by a person in a transaction in
which his rights under this Section 7 are not assigned or (II)
registered under the 1933 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.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common
Stock outstanding which are, and the number of shares of Common Stock
issuable pursuant to then exercisable or convertible securities which
are, Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
(h) All other capitalized terms used herein which are not
defined herein shall have the meaning given elsewhere in this
Agreement.
7.2 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 1933 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
calendar days after mailing of such notice by the Company, the Company shall,
subject to the provisions of Section 7.6, cause to be registered under the 1933
Act and any applicable state securities laws all of the Registrable Securities
that each such Holder has requested to be registered.
7.3 Obligations of the Company. Whenever under this Section 7 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 such Registrable Securities 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 1933 Act with respect to the disposition of
all Registrable Securities and other securities covered by such
registration statement for a period of 270 days.
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<PAGE> 6
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 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) 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 1933 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 its 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 sh 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
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 I 1 (a) of the 1933
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 1933 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 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.
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<PAGE> 7
7.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 7 with
respect to the Registrable Securities of any selling Holder that such Holder
shall sh 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.
7.5 Expenses of Registration. All expenses incurred in connection with
registrations, filings or qualifications pursuant to this Section 7, including,
without limitation, all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, but
excluding fees and disbursements of counsel to the selling Holders,
underwriter's commissions and fees and any fees of others employed by a selling
Holder, shall be borne by the Company.
7.6 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 7.2 to include any of the Holders'
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. If the total amount of securities, including Registrable
Securities, requested by security holders to be included in such offering
exceeds the amount of securities sold other dm by the Company that the
underwriters determine in their sole discretion is compatible with the success
of the offering, 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)).
7.7 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 7.
7.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined
in the 1933 Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the 1933 Act or the
1934 Ac against any losses, claims, damages, or liabilities joint or
several) to which they may become subject under the 1933 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. 1933 Act, the 1934 Act, any state securities law
or any rule or regulation promulgated under the 1933 Act, the 1934 Act
or any state securities law; and, subject to subsection 7.8 (c) below,
the Company will pay to each such Holder, underwriter or controlling
person, as incur-red, 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 7.8(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
7
<PAGE> 8
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
1933 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 1933 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 7.8(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 7.8(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
7.8(b) exceed the gross proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this
Section 7.8 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 7.8, 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 7.8.
(d) Except as provided in the last sentence of subsection
7.8(c) above, if the indemnification provided for in this Section 7.8
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.
8
<PAGE> 9
(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 7.8 shall survive the completion of any offering of
Registrable Securities pursuant to a registration statement under this
Section 7.
7.9 Assignment of Piggyback Rights. Subject to the provisions of
Section 7.10, the piggyback registration rights of the Holders under Section
7.2 may be assigned (but only with all related obligations) by a Holder to a
permitted transferee or assignee of such securities who, after such assignment
or transfer, holds 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
piggyback 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 7.10 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 1933 Act. For the
purposes of determining the number of shares of Registrable Securities held by
a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided
that all assignees and transferees who would not qualify individually for
assignment of registration rights shall have a single attorney-in-fact for the
purpose of exercising any rights, receiving notices or taking any action under
this Section 7.
7.10 "Lock-up" Agreement. Each Holder hereby agrees that he or she
shall not, for the period commencing on the date of such Holder's Unit Purchase
Agreement and ending 120 days after the earlier of: (i) the effective date of a
registration statement under the 1933 Act covering all of the Registrable
Securities or (ii) the effective date of a registration statement filed by the
Company pursuant to Section 7.2 hereof, without the prior written approval of
the Placement Agents and the managing underwriter in such registration 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 (other than to donees who agree to be similarly bound) any shares
of Common Stock legally or beneficially owned by such Holder.
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.
7.11 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 7 after three (3) years
following the date after the Company becomes a Public Company.
7.12 Amendments and Waivers. Any term or provision of the registration
rights stated in this Section 7 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 fifty-one percent (51%) of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance
with this Section 7.12 shall be binding upon each holder of any Registrable
Securities then outstanding, each future holder of all such Registrable
Securities, and the Company.
8. FURTHER AGREEMENTS
You agree that:
9
<PAGE> 10
8.1 No Transfer or Assignment. You will not transfer or assign this
Agreement or any of your interest herein except as provided in Section 4.6
above.
8.2 Successors and Assigns. You may not cancel or revoke this
Agreement and this Agreement shall be binding upon your successors and assigns,
except as provided by certain state laws.
8.3 Indemnification. You shall indemnify, hold harmless and defend the
Company and the Placement Agents and their respective affiliates and agents
with respect to any and all loss, damage, expense, claim, action or liability
any of them may incur as a result of the breach or untruth of any
representations or warranties made by you herein, and you agree that in the
event of any breach or untruth of any representations or warrants made by you
herein, the Company may, at its option, forthwith rescind the sale of the Units
to you, in addition to any other rights or remedies which the Company may have.
8.4 Legend. A legend in substantially the following form will be
placed on all documents or certificates evidencing the securities comprising
the Units:
"THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAW OF ANY STATE OR OTHER JURISDICTION AND SUCH SECURITIES MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, 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."
9. GENERAL AND MISCELLANEOUS
9.1 Survival. The warranties, representations and covenants of the
parties contained in this Agreement shall survive the execution and delivery of
this Agreement and the Closing.
9.2 Entire Agreement. This Agreement constitutes the entire agreement
among the parties, and no party shall be liable or bound to any other party in
any manner by any warranties, representations, guarantees or covenants except
as specifically set forth in this Agreement. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. 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.
9.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of Delaware without regard to conflicts of
law.
9.4 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.
9.5 Notices. All notices, requests, demands and other communications
under this Agreement 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 tenth day after 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
purchaser, at his address as shown in the Company records; and if to the
Company, at its principal office. Any party may change its address for purposes
of this paragraph by giving the other party written notice of the new address
in the manner set forth above.
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<PAGE> 11
9.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
11
<PAGE> 12
If the foregoing conforms to your understanding of our agreement,
please so indicate by signing two copies of this Agreement and returning both
copies to the Company. If and when this Agreement is accepted by the Company,
such acceptance being evidenced by the Company's execution of this Agreement,
this Agreement shall become a binding agreement between and among us, and the
Company shall deliver to you one fully executed copy of this Agreement.
DATE: , 1998 Number of Units:
------------------ -----------------------------
Total Purchase Price: $
----------------------
X
- --------------------------------- ---------------------------------------------
(Name of Purchaser, Please Print) (Signature of Purchaser)
---------------------------------------------
(Print name and title of authorized signatory
if purchaser is not natural person)
X
- -------------------------------- ---------------------------------------------
(Name of Joint Purchaser, if any (Signature of joint purchaser, if any)
- - please print)
AGREED TO AND ACCEPTED on the
day of , 1998:
- --------- ---------------------------
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC.
By: -----------------------------------
Charles R. Mollo
Chief Executive Officer
----------------------------------------------------
Manner in which Units are to be held:
_____ Individual Ownership _____ Partnership
_____ Tenants-in-Common _____ Trust (other than an
Employee Benefit
Plan Trust or
Individual
Retirement Account
Trust)
_____ Joint Tenant with Right of Survivorship _____ Employee Benefit Plan
Trust (other than
an Individual
Retirement Account
Trust)
_____ Community Property _____ Individual Retirement
Account Trust
_____ Community Property with Right of Survivorship _____ Corporation
_____ Other (please indicate)
12
<PAGE> 1
Exhibit 4.5
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
d/b/a Mobility Electronics
(A Delaware corporation)
FORM OF UNIT PURCHASE AGREEMENT
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC., a Delaware
corporation (the "Company"), whose address is 7955 East Redfield Road,
Scottsdale, Arizona 85260, hereby agrees with the undersigned Purchaser as
follows:
1. TRANSACTION
The Company, by due action of its Board of Directors, has authorized
the offer and sale to you under this Unit Purchase Agreement ("Agreement" or
"Purchase Agreement") and to other purchasers under similar Purchase Agreements
("Other Purchasers") of up to 875 Units (963 if the Company's over-allotment
option is exercised in full), each consisting of 2,000 shares of common stock,
par value $ .01 per share ("Common Stock"), of the Company ("Common Shares") and
warrants to purchase 500 shares Common Stock ("Warrants"). Each Warrant will
entitle the holder thereof to purchase one share of Common Stock, at an exercise
price of $7.00 per share. The Unit price shall be $8,000 and no fractional Units
shall be sold unless agreed to by the Company and Paradise Valley Securities,
Inc., Sentra Securities Corporation and Spelman & Co., Inc., the Company's
placement agents in this offering (collectively, the "Placement Agents"). The
Common Shares and the Warrants underlying the Units shall conform to the
description thereof in the Memorandum (as defined below).
2. PURCHASE AND SALE
2.1 Units. Subject to all of the terms and conditions of this
Agreement, the Company will issue and sell to you (sometimes referred to as
"Holder") the number of Units shown on the signature page hereof and you will
purchase the same from the Company; provided that Units in the aggregate amount
of at least $ 1,000,000 have been subscribed and paid for by you and the Other
Purchasers and all other terms and conditions set forth in this Purchase
Agreement are satisfied. You acknowledge that Units subscribed and paid for
(whether paid for by cash, cancellation of indebtedness or conversion of
outstanding shares of the Company's Series B Preferred Stock) by officers,
directors or employees of the Company, or by holders of the Company's
outstanding securities, or by officers or employees of any Placement Agent for
their own account, or by an affiliate of any of the foregoing, shall be counted
in determining whether all or any part of Units in the aggregate amount of at
least $1,000,000 have been subscribed and paid for.
1
<PAGE> 2
2.2 Funds Escrow Account. The funds tendered by you pursuant to this
Agreement will be deposited in a special escrow account (the "Fund") at the
First Arizona Savings and Loan Association ("Funds Escrow Agent"), whose address
is 4141 North Scottsdale Road, Suite 140, Scottsdale, Arizona 85251, and will be
returned to you without interest or deduction for escrow fees and expenses, if:
(a) your subscription for the purchase of Units pursuant to this Agreement has
not been accepted by the Company or (b) if Purchase Agreements for at least 125
Units and funds in the amount of at least $1,000,000 are not deposited in the
Fund before the close of business on November 14, 1997, which date may be
extended one or more times by agreement of the Company and the Placement Agents,
without notice to you and the Other Purchasers, to a date not later than
December 31, 1997 (the "Termination Date"). It is understood and agreed that if
this Agreement is accepted by the Company, and the funds in payment of a minimum
of 125 Units are received and accepted by the Company before the close of
business on the Termination Date, then at the Closing (as defined below) with
respect to the Units subscribed for by you, the funds tendered herewith (less
any fees paid to the Placement Agents), shall be delivered to the Company by the
Funds Escrow Agent in payment for the Units subscribed for by you, or such
lesser amount as may be allocated to you by the Company. If you are allocated
less than the full amount of the Units subscribed for by you and the full amount
of the Units subscribed for has been timely paid in full by you, the Company
shall instruct the Funds Escrow Agent to remit the overpayment of the amount
paid, without interest or deduction, to you within fifteen days after such
partial acceptance of this Purchase Agreement. The Units are being offered by
the Company subject to the right of the Company and Placement Agents to reject,
at their discretion, any subscription, in whole or in part, for any reason, and
to accept subscriptions notwithstanding the order in which they are received.
2.3 Closing . The purchase by and sale and delivery to you and Other
Purchasers of the Units (the "Closing") shall take place at the offices of the
Placement Agents or of the Funds Escrow Agent at such date and time, or at such
other place, upon which the Company and the Placement Agents may agree (such
date being hereinafter called the "Closing Date"). At the Closing, the Company
shall deliver to a representative of the Placement Agents on your behalf,
instruments evidencing the Common Shares and Warrant comprising the Units being
purchased by you and other items required to be delivered to it pursuant to this
Purchase Agreement. If at any time prior to the Termination Date, subscriptions
for at least 125 Units have been received and accepted by the Company, and the
full purchase price for such Units have been deposited into the Fund, the
Company may have an initial closing ("Initial Closing") with respect to such
accepted subscriptions and continue to offer the remaining Units until the
Termination Date or all 875 Units (963 if the Company's over-allotment option is
exercised in full) have been sold, whichever occurs earlier; provided, however,
that the final Closing shall take place not later than ten days after the
Termination Date.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
As an inducement to you to enter into this Agreement, the Company
represents, warrants and agrees that:
2
<PAGE> 3
3.1 Disclosure Documents. The Company has prepared the Company's
Confidential Private Offering Memorandum ("Memorandum") dated September 11,
1997, together with all exhibits annexed thereto (such Memorandum and exhibits
annexed thereto are called collectively herein the "Disclosure Documents", which
term shall include any additions or supplements thereto).
3.2 Description of Securities. The Units, the Common Shares, the
Warrants, the Common Stock issuable upon due exercise of the Warrants, when
issued and delivered, will conform to the description thereof under the captions
"Description of Securities" and Description of Offering" in the Memorandum.
3.3 Authority for Agreement. This Agreement has been duly authorized by
all necessary action of the Company and, when executed and delivered by the
Company, will be a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent that the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or by general
principles of equity, and except that the indemnification provisions of the
Agreement may be held to be violative of public policy under either federal or
state laws in the context of the offer or sale of securities.
3.4 Validity of Common Stock. The Common Shares, when issued and paid
for at the Closing, will constitute duly authorized, legally issued shares of
Common Stock. The Common Stock underlying the Warrants, when issued in
accordance with the terms thereof, will constitute duly authorized, legally and
validly issued Common Stock, fully paid and non-assessable.
3.5 Validity of Warrant. The Warrants, when issued and paid for at the
Closing, will be duly authorized, validly existing obligations of the Company,
enforceable in accordance with their terms, except to the extent that the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or by general
principles of equity.
3.6 No Conflicting Rights. The holders of the outstanding capital stock
of the Company are not entitled to pre-emptive or other rights to subscribe for
the Units. The offering of the Units as contemplated by the Memorandum does not
give rise to any rights relating to the registration of any outstanding capital
stock.
3.7 Disclosure. The Company has provided you with all of the material
information which you have reasonably requested in deciding whether to invest in
the Units.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY YOU
You hereby represent, warrant and agree that:
4.1 Authority. You have full power and authority to enter into this
Agreement and it constitutes your legal, valid and binding obligation,
enforceable in accordance with its terms.
3
<PAGE> 4
4.2 Purchase For Own Account. You are acquiring the Units for your own
account, for investment purposes and not for resale or with a view to any
distribution, or in connection with any distribution thereof You are able to (i)
bear the economic risk of your investment in the Units, (ii) hold the Units for
an indefinite period of time, and (iii) afford a complete loss of your
investment.
4.3 Investment Experience. You have the requisite knowledge and
experience in financial and business matters, including investments of this
type, to be capable of evaluating the merits and risks of an investment in the
Units and of making an informed investment decision with respect thereto.
4.4 Receipt Of Information. You have received, read carefully,
considered and fully understood the Disclosure Documents and you have received
from the Company all of the information concerning the Company which you
consider to be material in making your investment decision, which information
has been requested by you if not already furnished by the Company. You have had
full access to the books and records of the Company and to its officers,
directors and accountants for the purpose of obtaining and verifying such
information and you have had an opportunity to ask questions and receive answers
from the officers of the Company regarding the terms and conditions of this
transaction and the Company's business and financial condition.
Except as expressly set forth in the Disclosure Documents, no
representations or warranties, oral or otherwise, have been made to you,
including without limitation, any representations concerning the future
prospects of the Company, by the Company, any Placement Agent or any agent
employee or affiliate of the Company or of any Placement Agent or any other
person whether or not associated with this action, and in entering into this
action you are not relying upon any information other than that contained in the
Disclosure Documents, and the results of your own independent investigation. You
have obtained sufficient information to evaluate the merits and risks of your
investment and to make an informed investment decision.
4.5 Restricted Securities. You understand and acknowledge that the
Common Shares and Warrants you are purchasing hereunder are, and the Common
Stock issuable upon the due exercise of the Warrants, will be, "restricted
securities" under United States federal and state securities laws insofar as
they have not been registered under the Securities Exchange Act of 1933, as
amended (the "1933 Act"), or the securities laws of any other jurisdiction, that
they may not be resold or transferred without compliance with the registration
or qualification provisions of the 1933 Act or applicable federal and state
securities laws of any state or other jurisdiction or an opinion of counsel
acceptable to the Company that an exemption from such registration and
qualification requirements is available.
4.6 Limitations on Disposition. Without in any way limiting the
representations set forth above, you further agree not to make any disposition
of all or any portion of the Common Shares, the Warrants, or the shares of
Common Stock issuable upon the due exercise of the Warrants, unless and until:
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<PAGE> 5
(a) There is then in effect a registration statement under the 1933 Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (i) You shall have notified the Company of the proposed disposition
and shall have shed the Company with a statement of the circumstances
surrounding the proposed disposition and (ii) you have shed the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the 1933 Act
and applicable securities laws of any state or other jurisdiction.
4.7 Illiquid Investments. Your overall commitment to investments which
are not readily marketable is not disproportionate to your net worth and your
investment in the Units will not cause such overall commitment to become
excessive. You have adequate means of providing for your current needs and
personal contingencies.
4.8 Accredited Investor. You are an "Accredited Investor" as such term
is defined in the Memorandum and Rule 501 (a) promulgated under the 1933 Act.
4.9 Company Reliance On Questionnaire. You understand, acknowledge and
agree that the Company, in entering into and performing under this Agreement, is
relying on the accuracy of the responses by you to the Purchaser Questionnaire
heretofore delivered by you to the Company, which responses you warrant to be
true, complete and correct.
5. CONDITIONS TO YOUR OBLIGATIONS
Your obligations to purchase the Units under this Agreement are subject
to the fulfillment on or before the Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 3 above shall be true as of the Closing.
5.2 Company Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement,
which performance or compliance are required of it on or before the Closing.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to sell and issue the Units to you are
subject to the fulfillment on or before the Closing of each of the following
conditions by you:
6.1 Representations and Warranties. Your representations and warranties
contained in Section 4 above shall be true on and as of the Closing with the
same effect as though made on and as of the date thereof.
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<PAGE> 6
6.2 Payment. You shall have delivered into the Fund the amount of the
purchase price of the Units being purchased by you.
6.3 Blue Sky Qualification. The Company shall have received any permits
or authorization from any state securities law authority which may be necessary
to qualify the offer and sale of the Units to you.
7. REGISTRATION RIGHTS
The Company covenants and agrees with you as follows:
7.1 Definitions. For purposes of this Section 7:
(a) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance
with Section 7.10 hereof.
(b) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(c) 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.
(d) 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 1933 Act, and the
declaration or ordering of effectiveness of such registration statement
or document.
(e) The term "Registrable Securities" means (i) the Common Shares
purchased by a Purchaser or Other Purchaser under this or similar
Purchase Agreement, (ii) the Common Stock issuable or issued upon
exercise of any outstanding Warrants, and (iii) any Common Stock of the
Company 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) and (ii) above, excluding
in all cases, however, any Registrable Securities (1) sold by a person
in a transaction in which his rights under this Section 7 are not
assigned or (II) registered under the 1933 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.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common
Stock outstanding which are, and the number of shares of Common Stock
issuable pursuant to then exercisable or convertible securities which
are, Registrable Securities.
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<PAGE> 7
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
(h) All other capitalized terms used herein which are not defined
herein shall have the meaning given elsewhere in this Agreement.
7.2 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 1933 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 calendar days after mailing
of such notice by the Company, the Company shall, subject to the provisions of
Section 7.6, cause to be registered under the 1933 Act and any applicable state
securities laws all of the Registrable Securities that each such Holder has
requested to be registered.
7.3 Obligations of the Company. Whenever under this Section 7 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 such Registrable Securities 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 1933 Act with respect to the disposition of all Registrable
Securities and other securities covered by such registration statement
for a period of 270 days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 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"
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<PAGE> 8
laws of such jurisdictions as the underwriter or such sellers (not to
exceed ten) 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 1933 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 its 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 sh 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
holder, 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 I 1 (a) of the 1933 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 1933 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.
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<PAGE> 9
(i) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange 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.
7.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 7 with
respect to the Registrable Securities of any selling Holder that such Holder
shall sh 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.
7.5 Expenses of Registration. All expenses incurred in connection
with registrations, filings or qualifications pursuant to this Section 7,
including, without limitation, all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, but excluding fees and disbursements of counsel to the selling Holders,
underwriter's commissions and fees and any fees of others employed by a selling
Holder, shall be borne by the Company.
7.6 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 7.2 to include any of the Holders'
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. If the total amount of securities, including Registrable Securities,
requested by security holders to be included in such offering exceeds the amount
of securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, 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)).
7.7 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 7.
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<PAGE> 10
7.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the 1933
Act) for such Holder and each person, if any, who controls such Holder
or underwriter within the meaning of the 1933 Act or the 1934 Act
against any losses, claims, damages, or liabilities joint or several)
to which they may become subject under the 1933 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 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state
securities law; and, subject to subsection 7.8 (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 7.8(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
1933 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 1933 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 7.8(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided,
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<PAGE> 11
however, that the indemnity agreement contained in this subsection
7.8(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 7.8(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 7.8 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 7.8, 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 7.8.
(d) Except as provided in the last sentence of subsection 7.8(c)
above, if the indemnification provided for in this Section 7.8 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.
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<PAGE> 12
(f) The obligations of the Company and Holders under this Section
7.8 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement under this Section 7.
7.9 Assignment of Piggyback Rights. Subject to the provisions of
Section 7.10, the piggyback registration rights of the Holders under Section 7.2
may be assigned (but only with all related obligations) by a Holder to a
permitted transferee or assignee of such securities who, after such assignment
or transfer, holds 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 piggyback
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 7.10 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 1933 Act. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 7.
7.10 "Lock-up" Agreement. Each Holder hereby agrees that he or she
shall not, for the period commencing on the date of such Holder's Unit Purchase
Agreement and ending 120 days after the earlier of: (i) the effective date of a
registration statement under the 1933 Act covering all of the Registrable
Securities or (ii) the effective date of a registration statement filed by the
Company pursuant to Section 7.2 hereof, without the prior written approval of
the Placement Agents and the managing underwriter in such registration 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 (other than to donees who agree to be similarly bound) any shares
of Common Stock (including shares of Common Stock issuable upon the exercise of
the Warrants) legally or beneficially owned by such Holder.
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.
7.11 Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Section 7 after three (3) years
following the date after the Company becomes a Public Company.
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<PAGE> 13
7.12 Extension of Warrant Exercise Period. In the event the holders of
Warrants are delayed in selling the shares of Common Stock underlying the
Warrants at the time such holders desire pursuant to the terms of Section 7.2 or
7.11, the parties hereto agree that the exercise period for the Warrants shall
be extended by the amount of such delay.
7.13 Amendments and Waivers. Any term or provision of the registration
rights stated in this Section 7 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 fifty-one percent (51%) of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this Section 7.13 shall be binding upon each holder of any Registrable
Securities then outstanding, each future holder of all such Registrable
Securities, and the Company.
8. FURTHER AGREEMENTS
You agree that:
8.1 No Transfer or Assignment. You will not transfer or assign this
Agreement or any of your interest herein except as provided in Section 4.6
above.
8.2 Successors and Assigns. You may not cancel or revoke this
Agreement and this Agreement shall be binding upon your successors and assigns,
except as provided by certain state laws.
8.3 Indemnification. You shall indemnify, hold harmless and defend the
Company and the Placement Agents and their respective affiliates and agents with
respect to any and all loss, damage, expense, claim, action or liability any of
them may incur as a result of the breach or untruth of any representations or
warranties made by you herein, and you agree that in the event of any breach or
untruth of any representations or warrants made by you herein, the Company may,
at its option, forthwith rescind the sale of the Units to you, in addition to
any other rights or remedies which the Company may have.
8.4 Legend. A legend in substantially the following form will be
placed on all documents or certificates evidencing the securities comprising the
Units:
"THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAW OF ANY STATE OR OTHER JURISDICTION AND SUCH SECURITIES MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION, OR AN OPINION OF COUNSEL
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<PAGE> 14
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
9. GENERAL AND MISCELLANEOUS
9.1 Survival. The warranties, representations and covenants of the
parties contained in this Agreement shall survive the execution and delivery of
this Agreement and the Closing.
9.2 Entire Agreement. This Agreement constitutes the entire agreement
among the parties, and no party shall be liable or bound to any other party in
any manner by any warranties, representations, guarantees or covenants except as
specifically set forth in this Agreement. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. 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.
9.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of Delaware without regard to conflicts of
law.
9.4 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.
9.5 Notices. All notices, requests, demands and other communications
under this Agreement 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 tenth day after 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
purchaser, at his address as shown in the Company records; and if to the
Company, at its principal office. Any party may change its address for purposes
of this paragraph by giving the other party written notice of the new address in
the manner set forth above.
9.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
If the foregoing conforms to your understanding of our agreement,
please so indicate by signing two copies of this Agreement and returning both
copies to the Company. If and when this Agreement is accepted by the Company,
such acceptance being evidenced by the Company's execution of this Agreement,
this Agreement shall become a binding agreement between and among us, and the
Company shall deliver to you one fully executed copy of this Agreement.
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<PAGE> 15
DATE: 1997 Number of Units:
--------------------, ------------------------
Total Purchase Price: $
-----------------
- -------------------------------- ---------------------------------------
(Name of Purchaser, Please Print) (Signature of Purchaser)
---------------------------------------
(Print name and title of authorized
signatory if purchaser is not natural
person)
- -------------------------------- ---------------------------------------
(Name of Joint Purchaser, if any (Signature of joint purchaser, if any)
- - please print)
AGREED TO AND ACCEPTED on the
day of , 1997:
- ------------- -------------------------------
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC.
By:
-------------------------------
Charles R. Mollo
Chief Executive Officer
15
<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.
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<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.
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<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.
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<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
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<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
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<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:
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<PAGE> 1
EXHIBIT 4.7
MOBILITY ELECTRONICS, INC.
(A Delaware corporation)
13% BRIDGE PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT
MOBILITY ELECTRONICS, INC., a Delaware corporation (the "Company"),
whose address is 5528 Eubank Boulevard N.E., Suite 3, Albuquerque, New Mexico
87111, hereby agrees with the undersigned Purchaser as follows:
1. TRANSACTION
The Company, by due action of its Board of Directors, has authorized
the offer and sale to you under this Bridge Promissory Note and Warranty
Purchase Agreement ("Agreement" or "Purchase Agreement") and to other purchases
under similar or different bridge promissory note and warrant purchase
agreements ("Other Purchases") up to $3.5 million of 13% Bridge Promissory Notes
of the Company, in the form attached hereto as Exhibit A (the "Notes"), together
with for each $100,000 of principal amount of the Notes, a warrant to purchase
30,000 shares of common stock, par value $.01 per share, of the Company (the
"Common Stock"), the form of which is attached hereto as Exhibit B (the
"Warrants"). The Note and Warrant are sometimes collectively referred to herein
as the "Securities"). The minimum subscription amount is $100,000 per investor.
The Company may pay commissions to brokers, if any, involved in this offering of
Notes.
2. PURCHASE AND SALE
2.1 The Securities. Subject to all of the terms and conditions of this
Agreement, the Company will issue and sell to you (sometimes referred to as
"Holder") the principal amount of the Notes shown on the signature page hereof
(in which event you will also be deemed to have purchased the Warrant for the
applicable number of shares of Common Stock as provided above for no additional
consideration) and you will purchase the same from the Company; provided that
all other terms and conditions set forth in this Purchase Agreement are
satisfied.
2.2 Closing. The purchase by and sale and delivery to you of the
Securities (the "Closing") shall take place at the executive offices of the
Company as set forth above at such date and time as determined by the Company
(such date being hereinafter called the "Closing Date"). At the Closing, the
Company shall deliver to you: (i) a Note in the principal amount accepted by the
Company; (ii) a Warrant on the terms provided for in Section 1 above; and (iii)
such other items as are required to be delivered to it pursuant to this Purchase
Agreement. The Securities are being offered by the Company subject to the right
of the Company to reject, at its discretion, any subscription, in whole or in
part, for any reason, and to accept subscriptions notwithstanding the order in
which they are received. Any portion of a subscription not accepted by the
Company shall be promptly returned to you, without interest or deduction.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
As an inducement to you to enter into this Agreement, the Company
represents, warrants and agrees that:
3.1 Corporate Power. The Company has all required corporate power and
authority to own its own properties and to carry on its business as presently
conducted. The Company has all required power and authority to execute and
deliver this Agreement, to issue and sell the Securities, and to carry out the
transactions contemplated by this Agreement.
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<PAGE> 2
3.2 Authority for Agreement. This Agreement has been duly authorized by
all necessary action of the Company and, when executed and delivered by the
Company, will be a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent that the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or by general
principles of equity, and except that the indemnification provisions of the
Agreement may be held to be violative of public policy under either federal or
state laws in the context of the offer or sale of securities.
3.3 Validity of Stock. The shares of Common Stock issuable upon
exercise of the Warrant will, when issued in accordance with the terms of the
Warrant, be duly authorized, legally issued shares of Common Stock.
3.4 No Conflicting Rights. The holders of the outstanding capital stock
of the Company are not entitled to pre-emptive or other rights to subscribe for
the Securities.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY YOU
You hereby represent, warrant and agree that:
4.1 Authority. You have full power and authority to enter into this
Agreement and it constitutes your legal, valid and binding obligation,
enforceable in accordance with its terms.
4.2 Purchase For Own Account. You are acquiring the Securities for your
own account, for investment purposes and not for resale or with a view to any
distribution, or in connection with any distribution thereof you are able to (i)
bear the economic risk of your investment in the Securities, (ii) hold the
Securities for an indefinite period of time, and (iii) afford a complete loss of
your investment.
4.3 Investment Experience. You have the requisite knowledge and
experience in financial and business matters, including investments of this
type, to be capable of evaluating the merits and risks of an investment in the
Securities and of making an informed investment decision with respect thereto.
4.4 Receipt Of Information. You have received from the Company all of
the information concerning the Company which you consider to be material in
making your investment decision, which information has been requested by you if
not already furnished by the Company. You have had full access to the books and
records of the Company and to its officers, directors and accountants for the
purpose of obtaining and verifying such information and you have had an
opportunity to ask questions and receive answers from the officers of the
Company regarding the terms and conditions of this transaction and the Company's
business and financial condition. No representations or warranties, oral or
otherwise, have been made to you, including without limitation, any
representations concerning the future prospects of the Company, by the Company
or any agent, employee or affiliate of the Company, and in entering into this
action you are not relying upon any information other than the results of your
own independent investigation. You have obtained sufficient information to
evaluate the merits and risks of your investment and to make an informed
investment decision.
4.5 Restricted Securities. You understand and acknowledge that the
Securities you are purchasing hereunder are "restricted securities" under United
States federal and state securities laws insofar as they have not been
registered under the Securities Act of 1933, as amended (the "Act"), or the
securities laws of any other jurisdiction, that they may not be resold or
transferred without compliance with the registration or qualification provisions
of the Act or applicable federal and state securities laws of any state or other
jurisdiction or an opinion of counsel acceptable to the Company that an
exemption from such registration and qualification requirements is available.
Page -2-
<PAGE> 3
4.6 Limitations on Disposition. Without in any way limiting the
representations set forth above, you further agree not to make any disposition
of all or any portion of the Securities unless and until: (i) there is then in
effect a registration statement under the Act covering such proposed disposition
and such disposition is made in accordance with such registration statement; or
(ii) you shall have notified the Company of the proposed disposition and shall
have furnished the Company with a statement of the circumstances surrounding the
proposed disposition and you have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such securities under the Act and applicable securities
laws of any state or other jurisdiction.
4.7 Illiquid Investments. Your overall commitment to investments which
are not readily marketable is not disproportionate to your net worth and your
investment in the Securities will not cause such overall commitment to become
excessive. You have adequate means of providing for your current needs and
personal contingencies.
4.8 Accredited Investor. You are an "Accredited Investor" as that term
is defined in Section 501(a) of Regulation D promulgated under the Act
("Regulation D").
4.9 Company Reliance. You understand, acknowledge and agree that the
Company, in entering into and performing under this Agreement, is relying on the
accuracy of the responses by you in this Agreement, which responses you warrant
to be true, complete and correct.
5. CONDITIONS TO YOUR OBLIGATIONS
Your obligations to purchase the Securities under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 3 above shall be true on and as of the
Closing with the same effect as though made on and as of the date thereof.
5.2 Company Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement,
which performance or compliance are required of it on or before the Closing.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to sell and issue the Securities to you
are subject to the fulfillment on or before the Closing of each of the following
conditions by you:
6.1 Representations and Warranties. Your representations and warranties
contained in Section 4 above shall be true on and as of the Closing with the
same effect as though made on and as of the date thereof.
6.2 Payment. You shall have delivered to the company an executed copy
of this Agreement, together with the payment of the subscription price for the
Securities being purchased by you.
6.3 Blue Sky Qualification. The Company shall have received any permits
or authorization from any state securities law authority which may be necessary
to qualify the offer and sale of the Securities to you.
Page -3-
<PAGE> 4
7. REGISTRATION RIGHTS
The Company hereby grants to Holder the registration rights set forth
in Appendix I attached hereto, subject to the remainder of this Agreement.
Appendix I is incorporated into, and made a part of, this Agreement.
8. FURTHER AGREEMENTS
You agree that:
8.1 No Transfer or Assignment. You will not transfer or assign this
Agreement or any of your interest herein except as provided in Section 4.6
above.
8.2 Successors and Assigns. You may not cancel or revoke this Agreement
and this Agreement shall be binding upon your successors and assigns, except as
provided by certain state laws.
8.3 Indemnification. You shall indemnify, hold harmless and defend the
Company and its affiliates and agents with respect to any and all loss, damage,
expense, claim, action or liability any of them may incur as a result of the
breach or untruth of any representations or warranties made by you herein, and
you agree that in the event of any breach or untruth of any representations or
warrants made by you herein, the Company may, at its option, forthwith rescind
the sale of the Securities to you, in addition to any other rights or remedies
which the Company may have.
8.4 Legend. A legend in substantially the following form will be placed
on all documents or certificates evidencing the Securities and the shares of
Common Stock underlying the Warrants:
"THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION AND SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
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."
9. GENERAL AND MISCELLANEOUS
9.1 Survival. The warranties, representations and covenants of the
parties contained in this Agreement shall survive the execution and delivery of
this Agreement and the Closing.
9.2 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof, and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, guarantees or covenants except as specifically set forth in
this Agreement. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. 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.
9.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of Delaware without regard to conflicts of
law.
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<PAGE> 5
9.4 Notices. All notices, requests, demands and other communications
under this Agreement 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 tenth day after 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
purchaser, at his address as shown in the Company records; and if to the
Company, at its principal office. Any party may change its address for purposes
of this paragraph by giving the other party written notice of the new address in
the manner set forth above.
9.5 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.6 Acceptance. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of completed Purchase Agreements will
be determined by the Company, which determination will be final and binding. The
Company reserves the absolute right to reject any Purchase Agreement, in its
sole and absolute discretion. The Company also reserves the right to waive any
irregularities in, or conditions of, the submission of any Purchase Agreements,
and the Company's interpretation of the terms and conditions for the purchase of
Securities (including these instructions) shall be final and binding. The
Company shall be under no duty to give any notification of irregularities in
connection with any attempted subscription for Securities or incur any liability
for failure to give such notification. Until such irregularities have been cured
or waived, no subscription for Securities shall be deemed to have been made. Any
Purchase Agreement that is not properly completed and as to which defects have
not been cured or waived will be returned by the Company to the subscriber as
soon as practicable.
9.7 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.
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<PAGE> 6
PURCHASE AGREEMENT GENERAL INSTRUCTIONS
GENERAL INSTRUCTIONS
This Purchase Agreement contains all documents necessary to subscribe
for Securities. You may subscribe for Securities by completing the Purchase
Agreement in the following manner:
1. On line (a) of the signature page state the principal amount of the
Notes you wish to purchase.
2. Sign and state your address, telephone number and social security or
other taxpayer identification number on the lines provided on the
signature page to the Purchase Agreement and deliver the completed
Purchase Agreement to the Company with payment of the entire purchase
price of the Securities subscribed for in the following manner:
A wire transfer or check payable to the order of the Company:
Wire transfer instructions are as follows:
United Missouri Bank of Kansas City, N.A.
10th & Grand
Kansas City, Missouri 64105
ABA # 1010-0069-5
Zurich Yieldwise
Bank Account # 9870838818
To the benefit of Electronics Accessory Specialists
Account # 80-89754385-1
Checks should be sent overnight to:
Mr. Charles R. Mollo
Mobility Electronics, Inc.
5528 Eubank Blvd., N.E., Suite 3
Albuquerque, New Mexico 87111
Following receipt of your completed subscription documents and check,
the Company will accept or reject your subscription, in its sole
discretion. If your subscription is rejected, your funds will be
returned to you promptly, without any interest paid thereon. The
Company may reject a subscription for any reason in its sole
discretion.
3. Send all documents to:
Mr. Charles R. Mollo
Mobility Electronics, Inc.
5528 Eubank Blvd., N.E., Suite 3
Albuquerque, New Mexico 87111
THE COMPLETED SUBSCRIPTION AGREEMENT SHOULD BE RETURNED IN ITS ENTIRETY TO THE
COMPANY AT THE ADDRESS DESIGNATED ABOVE.
Page -6-
<PAGE> 7
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
PLEASE PRINT OR TYPE. USE INK ONLY.
(ALL PARTIES MUST SIGN)
The undersigned investor hereby certifies that he or she (i) agrees to
all the terms and conditions of this Purchase Agreement, (ii) meets the
suitability standards set forth in this Purchase Agreement and (iii) is a
resident of the state or foreign jurisdiction indicated below.
(a) THE UNDERSIGNED IRREVOCABLY SUBSCRIBES FOR $_____________
PRINCIPAL AMOUNT OF NOTES.
<TABLE>
<S> <C>
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Name of Subscriber (Print) If other than Individual check one and
indicate capacity of signatory under the
signature:
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Trust
- -------------------------------------------------------------- -----
Name of Joint Subscriber (if any) (Print) Estate
-----
Uniform Gifts to Minors Act of State of
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X Attorney-in-fact
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Signature of Subscriber Corporation
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Other
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X
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Signature of Joint Subscriber (if any) If Joint Ownership, check one:
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Joint Tenants with Right of Survivorship
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Capacity of Signatory (if applicable) Tenants in Common
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Tenants by the Entirety
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Community Property
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Social Security or Taxpayer Identification Number
Backup Withholding Statement:
Please check this box only if the investor is subject to:
- -------------------------------------------------------------- -----
Residence Address backup withholding.
-----
Foreign Person:
- --------------------------------------------------------------
City State Zip Code ----- nonresident alien, foreign corporation, foreign
----- partnership, foreign trust or foreign estate
Telephone ( )
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</TABLE>
The investor agrees to the terms of this Purchase Agreement and, as required by
the Regulations pursuant to the Internal Revenue Code, certifies under penalty
of perjury that (1) the Social Security Number or Taxpayer Identification Number
and address provided above is correct, (2) the investor is not subject to backup
withholding (unless the Backup Withholding Statement box is checked) either
because he has not been notified that he is subject to backup withholding as a
result of a failure to report all interest or dividends or because the Internal
Revenue Service has notified him that he is no longer subject to backup
withholding and (3) the investor (unless the Foreign Person box above is
checked) is not a nonresident alien, foreign partnership, foreign trust or
foreign estate.
<PAGE> 8
THE SUBSCRIPTION FOR $____________________ PRINCIPAL AMOUNT OF 13%
BRIDGE PROMISSORY NOTES OF MOBILITY ELECTRONICS, INC. BY THE ABOVE NAMED
SUBSCRIBER(S) IS ACCEPTED AS OF THE _________ DAY OF _________________, 1999.
MOBILITY ELECTRONICS, INC.
By:
--------------------------------------------
Charles R. Mollo, Chief Executive Officer
<PAGE> 9
Appendix I
Registration Rights
1. Registration Rights. The Company covenants and agrees with you as follows:
1.1 Definitions. For purposes of this Appendix I:
(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 "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended.
(c) 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.
(d) 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.
(e) The term "Registrable Securities" means (i) the shares of Common
Stock issued or issuable upon the exercise of the Warrants 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.
(f) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock issued or
issuable upon exercise of the Warrants which are Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange Commission.
(h) 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 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
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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, organization 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 (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 to 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 Registration 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, Section 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.
(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
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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 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 its 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 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.
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(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) 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.
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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 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 securityholders (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, 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
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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 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.
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(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
piggyback 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 1.12 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.
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 underlying the Warrants 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 two (2) 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 a majority of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this Section
1.13 shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of any Registrable Securities, and the Company.
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EXHIBIT 4.8
July 1999
MOBILITY ELECTRONICS, INC.
(A Delaware corporation)
13% BRIDGE PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT
MOBILITY ELECTRONICS, INC., a Delaware corporation (the "Company"),
whose address is 5528 Eubank Boulevard N.E., Suite 3, Albuquerque, New Mexico
87111, hereby agrees with the undersigned Purchaser as follows:
1. TRANSACTION
Pursuant to a Private Placement Memorandum, dated May 19, 1999, the
Company is offering up to $5 million of 13% Bridge Promissory Notes of the
Company (with an over-allotment option of up to an additional $1,000,000), in
the form attached hereto as Exhibit A (the "Notes"), together with warrants (the
"Warrants") to purchase common stock, par value $0.01 per share (the "Common
Stock"), as follows: (i) for investments of less than $100,000, 22,000 Warrants
per $100,000 principal amount of Notes; or (ii) for investments of $100,000 or
more, 25,000 Warrants per $100,000 principal amount of Notes. The warrants are
in the form of which is attached hereto as Exhibit B (the "Warrants"). The Note
and Warrant are sometimes collectively referred to herein as the "Securities").
The minimum subscription amount is $25,000 per investor. The Company may pay
commissions to brokers, if any, involved in this offering of Notes.
2. PURCHASE AND SALE
2.1 The Securities. Subject to all of the terms and conditions of this
Agreement, the Company will issue and sell to you (sometimes referred to as
"Holder") the principal amount of the Notes shown on the signature page hereof
(in which event you will also be deemed to have purchased the Warrant for the
applicable number of shares of Common Stock as provided above for no additional
consideration) and you will purchase the same from the Company; provided that
all other terms and conditions set forth in this Purchase Agreement are
satisfied.
2.2 Closing. The purchase by and sale and delivery to you of the
Securities (the "Closing") shall take place at the executive offices of the
Company as set forth above at such date and time as determined by the Company
(such date being hereinafter called the "Closing Date"). At the Closing, the
Company shall deliver to you: (i) a Note in the principal amount accepted by the
Company; (ii) a Warrant on the terms provided for in Section 1 above; and (iii)
such other items as are required to be delivered to it pursuant to this Purchase
Agreement. The Securities are being offered by the Company subject to the right
of the Company to reject, at its discretion, any subscription, in whole or in
part, for any reason, and to accept subscriptions notwithstanding the order in
which they are received. Any portion of a subscription not accepted by the
Company shall be promptly returned to you, without interest or deduction.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
As an inducement to you to enter into this Agreement, the Company
represents, warrants and agrees that:
3.1 Corporate Power. The Company has all required corporate power and
authority to own its own properties and to carry on its business as presently
conducted. The Company has all required power and authority to execute and
deliver this Agreement, to issue and sell the Securities, and to carry out the
transactions contemplated by this Agreement.
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<PAGE> 2
3.2 Authority for Agreement. This Agreement has been duly authorized by
all necessary action of the Company and, when executed and delivered by the
Company, will be a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent that the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or by general
principles of equity, and except that the indemnification provisions of the
Agreement may be held to be violative of public policy under either federal or
state laws in the context of the offer or sale of securities.
3.3 Validity of Stock. The shares of Common Stock issuable upon
exercise of the Warrant will, when issued in accordance with the terms of the
Warrant, be duly authorized, legally issued shares of Common Stock.
3.4 No Conflicting Rights. The holders of the outstanding capital stock
of the Company are not entitled to pre-emptive or other rights to subscribe for
the Securities.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY YOU
You hereby represent, warrant and agree that:
4.1 Authority. You have full power and authority to enter into this
Agreement and it constitutes your legal, valid and binding obligation,
enforceable in accordance with its terms.
4.2 Purchase For Own Account. You are acquiring the Securities for your
own account, for investment purposes and not for resale or with a view to any
distribution, or in connection with any distribution thereof you are able to (i)
bear the economic risk of your investment in the Securities, (ii) hold the
Securities for an indefinite period of time, and (iii) afford a complete loss of
your investment.
4.3 Investment Experience. You have the requisite knowledge and
experience in financial and business matters, including investments of this
type, to be capable of evaluating the merits and risks of an investment in the
Securities and of making an informed investment decision with respect thereto.
4.4 Receipt Of Information. You have received from the Company all of
the information concerning the Company which you consider to be material in
making your investment decision, which information has been requested by you if
not already furnished by the Company. You have had full access to the books and
records of the Company and to its officers, directors and accountants for the
purpose of obtaining and verifying such information and you have had an
opportunity to ask questions and receive answers from the officers of the
Company regarding the terms and conditions of this transaction and the Company's
business and financial condition. No representations or warranties, oral or
otherwise, have been made to you, including without limitation, any
representations concerning the future prospects of the Company, by the Company
or any agent, employee or affiliate of the Company, and in entering into this
action you are not relying upon any information other than the results of your
own independent investigation. You have obtained sufficient information to
evaluate the merits and risks of your investment and to make an informed
investment decision.
4.5 Restricted Securities. You understand and acknowledge that the
Securities you are purchasing hereunder are "restricted securities" under United
States federal and state securities laws insofar as they have not been
registered under the Securities Act of 1933, as amended (the "Act"), or the
securities laws of any other jurisdiction, that they may not be resold or
transferred without compliance with the registration or qualification provisions
of the Act or applicable federal and state securities laws of any state or other
jurisdiction or an opinion of counsel acceptable to the Company that an
exemption from such registration and qualification requirements is available.
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<PAGE> 3
4.6 Limitations on Disposition. Without in any way limiting the
representations set forth above, you further agree not to make any disposition
of all or any portion of the Securities unless and until: (i) there is then in
effect a registration statement under the Act covering such proposed disposition
and such disposition is made in accordance with such registration statement; or
(ii) you shall have notified the Company of the proposed disposition and shall
have furnished the Company with a statement of the circumstances surrounding the
proposed disposition and you have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such securities under the Act and applicable securities
laws of any state or other jurisdiction.
4.7 Illiquid Investments. Your overall commitment to investments which
are not readily marketable is not disproportionate to your net worth and your
investment in the Securities will not cause such overall commitment to become
excessive. You have adequate means of providing for your current needs and
personal contingencies.
4.8 Accredited Investor. You are an "Accredited Investor" as that term
is defined in Section 501(a) of Regulation D promulgated under the Act
("Regulation D").
4.9 Company Reliance. You understand, acknowledge and agree that the
Company, in entering into and performing under this Agreement, is relying on the
accuracy of the responses by you in this Agreement, which responses you warrant
to be true, complete and correct.
5. CONDITIONS TO YOUR OBLIGATIONS
Your obligations to purchase the Securities under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 3 above shall be true on and as of the
Closing with the same effect as though made on and as of the date thereof.
5.2 Company Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement,
which performance or compliance are required of it on or before the Closing.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to sell and issue the Securities to you
are subject to the fulfillment on or before the Closing of each of the following
conditions by you:
6.1 Representations and Warranties. Your representations and warranties
contained in Section 4 above shall be true on and as of the Closing with the
same effect as though made on and as of the date thereof.
6.2 Payment. You shall have delivered to the company an executed copy
of this Agreement, together with the payment of the subscription price for the
Securities being purchased by you.
6.3 Blue Sky Qualification. The Company shall have received any permits
or authorization from any state securities law authority which may be necessary
to qualify the offer and sale of the Securities to you.
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<PAGE> 4
7. REGISTRATION RIGHTS
The Company hereby grants to Holder the registration rights set forth
in Appendix I attached hereto, subject to the remainder of this Agreement.
Appendix I is incorporated into, and made a part of, this Agreement.
8. FURTHER AGREEMENTS
You agree that:
8.1 No Transfer or Assignment. You will not transfer or assign this
Agreement or any of your interest herein except as provided in Section 4.6
above.
8.2 Successors and Assigns. You may not cancel or revoke this Agreement
and this Agreement shall be binding upon your successors and assigns, except as
provided by certain state laws.
8.3 Indemnification. You shall indemnify, hold harmless and defend the
Company and its affiliates and agents with respect to any and all loss, damage,
expense, claim, action or liability any of them may incur as a result of the
breach or untruth of any representations or warranties made by you herein, and
you agree that in the event of any breach or untruth of any representations or
warrants made by you herein, the Company may, at its option, forthwith rescind
the sale of the Securities to you, in addition to any other rights or remedies
which the Company may have.
8.4 Legend. A legend in substantially the following form will be placed
on all documents or certificates evidencing the Securities and the shares of
Common Stock underlying the Warrants:
"THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION AND SUCH SECURITIES
MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
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."
8.5 Subordination. Section 4 of the Notes provides that the Notes are
subordinated to certain indebtedness of the Company. Holder hereby grants to the
executive officers of the Company, or any of them, a power-of-attorney to
execute and deliver on behalf of Holder any and all documents, instruments or
agreements which such officer deems necessary or advisable in order to evidence
and/or confirm such subordination. The above referenced power-of-attorney is
coupled with an interest and shall be irrevocable.
9. GENERAL AND MISCELLANEOUS
9.1 Survival. The warranties, representations and covenants of the
parties contained in this Agreement shall survive the execution and delivery of
this Agreement and the Closing.
9.2 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof, and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, guarantees or covenants except as specifically set forth in
this Agreement. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. 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,
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<PAGE> 5
except as expressly provided in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of Delaware without regard to conflicts of
law.
9.4 Notices. All notices, requests, demands and other communications
under this Agreement 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 tenth day after 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
purchaser, at his address as shown in the Company records; and if to the
Company, at its principal office. Any party may change its address for purposes
of this paragraph by giving the other party written notice of the new address in
the manner set forth above.
9.5 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.6 Acceptance. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of completed Purchase Agreements will
be determined by the Company, which determination will be final and binding. The
Company reserves the absolute right to reject any Purchase Agreement, in its
sole and absolute discretion. The Company also reserves the right to waive any
irregularities in, or conditions of, the submission of any Purchase Agreements,
and the Company's interpretation of the terms and conditions for the purchase of
Securities (including these instructions) shall be final and binding. The
Company shall be under no duty to give any notification of irregularities in
connection with any attempted subscription for Securities or incur any liability
for failure to give such notification. Until such irregularities have been cured
or waived, no subscription for Securities shall be deemed to have been made. Any
Purchase Agreement that is not properly completed and as to which defects have
not been cured or waived will be returned by the Company to the subscriber as
soon as practicable.
9.7 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.
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<PAGE> 6
PURCHASE AGREEMENT GENERAL INSTRUCTIONS
GENERAL INSTRUCTIONS
This Purchase Agreement contains all documents necessary to subscribe
for Securities. You may subscribe for Securities by completing the Purchase
Agreement in the following manner:
1. On line (a) of the signature page state the principal amount of the
Notes you wish to purchase.
2. Sign and state your address, telephone number and social security or
other taxpayer identification number on the lines provided on the
signature page to the Purchase Agreement and deliver the completed
Purchase Agreement to the Company with payment of the entire purchase
price of the Securities subscribed for in the following manner:
A wire transfer or check payable to the order of the Company:
Wire transfer instructions are as follows:
United Missouri Bank of Kansas City, N.A.
10th & Grand
Kansas City, Missouri 64105
ABA # 1010-0069-5
Zurich Yieldwise
Bank Account # 9870838818
To the benefit of Electronics Accessory Specialists
Account # 80-89754385-1
Checks should be sent overnight to:
Mr. Charles R. Mollo
Mobility Electronics, Inc.
5528 Eubank Blvd., N.E., Suite 3
Albuquerque, New Mexico 87111
Ph: 505/292-1624
Following receipt of your completed subscription documents and check,
the Company will accept or reject your subscription, in its sole
discretion. If your subscription is rejected, your funds will be
returned to you promptly, without any interest paid thereon. The
Company may reject a subscription for any reason in its sole
discretion.
3. Send all documents to:
Mr. Charles R. Mollo
Mobility Electronics, Inc.
5528 Eubank Blvd., N.E., Suite 3
Albuquerque, New Mexico 87111
THE COMPLETED SUBSCRIPTION AGREEMENT SHOULD BE RETURNED IN ITS ENTIRETY TO THE
COMPANY AT THE ADDRESS DESIGNATED ABOVE.
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<PAGE> 7
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
PLEASE PRINT OR TYPE. USE INK ONLY.
(ALL PARTIES MUST SIGN)
The undersigned investor hereby certifies that he or she (i) agrees to
all the terms and conditions of this Purchase Agreement, (ii) meets the
suitability standards set forth in this Purchase Agreement and (iii) is a
resident of the state or foreign jurisdiction indicated below.
(a) THE UNDERSIGNED IRREVOCABLY SUBSCRIBES FOR $_____________ PRINCIPAL
AMOUNT OF NOTES.
<TABLE>
<S> <C>
- ---------------------------------------------------
Name of Subscriber (Print)
If other than Individual check one and
indicate capacity of signatory under the
signature:
------
Trust
- --------------------------------------------------- ------
Name of Joint Subscriber (if any) (Print) Estate
------
Uniform Gifts to Minors Act of State of
------
X Attorney-in-fact
- --------------------------------------------------- ------
Signature of Subscriber Corporation
------
Other
------
X
- ---------------------------------------------------
Signature of Joint Subscriber (if any) If Joint Ownership, check one:
------
Joint Tenants with Right of Survivorship
- --------------------------------------------------- ------
Capacity of Signatory (if applicable) Tenants in Common
------
Tenants by the Entirety
------
Community Property
- --------------------------------------------------- ------
Social Security or Taxpayer Identification Number
Backup Withholding Statement:
Please check this box only if the investor is subject to:
- --------------------------------------------------- ------
Residence Address backup withholding.
------
Foreign Person:
- --------------------------------------------------- ------ nonresident alien, foreign corporation, foreign partnership,
City State Zip Code
------ foreign trust or foreign estate
Telephone ( )
--------------------
</TABLE>
The investor agrees to the terms of this Purchase Agreement and, as required by
the Regulations pursuant to the Internal Revenue Code, certifies under penalty
of perjury that (1) the Social Security Number or Taxpayer Identification Number
and address provided above is correct, (2) the investor is not subject to backup
withholding (unless the Backup Withholding Statement box is checked) either
because he has not been notified that he is subject to backup withholding as a
result of a failure to report all interest or dividends or because the Internal
Revenue Service has notified him that he is no longer subject to backup
withholding and (3) the investor (unless the Foreign Person box above is
checked) is not a nonresident alien, foreign partnership, foreign trust or
foreign estate.
<PAGE> 8
THE SUBSCRIPTION FOR $____________________ PRINCIPAL AMOUNT OF 13%
BRIDGE PROMISSORY NOTES OF MOBILITY ELECTRONICS, INC. BY THE ABOVE NAMED
SUBSCRIBER(S) IS ACCEPTED AS OF THE _________ DAY OF _________________, 1999.
MOBILITY ELECTRONICS, INC.
By:
-----------------------------------------
Charles R. Mollo, Chief Executive Officer
<PAGE> 9
Appendix I
Registration Rights
1. Registration Rights. The Company covenants and agrees with you as follows:
1.1 Definitions. For purposes of this Appendix I:
(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 "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(c) 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.
(d) 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.
(e) The term "Registrable Securities" means (i) the shares of Common
Stock issued or issuable upon the exercise of the Warrants 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.
(f) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock issued or
issuable upon exercise of the Warrants which are Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange Commission.
(h) All other capitalized terms used herein which are not defined
herein shall have the meaning given elsewhere in this Agreement.
1.2 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 underlying the Warrants 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 1.2 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.
A-1
<PAGE> 10
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.
(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.
A-2
<PAGE> 11
(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 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 its 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 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 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) 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.
A-3
<PAGE> 12
1.7 Expenses of Registration. All expenses incurred in connection with
registrations, filings or qualifications pursuant to this Section 1 in
connection with 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 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 securityholders (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, 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
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<PAGE> 13
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 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.
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<PAGE> 14
(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
piggyback 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 1.12 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.
1.12 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 two (2) 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.
1.13 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 a majority of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this Section
1.13 shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of any Registrable Securities, and the Company.
A-6
<PAGE> 1
EXHIBIT 4.9
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER ANY STATE SECURITIES LAW OF ANY STATE OR OTHER
JURISDICTION AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE
UNDER THE ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION,
OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT SUCH REGISTRATION IS NOT
REQUIRED.
MOBILITY ELECTRONICS, INC.
FORM OF 13% BRIDGE PROMISSORY NOTE
No. BN2 - _________
$_________ ____________, 1999
FOR VALUE RECEIVED, the undersigned, Mobility Electronics, Inc., a Delaware
corporation ("Maker") hereby promises to pay to the order of or its successors
or assigns ("Payee"), the principal sum of ____________ and No/100 Dollars
($_____________), together with interest accrued thereon (calculated on the
basis of a 365-day year) at a rate of thirteen percent (13%) per annum from the
date hereof until the date that this Note is paid in full provided, however,
that such interest rate shall increase to a rate of eighteen percent ( 18%) per
annum upon the occurrence, and during the continuation, of an Event of Default
(as defined below). All payments on this Note shall be due and payable in lawful
money of the United States of America.
This Note is one of a series of promissory notes of the Company styled "13%
Bridge Promissory Note" in the aggregate amount not to exceed $5,000,000 (plus
an over-allotment option not to exceed $1,000,000), which are being issued from
time to time prior to June 30, 1999, subject to extension at the option of Maker
(collectively, the "Bridge Notes").
1. Principal and Interest Payments. The principal of and interest on this
Note shall be due and payable on July 31, 2000; provided, however, that the
principal of and accrued interest on, this Note must be prepaid in whole (i)
upon the consummation of a Public Offering (as hereinafter defined), (ii) upon
the consolidation or merger of Maker with or into any other corporation or
entity pursuant to which Maker, or its affiliate, is not the surviving entity,
or (iii) upon the sale or other transfer in a single transaction or a series of
related transaction of all or substantially all of the assets of Maker. As used
herein, "Public Offering" shall mean a public offering of securities of Maker
pursuant to a registration statement filed under the Securities Act of 1933, as
amended. Maker agrees that any payments of interest and/or principal on the
Bridge Notes (including this Note) shall be made pari passu with all Bridge
Notes based on the principal balance and the accrued but unpaid interest on all
Bridge Notes at the time of such payment.
<PAGE> 2
2. Prepayments. Maker may at its sole option prepay all or a part of the
principal of this Note before maturity without penalty or premium.
3. Method of Payment. All payments made under this Note, whether of
principal or interest, shall be made by Maker to the holder hereof on the date
specified or provided herein and shall be delivered by means of certified or
cashiers' check or wire transfer of immediately available funds to an account
specified by the holder hereof. Whenever payment hereunder shall be due on a day
which is not a Business Day (as hereinafter defined), the date for payment
thereof shall be extended to the next succeeding Business Day. If the date for
any payment is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time. "Business Day" means every day which is not a
Saturday, Sunday or legal holiday.
4. Subordination. Notwithstanding anything herein to the contrary, the
payment of principal of and interest on this Note shall be subordinate and
junior to the prior payment of the indebtedness of Maker: (a) owed to Sirrom
Capital Corporation and NationsBank, N.A., and their respective successors and
assigns (as such indebtedness may be renewed, deferred, extended, refunded,
amended or modified from time to time); and (b) hereafter created constituting
borrowed money from financial institutions or lenders approved by the Board of
Directors of Maker and designated in writing as being senior to this Note (but
only to the extent so designated (as such indebtedness may be renewed, deferred,
extended, refunded, amended or modified from time to time) (collectively, the
"Senior Indebtedness"). If any payment or distribution shall be received in
respect of this Note in contravention of the terms of this Section 4, such
payment or distribution shall be held in trust for the holders of the Senior
Indebtedness, and shall be immediately delivered to such holders in the same
form as received.
5. Events of Default. The following shall constitute events of default
("Events of Default") hereunder:
(a) failure of Maker to make any payment on this Note as and when
the same becomes due and payable in accordance with the terms hereof;
(b) failure of Maker to perform any other covenant contained herein
if the same has continued for thirty (30) days after written notice specifying
such default has been delivered to Maker by Payee;
(c) the occurrence of any event of default under any Bridge Note or
under the Senior Indebtedness, which event of default is not cured within any
applicable cure period and in the case of Senior Indebtedness, for which the
holder of such Senior Indebtedness commences legal action against Maker to
collect the Senior Indebtedness;
(d) if Maker makes an assignment for the benefit of creditors or
petitions or applies for the appointment of a liquidator, receiver or custodian
(or similar official) of it or of any substantial part of its assets, or if
Maker commences any proceeding or case relating to it under the Bankruptcy Code
or any other bankruptcy, reorganization, arrangement, insolvency, readjustment
<PAGE> 3
of debt, dissolution or liquidation or similar law of any jurisdiction, or takes
any action to authorize any of the foregoing; or
(e) if any petition or application of the type described in
subparagraph (e) immediately above is filed or if any such proceeding or case
described in subparagraph (e) is commenced against Maker and is not dismissed
within sixty (60) days, or if Maker indicates its approval thereof, consents
thereto or acquiesces therein, or if an order is entered appointing any such
liquidator or receiver or custodian (or similar official), or adjudicating Maker
bankrupt or insolvent, or approving a petition in any such proceeding or if a
decree or order for relief is entered in respect of Maker in an involuntary case
under the Bankruptcy Code or any other bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction.
In the event any one or more of the Events of Default specified above
occurs and is continuing, the holder of this Note may (i) accelerate the
maturity of this Note with notice to Maker at which time all such amounts shall
be immediately, due and payable, (ii) proceed to protect and enforce its rights
either by suit in equity or by action at law, or by other appropriate
proceedings, whether for the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power or right granted
by this Note, or (iii) enforce any other legal or equitable right of the holder
of this Note.
6. Delay or Omission Not Waiver. No delay or omission on the part of the
holder of this Note in the exercise of any power, remedy or right under this
Note, or under any other instrument executed pursuant hereto, shall operate as a
waiver thereof, nor shall a single or partial exercise of any such power or
right preclude any other or further exercise thereof or the exercise of any
other right or power hereunder.
7. Waiver. Any term, covenant, agreement or condition of this Note may,
only with the written consent of Maker and Payee, be amended or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), altered, modified or amended.
8. Attorneys' Fees and Costs. In the event an Event of Default shall occur,
and in the event that thereafter this Note is placed in the hands of an attorney
for collection, or in the event this Note is collected in whole or in part
through legal proceedings of any nature, then and in any such case Maker
promises to pay all costs of collection, including, but not limited to,
reasonable attorneys' fees and court costs incurred by the holder hereof on
account of such collection, whether or not suit is filed.
9. Successors and Assign. All of the covenants, stipulations, promises and
agreements in this Note made by Maker and Payee (by virtue of its acceptance of
this Note) shall bind its successors and assigns, whether so expressed or not.
10. Maximum Lawful Rate. It is the intent of the Maker and holder of this
Note to conform to and contract in strict compliance with applicable usury law
from time to time in effect.
<PAGE> 4
In no way, nor in any event or contingency (including but not limited to
prepayment, default, demand for payment, or acceleration of the maturity of any
obligation), shall the rate of interest taken, reserved, contacted for, charged
or received under this Note exceed the highest lawful interest rate permitted
under applicable law. If the holder of this Note shall ever receive anything of
value which is characterized as interest under applicable law and which would
apart from this provision be in excess of the highest lawful interest rate
permitted under applicable law, an amount equal to the amount which would have
been excessive interest shall, without penalty, be applied to the reduction of
the principal amount owing on this Note in the inverse order of its maturity and
not to the payment of interest, or refunded to Maker or the other payor thereof
if and to the extent such amount which would have been excessive exceeds such
unpaid principal. All interest paid or agreed to be paid to the holder hereof
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full stated term (including any renewal or
extension) of this Note so that the amount of interest on account of such
obligation does not exceed the maximum permitted by applicable law. As used in
this Section, the term "applicable law" shall mean the laws of the State of
Delaware or the federal laws of the United States, whichever laws allow the
greater interest, as such laws now exist or may be changed or amended or come
into effect in the future.
11. Governing Law. This Note shall be governed by and construed in
accordance with the substantive laws (but not the rules governing conflicts of
laws) of the State of Delaware.
12. Notice. All notices, demands or requests provided for or permitted to
be given under this Note must be in writing, and shall be given and be deemed
received as set forth in the Purchase Agreement.
13. Severability. In case any one or more of the provisions contained in
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
EXECUTED as of the date set forth above.
MAKER:
MOBILITY ELECTRONICS, INC.
By:_________________________________
Charles R. Mollo
Chief Executive Officer
<PAGE> 1
EXHIBIT 4.10
MOBILITY ELECTRONICS, INC.
CONVERSION NOTICE
To: The holders of 13% Bridge Promissory
Notes (the "Notes") of Mobility Electronics,
Inc. (the "Company")
The Company hereby offers to each holder of Notes the opportunity to
convert the principal of, and all accrued but unpaid interest on, the Notes into
shares of common stock, par value $0.01 per share, of the Company (the "Common
Stock") at a price of $4.00 per share. In order to exercise this conversion
offer, please complete and execute the attached Conversion Form, and deliver
such Conversion Form, together with your original Note, on or prior to June 30,
1999. All conversions if properly completed and received by the Company on or
prior to June 30, 1999, shall be deemed for purposes of conversion to have been
received on June 30, 1999, so that the holders of the Notes so converted will
receive the maximum number of shares of Common Stock issuable due to the
interest accruing on such holder's Note.
If you have any questions or desire additional information, please do not
hesitate to call me at (505)292-1624, Rick Winterich, our Chief Financial
Officer, at (602)596-0061 x326 or Rick Dahlson, our legal counsel, at
(214)953-5896.
THIS OFFER WILL EXPIRE ON JUNE 30, 1999.
Very truly yours,
/s/ CHARLES R. MOLLO
----------------------
Charles R. Mollo,
Chief Executive Officer
<PAGE> 1
EXHIBIT 4.11
MOBILITY ELECTRONICS, INC.
(A Delaware corporation)
FORM OF SERIES C PREFERRED STOCK PURCHASE AGREEMENT
MOBILITY ELECTRONICS, INC., a Delaware corporation (the "Company"),
whose address is 15990 Greenway-Hayden Loop, Suite 500, Scottsdale, Arizona
85260, hereby agrees with the undersigned Purchaser as follows:
1. TRANSACTION
The Company, by due action of its Board of Directors, has authorized
the offer and sale to you under this Series C Preferred Stock Purchase Agreement
("Agreement" or "Purchase Agreement") and to other purchasers under similar or
different Series C Stock purchase agreements ("Other Purchasers") up to $15
million of shares of Series C Convertible Preferred Stock, par value $.01 per
share ("Series C Stock"), of the Company ("Preferred Shares"). The minimum
subscription amounts per investor shall be 4,000 Preferred Shares or $24,000 and
lesser amount per investor shall not be sold unless agreed to by the Company and
First London Securities Corporation, the Company's placement agent in this
offering (the "Placement Agent"). The Preferred Shares shall conform to the
description thereof in the Memorandum (as defined below).
2. PURCHASE AND SALE
2.1 Preferred Shares. Subject to all of the terms and conditions of
this Agreement, the Company will issue and sell to you (sometimes referred to as
"Holder") the number of Preferred Shares shown on the signature page hereof and
you will purchase the same from the Company; provided that Preferred Shares in
the aggregate amount of at least $1,000,000 have been subscribed and paid for by
you and the Other Purchasers and all other terms and conditions set forth in
this Purchase Agreement are satisfied. You acknowledge that Preferred Shares
subscribed and paid for by officers, directors or employees of the Company, or
by holders of the Company's outstanding securities, or by officers or employees
of the Placement Agent for their own account, or by an affiliate of any of the
foregoing, shall be counted in determining whether at least $1,000,000 have been
subscribed and paid for. You also understand and agree that you must purchase a
minimum of 4,000 Preferred Shares or $24,000.
2.2 Funds Escrow Account. The funds tendered by you pursuant to this
Agreement will be deposited in a special escrow account (the "Fund") at First
Arizona Savings and Loan Association ("Funds Escrow Agent"), whose address is
Attention: Tom Rose, 4141 North Scottsdale Road, Suite 140, Scottsdale, Arizona
85251, and will be returned to you without interest or deduction for escrow fees
and expenses, if: (a) your subscription for the purchase of Preferred Shares
pursuant to this Agreement has not been accepted by the Company or (b) if
purchase agreements for the purchase of at least $1,000,000 of Preferred Shares
and related funds in the amount of at least $1,000,000 are
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<PAGE> 2
not deposited in the Fund before the close of business on March 31,1999, which
date may be earlier terminated or extended one or more times by the Company in
its sole discretion, without notice to you and the Other Purchasers (the
"Termination Date"). It is understood and agreed that if this Agreement is
accepted by the Company, and a minimum of $1,000,000 of funds are received and
accepted by the Company before the close of business on the Termination Date,
then at the Closing (as defined below) with respect to the Preferred Shares
subscribed for you, the funds tendered herewith (less any fees paid to the
Placement Agents), shall be delivered to the Company by the Funds Escrow Agent
in payment for the Preferred Shares subscribed for by you, or such lesser amount
as may be allocated to you by the Company. If you are allocated less than the
full amount of the Preferred Shares subscribed for by you and the full amount of
the Preferred Shares subscribed for has been timely paid in full by you, the
Company shall instruct the Funds Escrow Agent to remit the over payment of the
amount paid, without interest or deduction, to you within fifteen days after
such partial acceptance of this Purchase Agreement. The Preferred Shares are
being offered by the Company subject to the right of the Company and Placement
Agent to reject, at their discretion, any subscription, in whole or in part, For
any reason, and to accept subscriptions notwithstanding the order in which they
are received.
2.3 Closing. The purchase by and sale and delivery to you and Other
Purchasers of the Preferred Shares (the "Closing") shall take place at the
office of the Company or of the Funds Escrow Agent at such date and time, or at
such other place, upon which the Company and the Placement Agent may agree (such
date being hereinafter called the "Closing Date"). At the Closing, the Company
shall deliver to a representative of the Placement Agent on your behalf,
instruments evidencing the Preferred Shares comprising the Preferred Shares
being purchased by you and other items required to be delivered to it pursuant
to this Purchase Agreement. If at any time prior to the Termination Date,
subscriptions for at least $1,000,000 of Preferred Shares have been received and
accepted by the Company, and the full purchase price for such Preferred Shares
have been deposited into the Fund, the Company may have an initial closing
("Initial Closing") with respect to such accepted subscriptions and continue to
offer the remaining Preferred Shares until the Termination Date or $15 million
of Preferred Shares have been sold, whichever occurs earlier; provided, however,
that the final Closing shall take place not later than ten days after the
Termination Date.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
As an inducement to you to enter into this Agreement, the Company
represents, warrants and agrees that:
3.1 Disclosure. The Company has prepared the Company's Private
Placement Memorandum (the "Memorandum") dated January 25, 1999, together with
all exhibits annexed thereto, and in all such cases, any amendments or
supplements thereto (collectively, the "Disclosure Documents"). The Disclosure
Documents, when taken as a whole, do not contain, to the best knowledge of the
Company, any untrue statement of material fact or omit any material fact
necessary in order to make the statements therein not misleading; provided,
however, that the Memorandum contains projections and estimates of future
events, and such projections and estimates have been
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<PAGE> 3
based upon certain assumptions that management of the Company made in good faith
and believed were reasonable at the time such materials were prepared.
3.2 Corporate Power. The Company has all required corporate power and
authority to own its own properties and to carry on its business as presently
conducted. The Company has all required power and authority to execute and
deliver this Agreement, to issue and sell the Preferred Shares, and to carry out
the transactions contemplated by this Agreement.
3.3 Authority for Agreement. This Agreement has been duly authorized by
all necessary action of the Company and, when executed and delivered by the
Company, will be a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent that the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally or by general
principles of equity, and except that the indemnification provisions of the
Agreement may be held to be violative of public policy under either federal or
state laws in the context of the offer or sale of securities.
3.4 Financial Statements. The Memorandum contains correct and complete
copies of the Company's consolidated balance sheets as of December 31, 1996 and
1997, the consolidated statements of operations for the years ended December 31,
1996 and 1997, consolidated statements of stockholders' equity for the years
ended December 31, 1996 and 1997 and the consolidated statements of cash flows
for the years ended December 31, 1996 and 1997 (the "Financial Statements"). The
Financial Statements are in accordance with the books and records of the Company
and have been prepared in accordance with generally accepted accounting
principals and present fairly in all material respects the financial position of
the Company on the dates of such statements and the results of its operations
for the periods covered. The Company maintains its books and records and
accounts in accordance with good business practice and in sufficient detail to
reflect accurately the transactions and dispositions of its assets, liabilities
and securities.
3.5 Description of Securities. The Preferred Shares when issued and
delivered will conform to the description thereof under the captions
"Description of Securities'` and "Terms of the Offering" in the Disclosure
Documents.
3.6 Validity of Stock. The Preferred Shares, when issued and paid for
at the Closing, will constitute duly authorized, legally issued shares of Series
C Stock. The shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), issuable upon conversion of the Preferred Shares will,
when issued in accordance with the terms of the Series C Stock, be duly
authorized, legally issued shares of Common Stock.
3.7 No Conflicting Rights. The holders of the outstanding capital stock
of the Company are not entitled to pre-emptive or other rights to subscribe for
Preferred Shares. Other than as set forth in the Memorandum, the offering of the
Preferred Shares as contemplated by the Memorandum does not give rise to any
rights relating to the registration of any outstanding capital stock.
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<PAGE> 4
3.8 Patents, Trade-marks, Service Marks and Copyrights.
(a) Ownership. The Company owns all patents, trade-marks, service marks
and copyrights, if any, necessary to conduct its business, or possesses adequate
licenses or other rights, if any, therefor (the "Proprietary Rights"), without
conflict with the rights of others.
(b) Conflicting Rights of Third Parties. The Company has the right to
use the Proprietary Rights without infringing or violating the rights of any
third parties. No claim has been asserted by any person as to the ownership of
or right to use any Proprietary Right or challenging or questioning the validity
or effectiveness of any license or agreement constituting a part of any
Proprietary Right, and the Company does not know of any valid basis for any such
claim. Each of the Proprietary Rights is valid, has not been canceled, abandoned
or otherwise terminated and, if applicable, has been duly issued or filed.
(c) Claims of Other Persons. The Company has no knowledge of any claim
that, or inquiry as to whether, any product, activity or operation of the
Company infringes upon or involves, or has resulted in the infringement of, any
proprietary right of any other person, corporation or other entity; and no
proceedings have been instituted, or are pending or threatened that challenge
the rights of the Company with respect thereto.
3.9 Trade Secrets and Customer Lists. The Company has the right to use,
free and clear of any claims or rights of others, all trade secrets, customer
lists and proprietary information required for the marketing of all merchandise
and services formerly or presently sold or marketed by the Company. The Company
is not using, or in any way making or use of any confidential information or
trade secrets of any third party.
3.10 Litigation. There is no litigation, arbitration or governmental
proceeding or investigation pending or, to the knowledge of the Company,
threatened (i) against the Company (except as described in the Memorandum), (ii)
affecting any of the properties or assets of the Company, or (iii) against any
officer, director, shareholder or employee of the Company in such capacity or
relating to his prior employment relationships that would have a material
adverse effect on the Company taken as a whole. The Company, is not aware of any
fact that is likely to form the basis of any such litigation, arbitration or
proceeding.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY YOU
You hereby represent, warrant and agree that:
4.1 Authority. You have full power and authority to enter into this
Agreement and it constitutes your legal, valid and binding obligation,
enforceable in accordance with its terms.
4.2 Purchase For Own Account. You are acquiring the Preferred Shares
for your own account, for investment purposes and not for resale or with a view
to any distribution, or in connection with any distribution thereof you are able
to (i) bear the economic risk of your investment
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in the Preferred Shares, (ii) hold the Preferred Shares for an indefinite period
of time, and (iii) afford a complete loss of your investment.
4.3 Investment Experience. You have the requisite knowledge and
experience in financial and business matters, including investments of this
type, to be capable of evaluating the merits and risks or an investment in the
Preferred Shares and of making an informed investment decision with respect
thereto.
4.4 Receipt Of Information. You have received, read carefully,
considered and fully understood the Disclosure Documents and you have received
from the Company all of the information concerning the Company which you
consider to be material in making your investment decision, which information
has been requested by you if not already furnished by the Company. You have had
full access to the books and records of the Company and to its officers,
directors and accountants for the purpose of obtaining and verifying such
information and you have had an opportunity to ask questions and receive answers
from the officers of the Company regarding the terms and conditions of this
transaction and the Company's business and financial condition.
Except as expressly set forth in the Disclosure Documents, no
representations or warranties, oral or otherwise, have been made to you,
including without limitation, any representations concerning the future
prospects of the Company, by the Company, any Placement Agent, any broker/dealer
or any agent employee or affiliate of the Company, any Placement Agent, any
broker/dealer or any other person whether or not associated with this offering,
and in entering into this action you are not relying upon any information other
than that contained in the Disclosure Documents, and the results of your own
independent investigation. You have obtained sufficient information to evaluate
the merits and risks of your investment and to make an informed investment
decision.
4.5 Restricted Securities. You understand and acknowledge that the
Preferred Shares you are purchasing hereunder are "restricted securities" under
United States federal and state securities laws insofar as they have not been
registered under the Securities Exchange Act of 1933, as amended (the "1933
Act"), or the securities laws of any other jurisdiction, that they may not be
resold or transferred without compliance with the registration or qualification
provisions of the 1933 Act or applicable federal and state securities laws of
any state or other jurisdiction or an opinion of counsel acceptable to the
Company that an exemption from such registration and qualification requirements
is available.
4.6 Limitations on Disposition. Without in any way limiting the
representations set forth above, you further agree not to make any disposition
of all or any portion of the Preferred Shares unless and until:
(a) There is then in effect a registration statement under the 1933 Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
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(b) (i) You shall have notified the Company of the proposed disposition
and shall have furnished the Company with a statement of the circumstances
surrounding, the proposed disposition and (ii) you have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the 1933 Act
and applicable securities laws of any state or other jurisdiction.
4.7 Illiquid Investments. Your overall commitment to investments which
are not readily marketable is not disproportionate to your net worth and your
investment in the Preferred Shares will not cause such overall commitment to
become excessive. You have adequate means of providing for your current needs
and personal contingencies.
4.8 Accredited Investor. You are an "Accredited Investor" as that term
is defined in Section 501(a) of Regulation D promulgated under the Act
("Regulation D"). Specifically, you are (check and initial all appropriate
items):
___ (i) A bank as defined in Section 3(a)(2) of the Act, or a
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934; in insurance
company as defined in Section 2(13) of the Act; an investment
company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of
that Act; a small Business Investment Company licensed by the US.
Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions, for
the benefit of its employees, if such plan has total assets in
excess of $5,000,000; an employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974 if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and
loan association, insurance company, or registered investment
advisor, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by, persons that are accredited investors.
___ (ii) A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
___ (iii) An organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets in
excess of $5,000,000.
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___ (iv) A director or executive officer of the Company.
___ (v) A natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his or her
purchase exceeds $1,000,000.
___ (vi) A natural person who had an individual income in excess
of $200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the same
income level in the current year. If Subscriber is a California
resident, Subscriber's investment in the Company will not exceed
10% of such subscriber's net worth (or joint net worth with his
or her spouse). If Subscriber is a Massachusetts resident, such
subscriber's investment in the Company will not exceed 25% of
Subscriber's joint net worth with his or her spouse (exclusive of
principal residence and its furnishings).
___ (vii) trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) (i.e., a purchaser not an
Accredited Investor who either alone or with his purchaser
representative(s) has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits
and risks of the prospective investment).
___ (viii) An entity in which all of the equity owners are
accredited investors. (IF THIS ALTERNATIVE IS CHECKED, SUBSCRIBER
MUST IDENTIFY EACH EQUITY OWNER AND PROVIDE STATEMENTS SIGNED BY
EACH DEMONSTRATING HOW EACH QUALIFIED AS AN ACCREDITED INVESTOR.)
4.9 Company Reliance On Questionnaire. You understand, acknowledge and
agree that the Company, in entering into and performing under this Agreement, is
relying on the accuracy of the responses by you in this Agreement, which
responses you warrant to be true, complete and correct.
4.10 Disclosure. The Company has provided you with all of the material
information which you have reasonably requested in deciding whether to invest in
the Preferred Shares.
5. CONDITIONS TO YOUR OBLIGATIONS
Your obligations to purchase Preferred Shares under this Agreement are
subject to the fulfillment on or before the Closing, of each of the following
conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 3 above shall be true on and as of the
Closing with the same effect as though made on and as of the date thereof.
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5.2 Company Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement,
which performance or compliance are required of it on or before the Closing.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to sell and issue the Preferred Shares
to you are subject to the fulfillment on or before the Closing of each of the
following conditions by you:
6.1 Representations and Warranties. Your representations and warranties
contained in Section 4 above shall be true on and as of the Closing with the
same effect as though made on and as of the date thereof.
6.2 Payment. You shall have delivered into the Fund the amount of the
purchase price of the Preferred Shares being purchased by you.
6.3 Blue Sky Qualification. The Company shall have received any permits
or authorization from any state securities law authority which may be necessary
to qualify the offer and sale of the Preferred Shares to you.
7. REGISTRATION RIGHTS
The Company hereby grants to Holder the registration rights set forth
in Appendix I attached hereto, subject to the remainder of this Agreement.
Appendix I is incorporated into, and made a part of, this Agreement.
8. FURTHER AGREEMENTS
You agree that:
8.1 No Transfer or Assignment. You will not transfer or assign this
Agreement or any of your interest herein except as provided in Section 4.6
above.
8.2 Successors and Assigns. You may not cancel or revoke this Agreement
and this Agreement shalt be binding upon your successors and assigns, except as
provided by certain state laws.
8.3 Indemnification. You shall indemnify, hold harmless and defend the
Company and the Placement Agent and their respective affiliates and agents with
respect to any and all loss, damage, expense, claim, action or liability any of
them may incur as a result of the breach or untruth of any representations or
warranties made by you herein, and you agree that in the event of any breach or
untruth of any representations or warrants made by you herein, the Company may,
at its
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option, forthwith rescind the sale of the Preferred Shares to other rights or
remedies which the Company may have.
8.4 Legend. A legend in substantially the following form will be placed
on all documents or certificates evidencing the Preferred Shares and the
underlying shares of Common Stock:
"THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAW OF ANY STATE OR OTHER JURISDICTION AND SUCH SECURITIES MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, 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."
9. GENERAL AND MISCELLANEOUS
9.1 Survival. The warranties, representations and covenants of the
parties contained in this Agreement shall survive the execution and delivery of
this Agreement and the Closing.
9.2 Entire Agreement. This Agreement constitutes the entire agreement
among the parties, and no party in any manner shall be liable or bound to any
other party in any manner by any warranties, representations, guarantees or
covenants except as specifically set forth in this Agreement. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. 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.
9.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of Delaware without regard to conflicts of
law.
9.4 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.
9.5 Notices. All notices, requests, demands and other communications
under this Agreement 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 tenth day after 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
purchaser, at his address as shown in the Company record; and if to the Company,
at its principal office. Any party may change its
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address for purposes of this paragraph by giving the other party, written notice
of the new address in the manner set forth above.
9.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
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PURCHASE AGREEMENT GENERAL INSTRUCTIONS
GENERAL INSTRUCTIONS
This Purchase Agreement contains all documents necessary to subscribe
for Shares of Series C Convertible Preferred Stock, par value $.01 per Share
("Preferred Shares"), of Mobility Electronics, Inc., a Delaware corporation (the
"Company").
You may subscribe for Preferred Shares by completing the Purchase
Agreement in the following manner:
1. On line (a) of the signature page state the number of Preferred Shares
you wish to purchase.
2. On line (b) of the signature page state the total cost of the Preferred
Shares you wish to purchase. To obtain the cost, multiply the number of
Preferred Shares you desire to purchase by the purchase price per Share
set forth.
3. Please complete the detailed investment and other representations in
the Purchase Agreement to evidence your suitability for an investment
in the Company. All purchasers must complete and sign the Purchase
Agreement.
4. Sign and state your address, telephone number and social security or
other taxpayer identification number on the lines provided on the
signature page to the Purchase Agreement, have your signature
acknowledged by a notary public and deliver the completed Purchase
Agreement to the Placement Agent with payment of the entire purchase
price of the Preferred Shares subscribed for in the following manner.
A wire transfer or check payable to the order of First Arizona Savings
and Loan Association, as escrow agent, Wire transfer instructions are
as follows:
Correspondent Bank: Norwest Bank, Minnesota N/A
Routing/ABA: 091000019
Beneficiary Bank: Acct #6888601016
First Arizona Savings
Further Credit: Mobility Escrow Account
Account #: 005-3503453
FBO (Your Name)
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Checks should be sent overnight to:
Attention: Tom Rose
First Arizona Savings
4141 N. Scottsdale Rd., Suite 140
Scottsdale, AZ 85251
(602) 481-8510
Following receipt of your completed subscription documents and
check, the Company will accept or reject our subscription, in its sole
discretion. If your subscription is accepted. a confirmation will be sent to you
prior to closing. If; for any reason, your subscription is rejected, your funds
will be returned to you promptly, without any interest paid thereon. The Company
may reject a subscription for any reason in its sole discretion.
5. Send all documents and payments to:
First London Securities Corporation
2600 State Street
Dallas, Texas 75204 the
Attention: Jesse B. Shelmire, IV
Managing Director (214) 220-0693
THE COMPLETED SUBSCRIPTION AGREEMENT SHOULD BE RETURNED IN ITS
ENTIRETY TO THE PLACEMENT AGENT DESIGNATED ABOVE.
ACCEPTANCE OF DELIVERY
All questions as to the validity form, eligibility (including
time of receipt) and acceptance of the completed Purchase Agreement will be
determined by the Company, which determination will be Final and binding. The
Company reserves the absolute right to reject any completed Purchase Agreement,
in its sole and absolute discretion. The Company also reserves the right to
waive any irregularities in, or conditions of, the submission of completed
Purchase Agreements, and the Company's interpretation of the terms and
conditions for the purchase of Preferred Shares (including these instructions)
shall be final and binding. The Company shall be under no duty to give any
notification of irregularities in connection with any attempted subscription for
Preferred Shares or incur any liability for failure to give such notification.
Until such irregularities have been cured or waived, no subscription for
Preferred Shares shall be deemed to have been made. Any Purchase Agreement that
is not properly completed and as to which defects have not been cured or waived
will be returned by the Company to the subscriber as soon as practicable.
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SUBSCRIPTION AGREEMENT SIGNATURE PAGE
PLEASE PRINT OR TYPE. USE INK ONLY.
(ALL PARTIES MUST SIGN)
The undersigned investor hereby certifies that he or she (i)
has received and relied solely upon the Offering Documents, (ii) agrees to all
the terms and conditions of this Purchase Agreement, (iii) meets the suitability
standards set forth in this Purchase Agreement and (iv) is a resident of the
state or foreign jurisdiction indicated below.
(a) The undersigned irrevocably subscribes for _________ shares of
Preferred Stock.
(b) The total cost of the shares subscribed for, at $6.00 per share, is
$____________.
- ---------------------------------------
Name of Subscriber (Print) If other than Individual check one and
indicate capacity of signatory under
the signature:
- --------------------------------------- [ ] Trust
Name of Joint Subscriber (if any) (Print) [ ] Estate
[ ] Uniform Gifts to Minors Act of
State of
X [ ] Attorney-in-fact
- --------------------------------------- [ ] Corporation
Signature of Subscriber [ ] Other
X
- ---------------------------------------
Signature of Joint Subscriber (if any) If Joint Ownership, check one:
[ ] Joint Tenants with Right of
- --------------------------------------- Survivorship
Capacity of Signatory (if applicable) [ ] Tenants in Common
[ ] Tenants by the Entirety
[ ] Community Property
- ---------------------------------------
Social Security or Taxpayer
Identification Number
Backup Withholding Statement:
Please check this box only if the
- --------------------------------------- investor is subject to
Residence Address [ ] backup withholding.
- --------------------------------------- Foreign Person:
City State Zip Code [ ] nonresident alien, foreign
corporation, foreign partnership,
foreign trust or foreign estate
Telephone ( )
----------------------
The investor agrees to the terms of this Purchase Agreement and, as required by
the Regulations pursuant to tile Internal Revenue Code, certifies under penalty
of perjury that (1) the Social Security Number or Taxpayer Identification Number
and address provided above is correct, (2) the investor is not subject to backup
withholding (unless the Backup Withholding Statement box is checked) either
because lie has not been notified that he is subject to backup withholdings as a
result of a failure to report all interest or dividends or because the Internal
Revenue Service has notified him that he is no longer subject to backup
withholding and (3) the investor (unless the Foreign Person box above is
checked) is not a nonresident alien, foreign partnership, foreign trust or
foreign estate.
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THE SUBSCRIPTION FOR _____________ SHARES OF SERIES C CONVERTIBLE
PREFERRED STOCK OF MOBILITY ELECTRONICS, INC. BY THE ABOVE NAMED SUBSCRIBER(S)
IS ACCEPTED THIS ___ DAY OF ___________________, 1999.
MOBILITY ELECTRONICS, INC
By:
---------------------------
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Appendix I
Registration Rights
1. Registration Rights
All defined terms used herein shall have the meanings ascribed thereto
in the Agreement. In addition, the Company covenants and agrees with you as
follows:
1.1 Definitions. For purposes of this Appendix I:
(a) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.10 hereof.
(b) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(c) 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.
(d) 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 1933 Act, and the
declaration or ordering of effectiveness of such registration statement
or document.
(e) The term "Registrable Securities" means (i) the shares of
common stock, par value $0.01 per share, of the Company (the "Common
Stock") issuable upon the conversion of the Series C 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 1933 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.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common
Stock issuable upon conversion of shares of Series C Stock outstanding
which are Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
(h) All other capitalized terms used herein which are not
defined herein shall have the meaning, given elsewhere in this
Agreement.
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<PAGE> 16
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 Securities 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, in appropriate
filing, with the SEC of a registration statement covering such
Registrable Securities and the proposed sale or distribution thereof
under the Securities 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 judgement 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 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 $10 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
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<PAGE> 17
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 shalt 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.
(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 or 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
A-3
<PAGE> 18
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 1933 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 1933 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 1933 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 1933 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"
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<PAGE> 19
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 or Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the 1933 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 its 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 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
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 1933 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 1933 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.
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(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 I 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 three demand registrations, 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 one counsel for the Selling Holders (but excluding
fees and disbursements of more than one counsel to the selling Holders,
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 of the Holders' 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.
(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 sold other than by the Company that the underwriters
determine in their sole discretion is compatible with the success of
the Offering, then the Company shall be required to include in the
offering only that number of such
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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 7.
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 1933
Act) for such Holder and each person, if any, who controls such Holder
or underwriter within the meaning of the 1933 Act or the 1934 Act
against any losses, claims, damages, or liabilities joint or several)
to which they may become subject under the 1933 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. 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, 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
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<PAGE> 22
of the 1933 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 1933 Act, the
1934 Actor 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 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
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<PAGE> 23
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 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 notice of the name and address of such
transferee or assignee and the securities with respect to which such piggyback
registration rights are being assigned: (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions or this
Agreement, including without limitation the provisions of Section 1.12 below;
and (c) such assignment shall be effective only immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act.
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 Series C Stock or underlying 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. 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
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<PAGE> 24
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 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 all such Registrable Securities, and the
Company.
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<PAGE> 1
EXHIBIT 4.12
MOBILITY ELECTRONICS, INC.
(A Delaware corporation)
FORM OF SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
MOBILITY ELECTRONICS, INC., a Delaware corporation (the "Company"), whose
address is 5528 Eubank Boulevard N.E., Suite 3, Albuquerque, New Mexico 87111,
hereby agrees with the undersigned Purchaser as follows:
1. TRANSACTION
The Company, by due action of its Board of Directors, has authorized the
offer and sale to you under this Series C Preferred Stock and Warrants Purchase
Agreement ("Agreement" or "Purchase Agreement") and to other purchasers under
similar or different Series C Preferred Stock and Warrant Purchase Agreements
("Other Purchasers") of up to $5 million of shares of Series C Preferred Stock,
par value $0.01 per share, of the Company (the "Series C Stock"), at a price of
$6.00 per share. A copy of the Certificate of the Designations, Preferences,
Rights and Limitations of Series C Stock is attached hereto as Exhibit A. For
each share of Series C Stock purchased, you will receive, at no additional cost,
a warrant to purchase two (2) shares of the common stock, par value $ .01 per
share, of the Company (the "Common Stock"), the form of which is attached hereto
as Exhibit B (the "Warrant"). The Series C Stock and Warrant are sometimes
collectively referred to herein as the "Securities". The minimum subscription
amount is $25,000 per investor, unless agreed to by the Company. The Company may
pay commissions to brokers, if any, involved in this offering of Securities.
2. PURCHASE AND SALE
2.1 The Securities. Subject to all of the terms and conditions of this
Agreement, the Company will issue and sell to you (sometimes referred to as
"Holder") the number of shares of Series C Stock shown on the signature page
hereof (in which event you will also be deemed to have purchased the Warrant for
the applicable number of shares of Common Stock as provided above for no
additional consideration) and you will purchase the same from the Company;
provided that all other terms and conditions set forth in this Purchase
Agreement are satisfied.
2.2 Closing. The purchase by and sale and delivery to you of the Securities
(the "Closing") shall take place at the executive offices of the Company as set
forth above at such date and time as determined by the Company (such date being
hereinafter called the "Closing Date"). At the Closing, the Company shall
deliver to you: (i) a certificate representing the number of shares of Series C
Stock to be issued to you which was accepted by the Company; (ii) a Warrant on
the terms provided for in Section 1 above; and (iii) such other items as are
required to be delivered to it pursuant to this Purchase Agreement. The
Securities are being offered by the Company subject to the right of the Company
to reject, at its discretion, any subscription, in whole or in part, for any
reason, and to accept subscriptions notwithstanding the order in which they are
received. Any portion of a subscription not accepted by the Company shall be
promptly returned to you, without interest or deduction.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
As an inducement to you to enter into this Agreement, the Company
represents, warrants and agrees that:
3.1 Corporate Power. The Company has all required corporate power and
authority to own its own properties and to carry on its business as presently
conducted. The Company has all required power and authority to execute and
deliver this Agreement, to issue and sell the Securities, and to carry out the
transactions contemplated by this Agreement.
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<PAGE> 2
3.2 Authority for Agreement. This Agreement has been duly authorized by all
necessary action of the Company and, when executed and delivered by the Company,
will be a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except to the extent that the enforceability hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally or by general principles of equity,
and except that the indemnification provisions of the Agreement may be held to
be violative of public policy under either federal or state laws in the context
of the offer or sale of securities.
3.3 Validity of Stock. The shares of Series C Stock to be issued to your
hereunder have been duly authorized and when issued, will be legally and validly
issued shares of Series C Stock. The shares of Common Stock issuable upon
exercise of the Series C Stock and the Warrant will, when issued in accordance
with the terms of the Series C Stock and Warrant, respectively, be duly
authorized, legally and validly issued shares of Common Stock.
3.4 No Conflicting Rights. The holders of the outstanding capital stock of
the Company are not entitled to pre-emptive or other rights to subscribe for the
Securities.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY YOU
You hereby represent, warrant and agree that:
4.1 Authority. You have full power and authority to enter into this
Agreement and it constitutes your legal, valid and binding obligation,
enforceable in accordance with its terms.
4.2 Purchase For Own Account. You are acquiring the Securities for your own
account, for investment purposes and not for resale or with a view to any
distribution, or in connection with any distribution thereof you are able to (i)
bear the economic risk of your investment in the Securities, (ii) hold the
Securities for an indefinite period of time, and (iii) afford a complete loss of
your investment.
4.3 Investment Experience. You have the requisite knowledge and experience
in financial and business matters, including investments of this type, to be
capable of evaluating the merits and risks of an investment in the Securities
and of making an informed investment decision with respect thereto.
4.4 Receipt Of Information. You have received from the Company all of the
information concerning the Company which you consider to be material in making
your investment decision, which information has been requested by you if not
already furnished by the Company. You have had full access to the books and
records of the Company and to its officers, directors and accountants for the
purpose of obtaining and verifying such information and you have had an
opportunity to ask questions and receive answers from the officers of the
Company regarding the terms and conditions of this transaction and the Company's
business and financial condition. No representations or warranties, oral or
otherwise, have been made to you, including without limitation, any
representations concerning the future prospects of the Company, by the Company
or any agent, employee or affiliate of the Company, and in entering into this
action you are not relying upon any information other than the results of your
own independent investigation. You have obtained sufficient information to
evaluate the merits and risks of your investment and to make an informed
investment decision.
4.5 Restricted Securities. You understand and acknowledge that the
Securities (including underlying shares of Common Stock) you are purchasing
hereunder are "restricted securities" under United States federal and state
securities laws insofar as they have not been registered under the Securities
Act of 1933, as amended (the "Act"), or the securities laws of any other
jurisdiction, that they may not be resold or transferred without compliance with
the registration or qualification provisions of the Act or applicable federal
and state securities laws of any state or other jurisdiction or an opinion of
counsel acceptable to the Company that an exemption from such registration and
qualification requirements is available.
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<PAGE> 3
4.6 Limitations on Disposition. Without in any way limiting the
representations set forth above, you further agree not to make any disposition
of all or any portion of the Securities (including underlying shares of Common
Stock) unless and until: (i) there is then in effect a registration statement
under the Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or (ii) you shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition and you have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the Act and applicable securities laws of any state or other jurisdiction.
4.7 Illiquid Investments. Your overall commitment to investments which are
not readily marketable is not disproportionate to your net worth and your
investment in the Securities will not cause such overall commitment to become
excessive. You have adequate means of providing for your current needs and
personal contingencies.
4.8 Accredited Investor. You are an "Accredited Investor" as that term is
defined in Section 501(a) of Regulation D promulgated under the Act ("Regulation
D").
4.9 Company Reliance. You understand, acknowledge and agree that the
Company, in entering into and performing under this Agreement, is relying on the
accuracy of the responses by you in this Agreement, which responses you warrant
to be true, complete and correct.
5. CONDITIONS TO YOUR OBLIGATIONS
Your obligations to purchase the Securities under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
5.1 Representations and Warranties. The representations and warranties of
the Company contained in Section 3 above shall be true on and as of the Closing
with the same effect as though made on and as of the date thereof.
5.2 Company Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement, which
performance or compliance are required of it on or before the Closing.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to sell and issue the Securities to you are
subject to the fulfillment on or before the Closing of each of the following
conditions by you:
6.1 Representations and Warranties. Your representations and warranties
contained in Section 4 above shall be true on and as of the Closing with the
same effect as though made on and as of the date thereof.
6.2 Payment. You shall have delivered to the company an executed copy of
this Agreement, together with the payment of the subscription price for the
Securities being purchased by you.
6.3 Blue Sky Qualification. The Company shall have received any permits or
authorization from any state securities law authority which may be necessary to
qualify the offer and sale of the Securities to you.
7. REGISTRATION RIGHTS
The Company hereby grants to Holder the registration rights set forth in
Appendix I attached hereto, subject to the remainder of this Agreement. Appendix
I is incorporated into, and made a part of, this Agreement.
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<PAGE> 4
8. FURTHER AGREEMENTS
You agree that:
8.1 No Transfer or Assignment. You will not transfer or assign this
Agreement or any of your interest herein except as provided in Section 4.6
above.
8.2 Successors and Assigns. You may not cancel or revoke this Agreement and
this Agreement shall be binding upon your successors and assigns, except as
provided by certain state laws.
8.3 Indemnification. You shall indemnify, hold harmless and defend the
Company and its affiliates and agents with respect to any and all loss, damage,
expense, claim, action or liability any of them may incur as a result of the
breach or untruth of any representations or warranties made by you herein, and
you agree that in the event of any breach or untruth of any representations or
warrants made by you herein, the Company may, at its option, forthwith rescind
the sale of the Securities to you, in addition to any other rights or remedies
which the Company may have.
8.4 Legend. A legend in substantially the following form will be placed on
all documents or certificates evidencing the Securities and the shares of Common
Stock underlying the Series C Stock and Warrant:
"THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAW OF ANY STATE OR OTHER JURISDICTION AND SUCH SECURITIES MAY NOT BE SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR 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."
8.5 Investment Protection. In the event that the Company undertakes a
private placement of securities on or prior to June 30, 2000, (excluding any
refinancing of the Company's senior debt or any debt offering to a financial
institution or institutional investor (including warrants), unless other
non-institutional investors participate therein), Holder will have a ten (10)
day period following notice of such offering from the Company to exchange the
securities Holder received in this offering (including any underlying shares of
Common Stock) for the same type of securities issued in the subsequent offering,
and in the aggregate dollar amount of Holder's investment
9. GENERAL AND MISCELLANEOUS
9.1 Survival. The warranties, representations and covenants of the parties
contained in this Agreement shall survive the execution and delivery of this
Agreement and the Closing.
9.2 Entire Agreement. This Agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, guarantees or covenants except as specifically set forth in
this Agreement. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. 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.
9.3 Governing Law. This Agreement shall be governed by and construed under
the internal laws of the State of Delaware without regard to conflicts of law.
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9.4 Notices . All notices, requests, demands and other communications under
this Agreement 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 tenth day after 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 purchaser, at his
address as shown in the Company records; and if to the Company, at its principal
office. Any party may change its address for purposes of this paragraph by
giving the other party written notice of the new address in the manner set forth
above.
9.5 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.6 Acceptance. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of completed Purchase Agreements will
be determined by the Company, which determination will be final and binding. The
Company reserves the absolute right to reject any Purchase Agreement, in its
sole and absolute discretion. The Company also reserves the right to waive any
irregularities in, or conditions of, the submission of any Purchase Agreements,
and the Company's interpretation of the terms and conditions for the purchase of
Securities (including these instructions) shall be final and binding. The
Company shall be under no duty to give any notification of irregularities in
connection with any attempted subscription for Securities or incur any liability
for failure to give such notification. Until such irregularities have been cured
or waived, no subscription for Securities shall be deemed to have been made. Any
Purchase Agreement that is not properly completed and as to which defects have
not been cured or waived will be returned by the Company to the subscriber as
soon as practicable.
9.7 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.
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PURCHASE AGREEMENT GENERAL INSTRUCTIONS
GENERAL INSTRUCTIONS
This Purchase Agreement contains all documents necessary to subscribe for
Securities. You may subscribe for Securities by completing the Purchase
Agreement in the following manner:
1. On line (a) of the signature page state the number of shares of Series C
Stock you wish to purchase (at a price of $6.00 per share), and the
aggregate purchase price for such shares.
2. Sign and state your address, telephone number and social security or other
taxpayer identification number on the lines provided on the signature page
to the Purchase Agreement and deliver the completed Purchase Agreement to
the Company with payment of the entire purchase price of the Securities
subscribed for in the following manner:
A wire transfer or check payable to the order of the Company:
Wire transfer instructions are as follows:
United Missouri Bank of Kansas City, N.A.
10th & Grand
Kansas City, Missouri 64105
ABA # 1010-0069-5
Zurich Yieldwise
Bank Account # 9870838818
To the benefit of
Electronics Accessory Specialists
Account # 80-89754385-1
Checks should be sent overnight to:
Mr. Charles R. Mollo
Mobility Electronics, Inc.
5528 Eubank Blvd., N.E., Suite 3
Albuquerque, New Mexico 87111
Following receipt of your completed subscription documents and check, the
Company will accept or reject your subscription, in its sole discretion. If
your subscription is rejected, your funds will be returned to you promptly,
without any interest paid thereon. The Company may reject a subscription
for any reason in its sole discretion.
3. Send all documents to:
Mr. Charles R. Mollo
Mobility Electronics, Inc.
5528 Eubank Blvd., N.E., Suite 3
Albuquerque, New Mexico 87111
THE COMPLETED SUBSCRIPTION AGREEMENT SHOULD BE RETURNED IN ITS ENTIRETY TO THE
COMPANY AT THE ADDRESS DESIGNATED ABOVE.
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SUBSCRIPTION AGREEMENT SIGNATURE PAGE
PLEASE PRINT OR TYPE. USE INK ONLY. (ALL PARTIES MUST SIGN)
The undersigned investor hereby certifies that he or she (i) agrees to all
the terms and conditions of this Purchase Agreement, (ii) meets the suitability
standards set forth in this Purchase Agreement and (iii) is a resident of the
state or foreign jurisdiction indicated below.
(a) THE UNDERSIGNED IRREVOCABLY SUBSCRIBES FOR ____________ SHARES OF
SERIES C STOCK, AT A PURCHASE PRICE OF $6.00 PER SHARE ($______________________
IN THE AGGREGATE).
- --------------------------------------------
Name of Subscriber (Print) if other than individual check
one and indicate capacity of
signatory under the signature:
[ ] Trust
- --------------------------------------------
Name of Joint Subscriber (if any) (Print) [ ] Estate
[ ] Uniform Gifts to Minors
Act of State of
X [ ] Attorney-in-fact
- --------------------------------------------
Signature of Subscriber [ ] Corporation
[ ] Other
X
- --------------------------------------------
Signature of Joint Subscriber (if any) If Joint Ownership, check one:
[ ] Joint Tenants with Right
of Survivorship
- --------------------------------------------
Capacity of Signatory (if applicable) [ ] Tenants in Common
[ ] Tenants by the Entirety
[ ] Community Property
- --------------------------------------------
Social Security or Taxpayer
Identification Number
Backup Withholding Statement:
Please check this box only if
- -------------------------------------------- the investor is subject to:
Residence Address [ ] backup withholding.
Foreign Person:
- --------------------------------------------
City State Zip Code [ ] nonresident alien, foreign
corporation, foreign
partnership, foreign trust or
foreign estate
Telephone ( )___________________
The investor agrees to the terms of this Purchase Agreement and, as required by
the Regulations pursuant to the Internal Revenue Code, certifies under penalty
of perjury that (1) the Social Security Number or Taxpayer Identification Number
and address provided above is correct, (2) the investor is not subject to backup
withholding (unless the Backup Withholding Statement box is checked) either
because he has not been notified that he is subject to backup withholding as a
result of a failure to report all interest or dividends or because the Internal
Revenue Service has notified him that he is no longer subject to backup
withholding and (3) the investor (unless the Foreign Person box above is
checked) is not a nonresident alien, foreign partnership, foreign trust or
foreign estate.
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<PAGE> 8
THE SUBSCRIPTION FOR __________________ SHARES OF SERIES C STOCK AT A PRICE
OF $6.00 PER SHARE ($____________________ IN THE AGGREGATE) OF MOBILITY
ELECTRONICS, INC. BY THE ABOVE NAMED SUBSCRIBER(S) IS ACCEPTED AS OF THE
_________ DAY OF _________________, 1999.
MOBILITY ELECTRONICS, INC.
By:
-----------------------------------------
Charles R. Mollo, Chief Executive Officer
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<PAGE> 9
Appendix I
Registration Rights
1. Registration Rights. The Company covenants and agrees with you as follows:
1.1 Definitions. For purposes of this Appendix I:
(a) The term "Holder" means any person owning or having the right to
acquire Registerable Securities or any assignee thereof in accordance with
Section 1.11 hereof.
(b) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(c) 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.
(d) 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.
(e) The term "Registerable Securities" means (i) the shares of Common
Stock issued or issuable upon the exercise of the Series C Stock and the
Warrants 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 Registerable 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 Registerable Securities if the registration rights granted hereunder
are not transferred in accordance with the provisions of Section 1.11
below.
(f) The number of shares of "Registerable Securities then outstanding"
shall be determined by the number of shares of Common Stock issued or
issuable upon exercise of the Series C Stock and Warrants which are
Registerable Securities.
(g) The term "SEC" shall mean the Securities and Exchange Commission.
(h) 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 January 1, 2001, the Holders of at least 66 2/3% of
the then outstanding Registerable Securities may notify the Company in
writing that such Holders desire for the Company to cause all or a portion
of such notifying Holders' Registerable 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 Registerable
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 Registerable 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 Registerable Securities and the proposed sale or
distribution thereof under the Act.
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(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
Registerable 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 Registerable 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 Registerable 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
Registerable 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 Registerable 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 Registerable Securities),
then the holders of Registerable 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 Registerable 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 Registerable Securities, the Company will promptly notify in
writing all other Holders of Registerable 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
Registerable 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 Registerable 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'
Registerable 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.
(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)
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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
Registerable 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 Registerable 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 Registerable 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 Registerable 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 Registerable 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 Registerable Securities owned by them.
(d) Use its best efforts to register or qualify all Registerable
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 Registerable 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 Registerable 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 its is necessary, in the
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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
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 Registerable 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 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) Notify each Holder of Registerable 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 Registerable 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 Registerable
Securities registered pursuant hereunder and a CUSIP number for all such
Registerable 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 Registerable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registerable
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 Registerable
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' Registerable 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.
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(b) The Company has previously granted "piggyback" registration rights
to certain of its securityholders (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 Registerable 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 Registerable
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 Registerable 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, 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.
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(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 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 Registerable 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
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purchases from such Holder at least 10,000 shares of Registerable 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
piggyback 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. 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.
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 underlying the Warrants 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 Registerable 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 Registerable 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 a majority of the Registerable Securities then
outstanding. Any amendment or waiver effected in accordance with this Section
1.14 shall be binding upon each holder of any Registerable Securities then
outstanding, each future holder of any Registerable Securities, and the Company.
A-7
<PAGE> 1
EXHIBIT 4.13
MOBILITY ELECTRONICS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
APRIL 20, 1999
<PAGE> 2
MOBILITY ELECTRONICS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
made as of the 20th day of April, 1999, by and among Mobility Electronics, Inc.,
a Delaware corporation (the "Company"), and the investors listed on Exhibit A
attached hereto (each a "Purchaser" and together the "Purchasers").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK.
(a) The Company has adopted and filed with the
Secretary of State of the State of Delaware a Certificate of the Designations,
Preferences, Rights and Limitations of Series C Preferred Stock of the Company,
a copy of which is attached hereto as Exhibit B (the "Certificate of
Designations").
(b) Subject to the terms and conditions of this
Agreement, each Purchaser agrees to purchase at the Closing (as defined below)
and the Company agrees to sell and issue to each Purchaser at the Closing that
number of shares of Series C Preferred Stock set forth opposite each such
Purchaser's name on Exhibit A attached hereto at a purchase price of $6.00 per
share; provided, however, that to the extent any shares of Series C Preferred
Stock are sold by the Company at a price less than $6.00 per share, each
Purchaser who purchased shares of Series C Preferred Stock at a price higher
than the lowest issuance price will receive, and the Company agrees to issue,
additional shares of Series C Preferred Stock so that such Purchaser receives
the benefit of such lower issuance price by issuing additional shares of Series
C Preferred Stock in an amount equal to the remainder of (i) the aggregate
amount of such Purchaser's original investment divided by such lower issuance
price minus (ii) the aggregate number of shares of Series C Preferred Stock then
issued to the Purchaser (subject to adjustment for all stock splits, stock
dividends, combinations, recapitalization and the like), and Exhibit A will be
amended accordingly (without any action on the part of the Purchasers). The
shares of Series C Preferred Stock issued to the Purchaser pursuant to this
Agreement shall be hereinafter referred to as the "Stock". The Stock and the
Common Stock issuable upon conversion of the Stock shall be hereinafter referred
to as the "Securities."
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take
place at the offices of Jackson Walker L.L.P., 901 Main Street, Suite 6000,
Dallas, Texas, at 10:00 a.m., on March 18,
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 1
<PAGE> 3
1999, or at such other time and place as the Company and the Purchasers mutually
agree upon, orally or in writing (which time and place are designated as the
"Closing").
(b) At the Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased thereby against
payment of the purchase price therefor by check payable to the Company or by
wire transfer to the Company's bank account.
(c) The Company may sell up to the balance of the
authorized number of shares of Series C Preferred Stock not sold on or prior the
Closing to such purchasers as it shall select. Any such purchaser shall become a
party to this Agreement, that certain Investors' Rights Agreement (as defined
below), and shall have the rights and obligations hereunder and thereunder,
unless such purchaser enters into an acquisition agreement that provides
otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to: (i) carry on its business as now conducted and proposed to be
conducted; (ii) execute and deliver this Agreement and, the Investors' Rights
Agreement in the form attached hereto as Exhibit D (the "Investors' Rights
Agreement") (together with this Agreement, the "Agreements") and (iii) issue and
sell the Stock and the Common Stock issuable upon conversion of the Stock
(together, the "Securities") and to carry out the provisions of the Agreements.
The Company is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on its business or properties. The jurisdictions in which the
Company is qualified to do business are listed on the Schedule of Exceptions set
forth in Exhibit C attached hereto.
2.2 CAPITALIZATION. The authorized capital of the Company
consists, or will consist, immediately prior to the Closing, of:
(a) 5,000,000 shares of Preferred Stock, of which (i)
2,500 shares have been designated Series A Preferred Stock, none of which are
issued and outstanding; (ii) 4,186 shares have been designated Series B
Preferred Stock, none of which are issued and outstanding; and (iii) 4,500,000
shares have been designated Series C Preferred Stock, 740,477 of which are
issued and outstanding immediately prior to the Closing. All of the outstanding
shares of Series C Preferred Stock have been duly and validly authorized, fully
paid and are nonassessable and issued in compliance with all applicable federal
and state securities laws.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 2
<PAGE> 4
(b) 75,000,000 shares of Common Stock, 9,127,612
shares of which are issued and outstanding immediately prior to the Closing. All
of the outstanding shares of Common Stock have been duly and validly authorized,
fully paid and are nonassessable and issued in compliance with all applicable
federal and state securities laws.
(c) The Company has reserved 1,197,282 shares of
Common Stock for issuance to officers, directors, employees and advisors of the
Company pursuant to the Company's Amended and Restated 1996 Long Term Incentive
(the "Stock Plan"), and has issued and outstanding options under the Stock Plan
to purchase 820,032 shares of Common Stock.
(d) The Company has issued and outstanding the
following other securities: (i) warrants to purchase 2,588,398 shares of Common
Stock (ii) options to purchase 294,396 shares of Common Stock and (iii)
approximately $95,000 of 12% Convertible Debentures, 60% of which is convertible
into shares of Common Stock at a conversion price of $3.86 per share.
(e) Except for (i) conversion privileges of the
Series C Preferred Stock, (ii) outstanding options issued pursuant to the Stock
Plan, (iii) conversion and exercise privileges of the securities described in
subsections (c) and (d) above, there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock. The Company is
not a party or subject to any agreement or understanding, and there is no
agreement or understanding between any person and/or entities, which affects or
relates to the voting or giving of written consents with respect to any security
or by a director of the Company. The Company has outstanding the registration
rights set forth in Section 2.2 of Exhibit C.
2.3 SUBSIDIARIES. The Company does not currently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of the Agreements, the performance of all
obligations of the Company under the Agreements and the authorization, issuance,
sale and delivery of the Securities has been taken or will be taken prior to the
Closing, and the Agreements, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws of general application affecting enforcement of
creditors' rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies, or (ii) to
the extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 3
<PAGE> 5
2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being
issued to the Purchasers hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under the Agreements and
applicable state and federal securities laws. Based in part upon the
representations of the Purchasers in this Agreement, the Stock will be issued in
compliance with all applicable federal and state securities laws. The Common
Stock issuable upon conversion of the Stock has been duly and validly reserved
for issuance, and upon issuance in accordance with the terms of the Certificate
of Designations, shall be duly and validly issued, fully paid and nonassessable
and free of restrictions on transfer other than restrictions on transfer under
the Agreements, and applicable federal and state securities laws and will be
issued in compliance with all applicable federal and state securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to applicable state
securities laws and Regulation D of the Securities Act of 1933, as amended (the
"Securities Act") which filing will be effected within fifteen (15) days after
the sale of the Stock.
2.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of the Company, currently
threatened against the Company or any of its subsidiaries that questions the
validity of the Agreements or the right of the Company to enter into them, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition or affairs of the Company, financially or otherwise, or
any change in the current equity ownership of the Company, nor is the Company
aware that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or to the best knowledge of the Company threatened
in writing involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers. Neither the
Company nor any of its subsidiaries is a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or investigation
by the Company or any of its subsidiaries currently pending or which the Company
or any of its subsidiaries intends to initiate.
2.8 INTELLECTUAL PROPERTY. The Company owns or possesses
sufficient title and ownership of or licenses to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information and
proprietary rights and processes necessary for its business as conducted and
proposed to be conducted without any conflict with, or infringement of, the
rights of others. There are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets,
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 4
<PAGE> 6
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf' or standard commercial products. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business, would violate any of the patents, trademarks, service
marks, trade names, copyrights, trade secrets or other proprietary rights or
processes of any other person or entity. The Company, to the best of its
knowledge, is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interest of the Company or that would conflict with the
Company's business. To the best knowledge of the Company, neither the execution
or delivery of this Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company's business as
proposed, will conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any such employee is now obligated. The Company does not
believe it is or will be necessary to use any inventions of any of its employees
(or persons it currently intends to hire) made prior to their employment by the
Company.
2.9 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provisions of (i) its Certificate of Incorporation or Bylaws (as such documents
are in force and effect as of the Closing Date) or (ii) any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound, the violation of, or default, which would have a material adverse
effect on the Company, or, to the best knowledge of the Company, of any
provision of federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of the Agreements and the
consummation of the transactions contemplated hereby or thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) The Company has avoided every condition, and has
not performed any act, the occurrence of which would result in the Company's
loss of any right granted under any license, distribution agreement or other
agreement.
2.10 AGREEMENTS; ACTION.
(a) There are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) Except as created or incurred in the ordinary
course of business, as related to the Company's Universal Connectivity Station,
or for agreements explicitly contemplated
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 5
<PAGE> 7
by the Agreements, there are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company or any of its
subsidiaries is a party or by which it is bound that involve (i) obligations
(contingent or otherwise) of, or payments to, the Company or any of its
subsidiaries in excess of, $100,000, (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company or any of its
subsidiaries, (iii) the grant of rights (excluding contract manufacturing rights
and relationships) to manufacture, produce, assemble, license, market, or sell
its products to any other person or affect the Company's exclusive right to
develop, manufacture, assemble, distribute, market or sell its products; or (iv)
indemnification by the Company with respect to infringement of proprietary
rights (other than indemnification obligations arising from purchase or sale
agreements entered into in the ordinary course of business).
(c) Neither the Company nor any of its subsidiaries
has (i) declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock, (ii) incurred
any indebtedness for money borrowed or incurred any other liabilities
individually in excess of $25,000 or in excess of $100,000 in the aggregate,
other than in the ordinary course of business, (iii) made any loans or advances
to any person, other than ordinary advances for travel and relocation expenses
and the like, or (iv) sold, exchanged or otherwise disposed of any of its assets
or rights, other than the sale of its inventory in the ordinary course of
business.
2.11 DISCLOSURE. The Company has fully provided the Purchasers
with all the information that the Purchasers have requested for deciding whether
to acquire the Stock and all information that the Company believes is reasonably
necessary to enable the Purchasers to make such a decision, including certain of
the Company's projections describing its proposed business contained in the
Mobility Electronics Company and Business Summary dated March 5, 1999 (the
"Company Summary"). No representation or warranty of the Company contained in
this Agreement and the exhibits attached hereto, any certificate furnished or to
be furnished to Purchasers at the Closing, or the Company Summary (when read
together) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
To the extent the Company Summary was prepared by management of the Company, the
Company Summary and the financial and other projections contained in the Company
Summary and other written information provided to the Purchaser were prepared in
good faith (with the exception of information prepared by third party sources
and identified as such in the Company Summary or other written information and
to which the Company makes no representation except that it has no basis to
believe such sections are inaccurate); however, the Company does not warrant
that it will achieve such projections.
2.12 NO CONFLICT OF INTEREST. The Company is not indebted,
directly or indirectly, to any of its officers or directors or to their
respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary course
of business or relocation expenses of employees which amount does not in the
aggregate exceed
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 6
<PAGE> 8
$50,000. None of the Company's officers or directors, or any members of their
immediate families, are, directly or indirectly, indebted to the Company (other
than in connection with purchases of the Company's stock) or to the best
knowledge of the Company have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company except that officers, directors and/or stockholders of the
Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
None of the Company's officers or directors or any members of their immediate
families are, directly or indirectly, interested in any material contract with
the Company. The Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation.
2.13 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the Investors' Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. To the best knowledge of the Company, no stockholder of the
Company has entered into any agreements with respect to the voting of capital
shares of the Company.
2.14 TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to its knowledge, holds a
valid leasehold interest free of any liens, claims or encumbrances. The Company
is in compliance with all material terms of each material lease to which it is a
party or otherwise bound.
2.15 FINANCIAL STATEMENTS. The Company has made available to
each Purchaser the financial statements set forth in the Company Summary
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated, except that the unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles. The Financial Statements fairly present the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein, subject to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to January 1, 1999 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate are not material to the financial condition or operating
results of the Company.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 7
<PAGE> 9
2.16 CHANGES. Since January 1, 1999 there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except actions contemplated in the Company Summary and
changes in the ordinary course of business that have not been, in the aggregate,
materially adverse;
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a
valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim,
or encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and that is not material to the business,
properties, prospects or financial condition of the Company;
(e) any material change to a material contract or
agreement by which the Company or any of its assets is bound or subject;
(f) any material change in any compensation
arrangement or agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of
any officer or key employee of the Company; and the Company is not aware of any
impending resignation or termination of employment of any such officer or key
employee;
(i) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect to any of its
material properties or assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by the Company to or
for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or
other distribution in respect to any of the Company's capital stock, or any
direct or indirect redemption, purchase, or other acquisition of any of such
stock by the Company;
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 8
<PAGE> 10
(l) any declaration or payment of any dividend or
other distribution of the assets of the Company;
(m) receipt of notice by the Company that there has
been a loss of, or material order cancellation by, any major customer of the
Company;
(n) to the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects or financial condition of the Company; or
(o) any arrangement or commitment by the Company to
do any of the things described in this Section 2.16.
2.17 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.18 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due. The Company has not made any elections pursuant to the Internal
Revenue Code of 1986, as amended (the "Code") (other than elections that relate
solely to methods of accounting, depreciation or amortization) that would have a
material effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets. The Company had never had any tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
None of the Company's federal income tax returns and none of its state income or
franchise tax or sales or use tax returns has ever been audited by governmental
authorities. Since the date of the Financial Statements, the Company has not
incurred any taxes, assessments or governmental charges other than in the
ordinary course of business and the Company has made adequate provisions on its
books of account for all taxes, assessments and governmental charges with
respect to its business, properties and operations for such period. The Company
has withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes,
federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositories.
2.19 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 9
<PAGE> 11
2.20 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the best knowledge
of the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the best knowledge of the Company threatened, which could
have a material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. The employment of
each officer and employee of the Company is terminable at the will of the
Company. The Company has complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related
to employment. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement.
2.21 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENTS. Substantially all current employees and officers of the Company have
executed an agreement with the Company regarding confidentiality and proprietary
information substantially in the form or forms delivered to the counsel for the
Purchasers. The Company is not aware that any of its employees or consultants is
in violation thereof.
2.22 PERMITS. The Company and each of its subsidiaries has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could materially and adversely affect
the business, properties, prospects, or financial condition of the Company. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
2.23 CORPORATE DOCUMENTS. The Certificate of Incorporation and
Bylaws of the Company are in the form provided to counsel for the Purchasers.
The copy of the minute books of the Company provided to the Purchasers' counsel
contains minutes of all meetings of directors and stockholders and all actions
by written consent without a meeting by the directors and stockholders since the
date of incorporation and reflects all actions by the directors (and any
committee of directors) and stockholders with respect to all transactions
referred to in such minutes accurately in all material respects.
2.24 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 10
<PAGE> 12
2.25 OFFERING. Subject in part to the truth and accuracy of
each Purchaser's representations and warranties set forth in Section 3 of this
Agreement, the offer, sale and issuance of the Securities as contemplated by
this Agreement are exempt from the registration requirements of the Securities
Act and any applicable state securities laws, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.26 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or
supplier that was significant to the Company during the period from January 1,
1998 to the date hereof has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
2.27 OUTSTANDING CAPITAL STOCK. There are no issued and
outstanding shares of capital stock of the Company which have dividend or
redemption rights, liquidation preferences, conversion rights, voting rights or
otherwise which are superior to or on a party with the Series C Preferred Stock.
2.28 YEAR 2000 COMPLIANCE. To the best knowledge of the
Company, the Company's software, hardware and other computer and information
technology (collectively, "Information Technology") is Year 2000 Compliant (as
defined in the next sentence). "Year 2000 Compliant" shall mean that such
Information Technology is designed to be used prior to, during and after the
calendar year 2000 A.D., and such Information Technology used during each such
time period shall accurately receive, provide and process data/time data
(including, but not limited to. calculation, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, including the years
1999 and 2000, and leap year calculations and will not malfunction, cease to
function, or provide invalid or incorrect results as a result of data/time data,
to the extent that other information technology, used in combination of the
information technology being acquired, properly exchanges data/time data with
it.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. Such Purchaser has full power and authority
to enter into this Agreement. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities laws.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 11
<PAGE> 13
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representation to the
Company, which by the Purchaser's execution of this Agreement the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the Securities. The Purchaser has not been formed
for the specific purpose of acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Stock with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as the Company Summary and
any other written information delivered by the Company to the Purchaser, were
intended to describe the aspects of the Company's business which it believes to
be material.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 LEGENDS. The Purchaser understands that the Securities,
and any securities issued in respect of or exchange for the Securities, may bear
one or all of the following legends (or substantially similar legends):
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 12
<PAGE> 14
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
3.7 ACCREDITED INVESTOR. The Purchaser is an accredited
investor as defined in Rule 5 01 (a) of Regulation D promulgated under the
Securities Act as presently in effect.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Purchasers at the Closing a Compliance Certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 CONSENTS; QUALIFICATIONS. The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreements (except for such
as may be properly obtained subsequent to the Closing Date). All authorizations,
approvals or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful issuance and sale of the Stock pursuant to this Agreement shall be
obtained and effective as of the Closing.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 13
<PAGE> 15
4.5 OPINION OF COMPANY COUNSEL. The Purchasers shall have
received from Jackson Walker L.L.P., counsel for the Company, an opinion, dated
as of the Closing, in substantially the form of Exhibit E.
4.6 RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THE STOCK. The Common Stock issuable upon conversion of the Stock shall have
been duly authorized and reserved for issuance upon such conversion.
4.7 INVESTORS' RIGHTS AGREEMENT. The Company and each
Purchaser shall have executed and delivered the Investors' Rights Agreement in
substantially the form attached as Exhibit D.
4.8 DUE DILIGENCE. The Purchasers shall, in their sole
discretion have completed their legal and financial due diligence and the
results of such due diligence shall, in the sole discretion of the Purchasers,
be acceptable to the Purchasers and their legal counsel. The Schedule of
Exceptions delivered to the Purchasers by the Company shall contain no exception
deemed unacceptable by the Purchasers in their sole discretion.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 3 shall be true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Stock pursuant to this Agreement shall be obtained and effective as of
the Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties and representations of the Company and the Purchasers
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing for a period of two (2) years
following the Closing, except for the warranties and representations in Section
2.8 which shall survive the execution and delivery of this Agreement and the
Closing for a
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 14
<PAGE> 16
period of three (3) years following the Closing. The covenants set forth in this
Agreement shall survive until the consummation of an initial public offering of
the Company's common stock or the merger, acquisition or sale of substantially
all of the assets of the Company in which the stockholders of the Company
immediately prior to such event do not own a majority of the outstanding shares
of the surviving corporation.
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. 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.
6.3 GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
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
law.
6.4 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.
6.5 NOTICES. Any notice required or permitted by this
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, addressed to the party to be notified at
such party's address as set forth on the signature page or Exhibit A hereto, or
as subsequently modified by written notice.
6.6 FINDER'S FEE. Except for a placement agent fees payable by
the Company to BancBoston Robertson Stephens Inc. or other finders or
broker/dealers in connection with the sale of Series C Preferred Stock
hereunder, each party represents that it neither is nor will be obligated for
any finder's fee or commission in connection with this transaction. Each
Purchaser agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which each Purchaser or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 15
<PAGE> 17
6.7 FEES AND EXPENSES. Each party shall be responsible for any
fees or expenses, incurred by it with respect to this Agreement, the documents
referred to herein and the transactions contemplated hereby and thereby.
6.8 ATTORNEY'S FEES'. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
the Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Common Stock issued or issuable upon conversion of
the Stock. Any amendment or waiver effected in accordance with this Section 6.9
shall be binding upon the Purchasers and each transferee of the Stock (or the
Common Stock issuable upon conversion thereof), each future holder of all such
securities, and the Company.
6.10 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, then
(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.
6.11 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
6.12 ENTIRE AGREEMENT. This Agreement, and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements relating to the subject matter hereof existing between the parties
hereto are expressly canceled.
6.13 CONFIDENTIALITY. Each party hereto agrees that, except
with the prior written permission of the other parties hereto, it shall at all
times keep confidential and not divulge, sh
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 16
<PAGE> 18
or make accessible to anyone any confidential information, knowledge or data
concerning or relating to the business or financial affairs of the other parties
to which such party has been or shall become privy by reason of this Agreement,
discussions or negotiations relating to this Agreement, the performance of its
obligations hereunder or the ownership of Stock purchased hereunder. The
provisions of this Section 6.13 shall be in addition to, and not in substitution
for, the provisions of any separate nondisclosure agreement executed by the
parties hereto with respect to the transactions contemplated hereby.
6.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Securities.
6.15 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
The parties have executed this Series C Preferred Stock Purchase
Agreement as of the date first written above.
COMPANY:
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
-----------------------------------------
Charles R. Mollo, Chief Executive Officer
Address: 15990 Greenway-Hayden
Suite 500
Scottsdale, Arizona 85260
SERIES C PREFERRED STOCK PURCHASE AGREEMENT - PAGE 17
<PAGE> 19
SIGNATURE PAGE
TO
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned has executed this Series C Preferred Stock Purchase
Agreement as of the date first written above.
PURCHASER:
VLSI TECHNOLOGY, INC.
By: /s/ ROBERT P. DILWORTH
---------------------------------
Name: ROBERT P. DILWORTH
-------------------------------
Title: SR. VICE PRESIDENT
------------------------------
Address: VLSI Technology
1109 McKay Drive
San Jose, CA 95131
<PAGE> 20
SIGNATURE PAGE
TO
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
The undersigned has executed this Series C Preferred Stock Purchase
Agreement as of the date first written above.
PURCHASER:
J & W SELIGMAN & COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address: 125 University Ave.
Palo Alto, CA 94301
(650) 470-2670
<PAGE> 1
EXHIBIT 4.14
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES
ACTS OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
AMENDED AND RESTATED STOCK PURCHASE WARRANT
This Amended and Restated Stock Purchase Warrant is issued this 25th
day of March, 1998, by ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC., a
Delaware corporation (the "Company"), to SIRROM CAPITAL CORPORATION, a Tennessee
corporation (SIRROM CAPITAL CORPORATION and any subsequent assignee or
transferee hereof are hereinafter referred to collectively as "Holder" or
"Holders"). This Amended and Restated Stock Purchase Warrant amends and restates
that certain Stock Purchase Warrant dated June 24, 1997 issued by the Company to
the Holder (the "Old Warrant") and shall not constitute a novation thereof. Upon
the execution and delivery of this Warrant, Holder shall deliver to the Company
the Old Warrant, marked "Replaced".
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. For and in consideration of SIRROM
CAPITAL CORPORATION making a loan to the Company in an amount of One Million Six
Hundred Thousand and no/100ths Dollars ($1,600,000.00) pursuant to the terms of
a secured promissory note dated June 24, 1997 (the "Note") and a related Loan
Agreement dated June 24, 1997 which was amended pursuant to a First Amendment to
Loan Agreement and Loan Documents dated of even date herewith (the "Loan
Agreement"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase 171,698 shares of the Company's common stock (the
"Common Stock"), which the Company represents to equal 1.875% of the capital
stock of the Company on the date hereof, calculated on a fully diluted basis
after exercise ("Base Amount"), provided that in the event that the indebtedness
evidenced by the Note is outstanding on the following dates, the Base Amount
shall be increased to the corresponding number set forth below:
<PAGE> 2
<TABLE>
<CAPTION>
DATE BASE AMOUNT
- -------------------------- ------------------------------------------
<S> <C>
June 24, 1999 231,288 shares of Common Stock,
which the Company represents to
equal 2.526% of the capital stock of the
Company on the date hereof calculated
on a fully diluted basis after exercise.
June 24, 2000 292,176 shares of Common Stock,
which the Company represents to
equal 3.191% of the capital stock of the
Company on the date hereof calculated
on a fully diluted basis after exercise.
June 24, 2001 354,322 shares of Common Stock,
which the Company represents to
equal 3.870% of the capital stock of the
Company on the date hereof calculated
on a fully diluted basis after exercise.
</TABLE>
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from the date hereof until July 31, 2002. For
purposes of this Warrant the term "fully diluted basis" shall be determined in
accordance with generally accepted accounting principles as of the date hereof.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be One Cent ($.01).
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but
only on the conditions hereinafter set forth) as to all or any increment or
increments of One Hundred (100) Shares (or the balance of the Shares if less
than such number), upon delivery of written notice of intent to exercise to the
Company at the following address: 7955 East Redfield Road, Scottsdale, Arizona
85260 or such other address as the Company shall designate in a written notice
to the Holder hereof, together with this Warrant and payment to the Company of
the aggregate Exercise Price of the Shares so purchased. The Exercise Price
shall be payable, at the option of the Holder, (i) by certified or bank check,
(ii) by the surrender of the Note or portion thereof having an outstanding
principal balance equal to the aggregate Exercise Price or (iii) by the
surrender of a portion of this Warrant having a fair market value equal to the
aggregate
2
<PAGE> 3
Exercise Price. Upon receipt of the notice of exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event within
fifteen (15) days thereafter, execute and deliver to the Holder of this Warrant
a certificate or certificates for the total number of whole Shares for which
this Warrant is being exercised in such names and denominations as are requested
by such Holder. If this Warrant shall be exercised with respect to less than all
of the Shares, the Holder shall be entitled to receive a new Warrant covering
the number of Shares in respect of which this Warrant shall not have been
exercised, which new Warrant shall in all other respects be identical to this
Warrant. The Company covenants and agrees that it will pay when due any and all
state and federal issue taxes which may be payable in respect of the issuance of
this Warrant or the issuance of any Shares upon exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") or any
state securities laws ("Blue Sky Laws"). This Warrant has been acquired
for investment purposes and not with a view to distribution or resale
and may not be pledged, hypothecated, sold, made subject to a security
interest, or otherwise transferred without (i) an effective
registration statement for such Warrant under the Securities Act and
such applicable Blue Sky Laws, or (ii) an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to the Company and
its counsel, that registration is not required under the Securities Act
or under any applicable Blue Sky Laws (the Company hereby acknowledges
that Bass, Berry & Sims is acceptable counsel). Transfer of the shares
issued upon the exercise of this Warrant shall be restricted in the
same manner and to the same extent as the Warrant and the certificates
representing such Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW
AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACTS OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
3
<PAGE> 4
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive
rights, if any, with respect thereto or to the issuance thereof. The
Company shall at all times reserve and keep available for issuance upon
the exercise of this Warrant such number of authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in
full of this Warrant.
(c) Except for securities issued under the Company's 1996 Long
Term Incentive Plan, as amended (not to exceed 50% of the common shares
of Borrower outstanding from time to time on a fully diluted basis,
with the exercise price per share of any capital stock issued pursuant
to any option granted under such plan not to be less than 100% of the
fair market value of such stock on the date such option is granted),
the Company covenants and agrees that it shall not sell any shares of
the Company's capital stock at a price below the fair market value of
such shares (as such may be determined in good faith, from time to
time, by the Company's board of directors), without the prior written
consent of the Holder hereof. In the event that the Company sells
shares of the Company's capital stock in violation of this Section
4(c), the number of shares of Common Stock issuable upon exercise of
this Warrant shall be equal to the product obtained by multiplying the
number of shares then issuable pursuant to this Warrant prior to such
sale by a fraction, the numerator of which shall be the product of (x)
the total number of shares of Common Stock outstanding on a fully
diluted basis immediately after such issuance or sale, multiplied by
(y) the fair market value immediately prior to such issuance or sale
and the denominator of which shall be the sum of (i) the number of
shares of Common Stock outstanding on a fully diluted basis immediately
prior to such issuance or sale multiplied by the fair market value
immediately prior to such issuance or sale, plus (ii) the aggregate
amount of the consideration received by the Company upon such issuance
or sale (as illustrated on Schedule I hereto).
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
4
<PAGE> 5
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE RIGHTS;
PREFERENCE RIGHTS. This Warrant does not confer upon the Holder, as such, any
right whatsoever as a shareholder of the Company. Notwithstanding the foregoing,
if the Company should offer to all of the Company's shareholders the right to
purchase any securities of the Company, then all shares of Common Stock that are
subject to this Warrant shall be deemed to be outstanding and owned by the
Holder and the Holder shall be entitled to participate in such rights offering.
The Company shall not grant any preemptive rights with respect to any of its
capital stock without the prior written consent of the Holder. The Company shall
not issue any securities which entitle the holder thereof to obtain any
preference over holders of Common Stock upon the dissolution, liquidation,
winding-up, sale, merger, or reorganization of the Company without the prior
written consent of the Holder unless: (i) all indebtedness under the Loan
Agreement and/or Note has been paid in full and (ii) the investment made by the
holder thereof is based on the valuation of the Company being at least
$30,000,000.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall (a) receive
notice of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity, (b) receive copies of all notices, packages and documents provided to
members of the Company's Board of Directors for each board of directors meeting,
and (c) receive copies of all actions taken by written consent by the Company's
Board of Directors, from the date hereof until such time as the indebtedness
evidenced by the Note has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which such Holder would have received if
this Warrant had been exercised immediately prior to such stock split,
stock dividend, recapitalization, combination of shares, or other
similar event. If any adjustment under this Section 8(a) would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be
5
<PAGE> 6
disregarded and the number of shares subject to this Warrant shall be
the next higher number of shares, rounding all fractions upward.
Whenever there shall be an adjustment pursuant to this Section 8(a),
the Company shall forthwith notify the Holder or Holders of this
Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment
was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares,
separation, reorganization or liquidation of the Company, or other
similar event, occurring after the date hereof, as a result of which
shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of securities
of the Company or another entity, then the Holder exercising this
Warrant shall receive, for the aggregate price paid upon such exercise,
the aggregate number and class of shares which such Holder would have
received if this Warrant had been exercised immediately prior to such
merger, consolidation, exchange of shares, separation, reorganization
or liquidation, or other similar event. If any adjustment under this
Section 8(b) would create a fractional share of Common Stock or a right
to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares subject to this Warrant
shall be the next higher number of shares, rounding all fractions
upward. Whenever there shall be an adjustment pursuant to this Section
8(b), the Company shall forthwith notify the Holder or Holders of this
Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment
was calculated.
9. PUT AGREEMENT.
(a) The Company hereby irrevocably grants and issues to Holder
the right and option to sell to the Company (the "Put") this Warrant
for a period of thirty (30) days immediately prior to the expiration
thereof, at a purchase price (the "Purchase Price") equal to the Fair
Market Value (as hereinafter defined) of the shares of Common Stock
issuable to Holder upon exercise of this Warrant.
6
<PAGE> 7
(b) The Company shall pay to the Holder, in cash or certified
or cashier's check, the Purchase Price in exchange for the delivery to
the Company of this Warrant within the later of (i) thirty (30) days of
the receipt of written notice, addressed as set forth in Section 3
hereto, from the Holder of its intention to exercise the Put, or (ii)
five (5) days after Fair Market Value is determined by the appraisers
pursuant to Section 9(c) hereof, not to exceed sixty (60) days of the
receipt of written notice.
(c) The Fair Market Value of the shares of Common Stock of the
Company issuable pursuant to this Warrant shall be the average trading
price of shares of Common Stock during the ten (10) trading days
preceding the date notice of the exercise of the Put is delivered to
the Company or if the Common Stock is not publicly traded at such time
shall be determined as follows:
(i) The Company and the Holder shall each appoint an
independent, experienced appraiser who is a member of a
recognized professional association of business appraisers.
The two appraisers shall determine the value of the shares of
Common Stock which would be issued upon the exercise of the
Warrant, taking into consideration that such shares would
constitute a minority interest, and would lack liquidity, and
further assuming that the sale would be between a willing
buyer and a willing seller, both of whom have full knowledge
of the financial and other affairs of the Company, and neither
of whom is under any compulsion to sell or to buy.
(ii) If the highest of the two appraisals is not more
than 10% more than the lowest of the appraisals, the Fair
Market Value shall be the average of the two appraisals. If
the highest of the two appraisals is 10% or more than the
lowest of the two appraisals, then a third appraiser shall be
appointed by the two appraisers, and if they cannot agree on a
third appraiser, within thirty (30) days thereafter, the
American Arbitration Association shall appoint the third
appraiser. The third appraiser, regardless of who appoints him
or her, shall have the same qualifications as the first two
appraisers.
(iii) The Fair Market Value after the appointment of
the third appraiser shall be the mean of the three appraisals.
(iv) The fees and expenses of the appraisers shall be
paid one-half by the Company and one-half by the Holder.
7
<PAGE> 8
(d) Notwithstanding the foregoing, if the Note has been paid
in full and either (i) the Company has successfully completed an
underwritten public offering of the Company's capital stock and the
Company has a market capitalization in excess of $75,000,000.00, or
(ii) the Company is purchased by or merged with a public company having
a market capitalization of at least $75,000,000.00, and the Holder
receives marketable securities in such public company, the Put shall
terminate.
10. REGISTRATION.
(a) The Company and the Holder(s) agree that if at any time
after the date hereof the Company shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable
for a secondary offering of shares of Common Stock held by third
parties and which is not a registration solely to implement an employee
benefit plan or a transaction to which Rule 145 or any similar rule of
the Commission (as defined below) is applicable, it will give notice in
writing to such effect to the registered holder(s) of the Shares at
least thirty (30) days prior to such filing, and, at the written
request of any such registered holder, made within ten (10) days after
the receipt of such notice, will include therein at the Company's cost
and expense (including the fees and expenses of counsel to such
holder(s), but excluding underwriting discounts, commissions and filing
fees attributable to the Shares included therein) such of the Shares as
such holder(s) shall request; provided, however, that if the offering
being registered by the Company is underwritten and if the
representative of the underwriters certifies in writing that the
inclusion therein of the Shares would materially and adversely affect
the sale of the securities to be sold by the Company thereunder, then
the Company shall be required to include in the offering only that
number of securities of third parties (including Holder(s)), including
the Shares, 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 all selling shareholders
according to the total amount of securities entitled to be included
therein owned by each selling shareholder.
(b) Whenever the Company undertakes to effect the registration
of any of the Shares, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement
covering such Shares and use its best efforts to cause such
registration statement to be declared effective by the
Commission as expeditiously as possible and to keep such
registration effective until
8
<PAGE> 9
the earlier of (A) the date when all Shares covered by the
registration statement have been sold or (B) one hundred
eighty (180) days from the effective date of the registration
statement; provided, that before filing a registration
statement or prospectus or any amendment or supplements
thereto, the Company will furnish to each Holder of Shares
covered by such registration statement and the underwriters,
if any, copies of all such documents proposed to be filed
(excluding exhibits, unless any such person shall specifically
request exhibits), which documents will be subject to the
review of such Holders and underwriters, and the Company will
not file such registration statement or any amendment thereto
or any prospectus or any supplement thereto (including any
documents incorporated by reference therein) with the
Commission if (A) the underwriters, if any, shall reasonably
object to such filing or (B) if information in such
registration statement or prospectus concerning a particular
selling Holder has changed and such Holder or the
underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to such registration
statement as may be necessary to keep such registration
statement effective during the period referred to in Section
10(b)(i) and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered
by such registration statement, and cause the prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed with the commission pursuant to Rule
424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers
of copies of such registration statement, each amendment
thereto, the prospectus included in such registration
statement (including each preliminary prospectus), each
supplement thereto and such other documents as they may
reasonably request in order to facilitate the disposition of
the Shares owned by them.
(iv) Use all reasonable efforts to register and
qualify under such other securities laws of such jurisdictions
as shall be reasonably requested by any selling Holder and do
any and all other acts and things which may be reasonably
necessary or advisable to enable such selling Holder to
consummate the disposition of the Shares owned by such Holder,
in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to
9
<PAGE> 10
file a general consent to service of process in any such
states or jurisdictions.
(v) Promptly notify each selling Holder of the
happening of any event, upon discovery of such event, as a
result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or
omits any fact necessary to make the statements therein not
misleading and, at the request of any such Holder, the Company
will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such
Shares, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make
the statements therein not misleading.
(vi) Provide a transfer agent and registrar for all
such Shares not later than the effective date of such
registration statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form) and take all such
other actions as the underwriters, if any, reasonably request
in order to expedite or facilitate the disposition of such
Shares (including, without limitation, effecting a stock split
or a combination of shares).
(viii) Make reasonably available for inspection by
any selling Holder or any underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such
selling Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the
Company, and cause the officers, directors, employees and
independent accountants of the Company to supply all
information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with
such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if
requested by any such person) confirm such notification in
writing: (A) the filing of the prospectus or any prospectus
supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment
thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments
or supplements to the registration statement or the prospectus
or for additional information, (C) the issuance or threat of
10
<PAGE> 11
issuance by the Commission of any stop order suspending the
effectiveness of the registration statement or the initiation
of any proceedings for that purpose, and (D) the receipt by
the Company of any notification with respect to the suspension
of the qualification of the Shares for sale in any
jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry
of any order suspending the effectiveness of the registration
statement and obtain at the earliest possible moment the
withdrawal of any such order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Shares to be sold
and not bearing any restrictive legends, and enable such
Shares to be in such lots and registered in such names as the
underwriters may request at least two (2) business days prior
to any delivery of the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not
later than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at
each closing of an underwritten offering, (A) make such
representations and warranties to the selling Holder(s) and
the underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in
primary underwritten offerings; (B) use its best efforts to
obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed
to the selling Holders and the underwriters, if any, such
letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by
underwriters in connection with underwritten offerings; (C)
deliver such-documents and certificates as may be reasonably
requested (1) by the holders of a majority of the Shares being
sold, and (2) by the underwriters, if any, to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company; and (D) obtain opinions
of counsel to the Company and updates thereof (which counsel
and which opinions shall be reasonably satisfactory to the
underwriters, if any), covering the matters customarily
covered in opinions requested in
11
<PAGE> 12
underwritten offerings and such other matters as may be
reasonably requested by the selling Holders and underwriters
or their counsel. Such counsel shall also state that no facts
have come to the attention of such counsel which cause them to
believe that such registration statement, the prospectus
contained therein, or any amendment or supplement thereto, as
of their respective effective or issue dates, contains any
untrue statement of any material fact or omits to state any
material fact necessary to make the statements therein not
misleading (except that no statement need be made with respect
to any financial statements, notes thereto or other financial
data or other expertized material contained therein). If for
any reason the Company's counsel is unable to give such
opinion, the Company shall so notify the Holders of the Shares
and shall use its best efforts to remove expeditiously all
impediments to the rendering of such opinion.
(xiv) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission and
make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than forty-five (45) days after the
end of any twelve-month period (or ninety (90) days, if such
period is a fiscal year) (A) commencing at the end of any
fiscal quarter in which the Shares are sold to underwriters in
a firm or best efforts underwritten offering, or (B) if not
sold to underwriters in such an offering, beginning with the
first month of the first fiscal quarter of the Company
commencing after the effective date of the registration
statement, which statements shall cover such twelve-month
periods.
(c) After the date hereof, the Company shall not grant to any
holder of securities of the Company any registration rights which have
a priority greater than or equal to those granted to Holders pursuant
to this Warrant without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 10(a) above with
respect to each holder of Shares are expressly conditioned upon such
holder's furnishing to the Company in writing such information
concerning such holder and the terms of such holder's proposed offering
as the Company shall reasonably request for inclusion in the
registration statement. If any registration statement including any of
the Shares is filed, then the Company shall indemnify each holder
thereof (and each underwriter for such holder and each person, if any,
who controls such underwriter within the meaning of the Securities Act)
from any loss, claim, damage or liability arising out of, based upon or
in any way
12
<PAGE> 13
relating to any untrue statement of a material fact contained in such
registration statement or any omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except for any such statement or omission based
on information furnished in writing by such holder of the Shares for
use in connection with such registration statement; and such holder
shall indemnify the Company (and each of its officers and directors who
has signed such registration statement, each director, each person, if
any, who controls the Company within the meaning of the Securities Act,
each underwriter for the Company and each person, if any, who controls
such underwriter within the meaning of the Securities Act) and each
other such holder against any loss, claim, damage or liability arising
from any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such holder of the
Shares for use in connection with such registration statement.
(e) For purposes of this Section 10, all of the Shares shall
be deemed to be issued and outstanding.
11. CERTAIN NOTICES. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in
stock or make any special dividend or other distribution to the holders
of its Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with (except where
the company is the surviving entity), or sell all or substantially all
of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind
up the affairs of the Company;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant, by certified or registered mail, (i) at least
twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights
to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution,
13
<PAGE> 14
liquidation or winding up, and (ii) in the case of such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation
or winding up, at least twenty (20) days' prior written notice of the
date when the same shall take place. Any notice required by clause (i)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock
shall be entitled thereto, and any notice required by clause (ii) shall
specify the date on which the holders of Common Stock shall be entitled
to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may
be.
12. RIGHTS OF CO-SALE.
(a) Co-Sale Right. Until such time as the Company does an
underwritten public offering raising at least $10,000,000.00, neither
Empire National II, LLC, Charles R. Mollo, Jeffrey S. Doss, Cameron
Wilson, nor Janice L. Breeze (individually a "Selling Shareholder" and
collectively the "Selling Shareholders") shall enter into any
transaction that would result in the sale by it of any Common Stock now
or hereafter owned by it, unless prior to such sale the Selling
Shareholder shall give notice to Holder of its intention to effect such
sale in order that Holder may exercise its rights under this Section 12
as hereinafter described. Such notice shall set forth (i) the number of
shares to be sold by the Selling Shareholder, (ii) the principal terms
of the sale, including the price at which the shares are intended to be
sold, and (iii) an offer by the Selling Shareholder to use its best
efforts to cause to be included with the shares to be sold by it in the
sale, on a share-by-share basis and on the same terms and conditions,
the Shares issuable or issued to Holder pursuant this Warrant.
(b) Rejection of Co-Sale Offer. If Holder has not accepted
such offer in writing within a period of ten (10) days from the date of
receipt of the notice, then the Selling Shareholder shall thereafter be
free for a period of ninety (90) days to sell the number of shares
specified in such notice, at a price no greater than the price set
forth in such notice and on otherwise no more favorable terms to the
Selling Shareholder than as set forth in such notice, without any
further obligation to Holder in connection with such sale. In the event
that the Selling Shareholder fails to consummate such sale within such
ninety-day period, the shares specified in such notice shall continue
to be subject to this Section.
14
<PAGE> 15
(c) Acceptance of Co-Sale Offer. If Holder accepts such offer
in writing within ten (10) day period, such acceptance shall be
irrevocable unless the Selling Shareholder shall be unable to cause to
be included in his sale the number of Shares of stock held by Holder
and set forth in the written acceptance. In that event, the Selling
Shareholder and Holder shall participate in the sale pro rata based on
their ownership.
(d) Offers Not Covered. The restrictions under this Section 12
will not apply to any sale or transfer of any Common Stock by a Selling
Shareholder to immediate family members (parent, grandparent, spouse,
children, grandchildren and siblings), or trusts for the benefit of
such family members of such Selling Shareholder, or the estate of a
Selling Shareholder as long as such transferee acknowledges that such
Common Stock shall remain subject to the terms of this Section 12, as
if held by a Selling Shareholder, and such transferee executes an
agreement stating that it is bound by the terms of this Section 12 and
will hold such shares of Common Stock subject to all such terms and
conditions.
13. EQUITY PARTICIPATION. This Warrant is issued in connection with the
Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. Section.47-24-101, et seq. and that
such equity participation be permitted under said statutes and not constitute
interest on the Note. If under any circumstances whatsoever, fulfillment of any
obligation of this Warrant, the Loan Agreement, or any other agreement or
document executed in connection with the Loan Agreement, shall violate the
lawful limit of any applicable usury statute or any other applicable law with
regard to obligations of like character and amount, then the obligation to be
fulfilled shall be reduced to such lawful limit, such that in no event shall
there occur, under this Warrant, the Loan Agreement, or any other document or
instrument executed in connection with the Loan Agreement, any violation of such
lawful limit, but such obligation shall be fulfilled to the lawful limit. If any
sum is collected in excess of the lawful limit, such excess shall be applied to
reduce the principal amount of the Note.
14. GOVERNING LAW. This warrant shall be governed by the laws of the
State of Tennessee applicable to agreements made entirely within the State.
15. SEVERABILITY. If any provision(s) of this Warrant or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant and the application
of such provisions to other
15
<PAGE> 16
persons or circumstances shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
16. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
17. JURISDICTION AND VENUE. The Company hereby consents to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any such courts.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC., a Delaware corporation
By: /s/ CHARLES R. MOLLO
---------------------------------------
Title: CEO
------------------------------------
SIRROM CAPITAL CORPORATION, a Tennessee
corporation
By: /s/ ELIZABETH LUNDIG
---------------------------------------
Title: Assistant Vice President
------------------------------------
The undersigned Shareholders join in the execution of this Warrant for
the purposes of acknowledging and agreeing to be bound by Section 12 hereof.
EMPIRE NATIONAL II, LLC
By: /S/ EDWARD GILBERT
---------------------------------------
Title: Member
------------------------------------
/s/ CHARLES R. MOLLO
------------------------------------------
Charles R. Mollo
/s/ JEFFREY S. DOSS
------------------------------------------
Jeffrey S. Doss
/s/ CAMERON WILSON
------------------------------------------
Cameron Wilson
/s/ JANICE L. BREEZE
------------------------------------------
Janice L. Breeze
17
<PAGE> 1
EXHIBIT 4.15
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES
ACTS OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant is issued this 25th day of March, 1998, by
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC., a Delaware corporation
(the "Company"), to SIRROM CAPITAL CORPORATION, a Tennessee corporation (SIRROM
CAPITAL CORPORATION and any subsequent assignee or transferee hereof are
hereinafter referred to collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM.
(a) For and in consideration of SIRROM CAPITAL CORPORATION making a
loan to the Company in an amount of One Million Seven Hundred Fifty
Thousand and no/100ths Dollars, ($1,750,000.00) pursuant to the terms of a
secured promissory note of even date herewith (the "Note") and related loan
agreement dated June 24, 1997, as amended pursuant to a First Amendment to
Loan Agreement and Loan Documents of even date herewith (the "Loan
Agreement"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase 186,836 shares of the Company's common stock
(the "Common Stock"), which the Company represents equals 2% of the capital
stock of the Company on the date hereof, calculated on a fully diluted
basis after exercise ("Base Amount"), provided that in the event that the
indebtedness evidenced by the Note is outstanding on the following dates,
the Base Amount shall be increased to the corresponding number set forth
below:
<TABLE>
<CAPTION>
DATE BASE AMOUNT
---------------------- -----------------------------------
<S> <C>
June 24, 2000 283,143 shares of Common Stock,
which the Company represents equals
3% of the capital stock of the
Company on the date hereof
calculated on a fully diluted basis
after exercise.
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
June 24, 2001 381,456 shares of Common Stock,
which the company represents equals
4% of the capital stock of the
Company on the date hereof
calculated on a fully diluted basis
after exercise.
June 24, 2002 481,839 shares of Common Stock,
which the Company represents equals
5% of the capital stock of the
Company on the date hereof
calculated on a fully diluted basis
after exercise.
</TABLE>
(b) Notwithstanding the foregoing, if Borrower pays in full the
indebtedness represented by the Note on or before November 30, 1998, the
Base Amount shall be reduced to 92,474 shares of Common Stock which the
Company represents equals 1% of the capital stock of the Company on the
date hereof calculated on a fully diluted basis after exercise.
(c) Notwithstanding the foregoing, if Borrower pays in full all
indebtedness represented by the Note on or before March 31, 1999, the Base
Amount shall be reduced to 139,415 shares of Common Stock which the Company
represents equals 1.5% of the capital stock of the Company on the date
hereof calculated on a fully diluted basis after exercise.
(d) The shares of Common Stock issuable upon exercise of this Warrant
are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time and from time to time from the date hereof until
July 31, 2002. For purposes of this Warrant the term "fully diluted basis"
shall be determined in accordance with generally accepted accounting
principles as of the date hereof.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per share for
which all or any of the Shares may be purchased pursuant to the terms of this
Warrant shall be One Cent ($.01).
3. EXERCISE. This warrant may be exercised by the Holder hereof (but only
on the conditions hereinafter set forth) as to all or any increment or
increments of one Hundred (100) Shares (or the balance of the Shares if less
than such number), upon delivery of written notice of intent to exercise to the
Company at the following address: 7955 East Redfield Road, Scottsdale, Arizona
85260 or such other address as the Company shall designate in a written notice
to the Holder hereof, together with this Warrant and payment to the Company of
the aggregate Exercise
2
<PAGE> 3
Price of the Shares so purchased. The Exercise Price shall be payable, at the
option of the Holder, (i) by certified or bank check, (ii) by the surrender of
the Note or portion thereof having an outstanding principal balance equal to the
aggregate Exercise Price or (iii) by the surrender of a portion of this Warrant
having a fair market value equal to the aggregate Exercise Price. Upon receipt
of the notice of exercise of this Warrant as aforesaid, the Company shall as
promptly as practicable, and in any event within fifteen (15) days thereafter,
execute and deliver to the Holder of this Warrant a certificate or certificates
for the total number of whole Shares for which this Warrant is being exercised
in such names and denominations as are requested by such Holder. If this Warrant
shall be exercised with respect to less than all of the Shares, the Holder shall
be entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised, which new Warrant shall in all
other respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which may be
payable in respect of the issuance of this Warrant or the issuance of any Shares
upon exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be pledged, hypothecated, sold, made subject to a security interest, or
otherwise transferred without (i) an effective registration statement for
such Warrant under the Securities Act and such applicable Blue Sky Laws, or
(ii) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not
required under the Securities Act or under any applicable Blue Sky Laws
(the Company hereby acknowledges that Bass, Berry & Sims is acceptable
counsel). Transfer of the shares issued upon the exercise of this Warrant
shall be restricted in the same manner and to the same extent as the
Warrant and the certificates representing such Shares shall bear
substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD
3
<PAGE> 4
THERETO, OR (II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACTS OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive rights,
if any, with respect thereto or to the issuance thereof. The Company shall
at all times reserve and keep available for issuance upon the exercise of
this Warrant such number of authorized but unissued shares of Common Stock
as will be sufficient to permit the exercise in full of this Warrant.
(c) Except for securities issued under the Company's 1996 Long Term
Incentive Plan, as amended, (not to exceed 10% of the common shares of
Borrower outstanding from time-to-time on a fully diluted basis, with the
exercise price per share of any capital stock issued pursuant to any option
granted under such plan not to be less than 100% of the fair market value
of such stock on the date such option is granted), the Company covenants
and agrees that it shall not sell any shares of the Company's capital stock
at a price below the fair market value of such shares (as such may be
determined in good faith, from time to time, by the Company's board of
directors), without the prior written consent of the Holder hereof. In the
event that the Company sells shares of the Company's capital stock in
violation of this Section 4(c), the number of shares of Common Stock
issuable upon exercise of this Warrant shall be equal to the product
obtained by multiplying the number of shares then issuable pursuant to this
Warrant prior to such sale by a fraction, the numerator of which shall be
the product of (x) the total number of shares of Common Stock outstanding
on a fully diluted basis immediately after such issuance or sale,
multiplied by (y) the fair market value immediately prior to such issuance
or sale and the denominator of which shall be the sum of (i) the number of
shares of Common Stock outstanding on a fully diluted basis immediately
prior to such issuance or sale multiplied by the fair market value
immediately prior to such issuance or sale, plus (ii) the aggregate amount
of the consideration received by the Company upon such issuance or sale (as
illustrated on Schedule I hereto).
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<PAGE> 5
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof, this
Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE RIGHTS;
PREFERENCE RIGHTS. This Warrant does not confer upon the Holder, as such, any
right whatsoever as a shareholder of the Company. Notwithstanding the foregoing,
if the Company should offer to all of the Company's shareholders the right to
purchase any securities of the Company, then all shares of Common Stock that are
subject to this Warrant shall be deemed to be outstanding and owned by the
Holder and the Holder shall be entitled to participate in such rights offering.
The Company shall not grant any preemptive rights with respect to any of its
capital stock without the prior written consent of the Holder. The Company shall
not issue any securities which entitle the holder thereof to obtain any
preference over holders of Common Stock upon the dissolution, liquidation,
winding-up, sale, merger, or reorganization of the Company without the prior
written consent of the Holder unless: (i) all indebtedness under the Loan
Agreement and/or Note has been paid in full and (ii) the investment made by the
holder thereof is based on the valuation of the Company being at least
$30,000,000.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall (a) receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity, (b)
receive copies of all notices, packages and documents provided to members of the
Company's Board of Directors for each board of directors meeting, and (c)
receive copies of all actions taken by written consent by the Company's Board of
Directors, from the date hereof until such time as the indebtedness evidenced by
the Note has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which such Holder would have received if this
Warrant had been exercised immediately
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<PAGE> 6
prior to such stock split, stock dividend, recapitalization, combination of
shares, or other similar event. If any adjustment under this Section 8(a)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares subject to this Warrant shall be the
next higher number of shares, rounding all fractions upward. Whenever there
shall be an adjustment pursuant to this Section 8(a), the Company shall
forthwith notify the Holder or Holders of this Warrant of such adjustment,
setting forth in reasonable detail the event requiring the adjustment and
the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event,
occurring after the date hereof, as a result of which shares of Common
Stock shall be changed into the same or a different number of shares of the
same or another class or classes of securities of the Company or another
entity, then the Holder exercising this Warrant shall receive, for the
aggregate price paid upon such exercise, the aggregate number and class of
shares which such Holder would have received if this Warrant had been
exercised immediately prior to such merger, consolidation, exchange of
shares, separation, reorganization or liquidation, or other similar event.
If any adjustment under this Section 8(b) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject
to this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this
Section 8(b), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated.
9. PUT AGREEMENT.
(a) The Company hereby irrevocably grants and issues to Holder the
right and option to sell to the Company (the "Put") this Warrant for a
period of thirty (30) days immediately prior to the expiration thereof, at
a purchase price (the "Purchase Price") equal to the Fair Market Value (as
hereinafter defined) of the shares of Common Stock issuable to Holder upon
exercise of this Warrant.
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<PAGE> 7
(b) The Company shall pay to the Holder, in cash or certified or
cashier's check, the Purchase Price in exchange for the delivery to the
Company of this Warrant within the later of (i) thirty (30) days of the
receipt of written notice, addressed as set forth in Section 3 hereto, from
the Holder of its intention to exercise the Put, or (ii) five (5) days
after Fair Market Value is determined by the appraisers pursuant to Section
9(c) hereof, not to exceed sixty (60) days of the receipt of written
notice.
(c) The Fair Market Value of the shares of Common Stock of the Company
issuable pursuant to this Warrant shall be the average trading price of
shares of Common Stock during the ten (10) trading days preceding the date
notice of the exercise of the Put is delivered to the Company or if the
Common Stock is not publicly traded at such time shall be determined as
follows:
(i) The Company and the Holder shall each appoint an independent,
experienced appraiser who is a member of a recognized professional
association of business appraisers. The two appraisers shall determine
the value of the shares of Common Stock which would be issued upon the
exercise of the Warrant, taking into consideration that such shares
would constitute a minority interest, and would lack liquidity, and
further assuming that the sale would be between a willing buyer and a
willing seller, both of whom have full knowledge of the financial and
other affairs of the Company, and neither of whom is under any
compulsion to sell or to buy.
(ii) If the highest of the two appraisals is not more than 10%
more than the lowest of the appraisals, the Fair Market Value shall be
the average of the two appraisals. If the highest of the two
appraisals is 10% or more than the lowest of the two appraisals, then
a third appraiser shall be appointed by the two appraisers, and if
they cannot agree on a third appraiser, within thirty (30) days
thereafter, the American Arbitration Association shall appoint the
third appraiser. The third appraiser, regardless of who appoints him
or her, shall have the same qualifications as the first two
appraisers.
(iii) The Fair Market Value after the appointment of the third
appraiser shall be the mean of the three appraisals.
(iv) The fees and expenses of the appraisers shall be paid
one-half by the Company and one-half by the Holder.
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<PAGE> 8
(d) Notwithstanding the foregoing, if the Note has been paid in
full and either (i) the Company has successfully completed an
underwritten public offering of the Company's capital stock and the
Company has a market capitalization in excess of $75,000,000.00, or
(ii) the Company is purchased by or merged with a public company
having a market capitalization of at least $75,000,000.00, and the
Holder receives marketable securities in such public company, the Put
shall terminate.
10. REGISTRATION.
(a) The Company and the Holder(s) agree that if at any time after
the date hereof the Company shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable
for a secondary offering of shares of Common Stock held by third
parties and which is not a registration solely to implement an
employee benefit plan or a transaction to which Rule 145 or any
similar rule of the Commission (as defined below) is applicable, it
will give notice in writing to such effect to the registered holder(s)
of the Shares at least thirty (30) days prior to such filing, and, at
the written request of any such registered holder, made within ten
(10) days after the receipt of such notice, will include therein at
the Company's cost and expense (including the fees and expenses of
counsel to such holder(s), but excluding underwriting discounts,
commissions and filing fees attributable to the Shares included
therein) such of the Shares as such holder(s) shall request; provided,
however, that if the offering being registered by the Company is
underwritten and if the representative of the underwriters certifies
in writing that the inclusion therein of the Shares would materially
and adversely affect the sale of the securities to be sold by the
Company thereunder, then the Company shall be required to include in
the offering only that number of securities of third parties
(including Holder(s)), including the Shares, 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 all selling shareholders according to the total amount of
securities entitled to be included therein owned by each selling
shareholder.
(b) Whenever the Company undertakes to effect the registration of
any of the Shares, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement covering
such Shares and use its best efforts to cause such registration
statement to be declared effective by the Commission as
expeditiously as possible and to keep such registration effective
until
8
<PAGE> 9
the earlier of (A) the date when all Shares covered by the
registration statement have been gold or (B) one hundred eighty
(180) days from the effective date of the registration statement;
provided, that before filing a registration statement or
prospectus or any amendment or supplements thereto, the Company
will furnish to each Holder of Shares covered by such
registration statement and the underwriters, if any, copies of
all such documents proposed to be filed (excluding exhibits,
unless any such person shall specifically request exhibits),
which documents will be subject to the review of such Holders and
underwriters, and the Company will not file such registration
statement or any amendment thereto or any prospectus or any
supplement thereto (including any documents incorporated by
reference therein) with the Commission if (A) the underwriters,
if any, shall reasonably object to such filing or (B) if
information in such registration statement or prospectus
concerning a particular selling Holder has changed and such
Holder or the underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commission such amendments
and post-effective amendments to such registration statement as
may be necessary to keep such registration statement effective
during the period referred to in Section 10(b)(i) and to comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration
statement, and cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be
filed with the commission pursuant to Rule 424 under the
Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of
copies of such registration statement, each amendment thereto,
the prospectus included in such registration statement (including
each preliminary prospectus), each supplement thereto and such
other documents as they may reasonably request in order to
facilitate the disposition of the Shares owned by them.
(iv) Use all reasonable efforts to register and qualify
under such other securities laws of such jurisdictions as shall
be reasonably requested by any selling Holder and do any and all
other acts and things which may be reasonably necessary or
advisable to enable such selling Holder to consummate the
disposition of the Shares owned by such Holder, in such
jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to
qualify to transact business or to
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<PAGE> 10
file a general consent to service of process in any such states
or jurisdictions.
(v) Promptly notify each selling Holder of the happening of
any event, upon discovery of such event, as a result of which the
prospectus included in such registration statement contains an
untrue statement of a material fact or omits any fact necessary
to make the statements therein not misleading and, at the request
of any such Holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Shares, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading.
(vi) Provide a transfer agent and registrar for all such
Shares not later than the effective date of such registration
statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form) and take all such
other actions as the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Shares
(including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make reasonably available for inspection by any
selling Holder or any underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such selling
Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
officers, directors, employees and independent accountants of the
Company to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if requested
by any such person) confirm such notification in writing: (A) the
filing of the prospectus or any prospectus supplement and the
registration statement and any amendment or post-effective
amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the
effectiveness of such documents, (B) any requests by the
Commission for amendments or supplements to the registration
statement or the prospectus or for additional information, (C)
the issuance or threat of
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<PAGE> 11
issuance by the Commission of any stop order suspending the
effectiveness of the registration statement or the initiation of
any proceedings for that purpose, and (D) the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threat of initiation of any proceeding for such
purposes.
(x) Make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement
and obtain at the earliest possible moment the withdrawal of any
such order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Shares to be sold and
not bearing any restrictive legends, and enable such Shares to be
in such lots and registered in such names as the underwriters may
request at least two (2) business days prior to any delivery of
the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not later
than the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each
closing of an underwritten offering, (A) make such
representations and warranties to the selling Holder(s) and the
underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in
primary underwritten offerings; (B) use its best efforts to
obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to
the selling Holders and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in connection
with underwritten offerings; (C) deliver such-documents and
certificates as may be reasonably requested (1) by the holders of
a majority of the Shares being sold, and (2) by the underwriters,
if any, to evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement or
other agreement entered into by the Company; and (D) obtain
opinions of counsel to the Company and updates thereof (which
counsel and which opinions shall be reasonably satisfactory to
the underwriters, if any), covering the matters customarily
covered in opinions requested in
11
<PAGE> 12
underwritten offerings and such other matters as may be
reasonably requested by the selling Holders and underwriters or
their counsel. Such counsel shall also state that no facts have
come to the attention of such counsel which cause them to believe
that such registration statement, the prospectus contained
therein, or any amendment or supplement thereto, as of their
respective effective or issue dates, contains any untrue
statement of any material fact or omits to state any material
fact necessary to make the statements therein not misleading
(except that no statement need be made with respect to any
financial statements, notes thereto or other financial data or
other expertized material contained therein). If for any reason
the Company's counsel is unable to give such opinion, the Company
shall so notify the Holders of the Shares and shall use its best
efforts to remove expeditiously all impediments to the rendering
of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make
generally available to its security holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act,
no later than forty-five (45) days after the end of any
twelve-month period (or ninety (90) days, if such period is a
fiscal year) (A) commencing at the end of any fiscal quarter in
which the Shares are sold to underwriters in a firm or best
efforts underwritten offering, or (B) if not sold to underwriters
in such an offering, beginning with the first month of the first
fiscal quarter of the Company commencing after the effective date
of the registration statement, which statements shall cover such
twelve-month periods.
(c) After the date hereof, the Company shall not grant to any
holder of securities of the Company any registration rights which have
a priority greater than or equal to those granted to Holders pursuant
to this Warrant without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 10(a) above with
respect to each holder of Shares are expressly conditioned upon such
holder's furnishing to the Company in writing such information
concerning such holder and the terms of such holder's proposed
offering as the Company shall reasonably request for inclusion in the
registration statement. If any registration statement including any of
the Shares is filed, then the Company shall indemnify each holder
thereof (and each underwriter for such holder and each person, if any,
who controls such underwriter within the meaning of the Securities
Act) from any loss, claim, damage or liability arising out of, based
upon or in any way
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<PAGE> 13
relating to any untrue statement of a material fact contained in such
registration statement or any omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except for any such statement or omission
based on information furnished in writing by such holder of the Shares
for use in connection with such registration statement; and such
holder shall indemnify the Company (and each of its officers and
directors who has signed such registration statement, each director,
each person, if any, who controls the Company within the meaning of
the Securities Act, each underwriter for the Company and each person,
if any, who controls such underwriter within the meaning of the
Securities Act) and each other such holder against any loss, claim,
damage or liability arising from any such statement or omission which
was made in reliance upon information furnished in writing to the
Company by such holder of the Shares for use in connection with such
registration statement.
(e) For purposes of this Section 10, all of the Shares shall be
deemed to be issued and outstanding.
11. CERTAIN NOTICES. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock
or make any special dividend or other distribution to the holders of
its Common Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company,
or consolidate, merge or otherwise combine with (except where the
Company is the surviving entity), or sell all or substantially all of
its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up
the affairs of the Company;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant, by certified or , registered mail, (i) at least
twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
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<PAGE> 14
liquidation or winding up, and (ii) in the case of such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place. Any
notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which
the holders of Common Stock shall be entitled thereto, and any notice
required by clause (ii) shall specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
12. RIGHTS OF CO-SALE.
(a) Co-Sale Right. Until such time as the Company completes an
underwritten public offering raising at least $10,000,000.00, neither
Empire National II, LLC, Charles R. Mollo, Jeffrey S. Doss, Cameron
Wilson, nor Janice L. Breeze (individually a "Selling Shareholder" and
collectively the "Selling Shareholders") shall enter into any
transaction that would result in the sale by it of any Common Stock
now or hereafter owned by it, unless prior to such sale the Selling
Shareholder shall give notice to Holder of its intention to effect
such sale in order that Holder may exercise its rights under this
Section 12 as hereinafter described. Such notice shall set forth (i)
the number of shares to be sold by the Selling Shareholder, (ii) the
principal terms of the sale, including the price at which the shares
are intended to be sold, and (iii) an offer by the Selling Shareholder
to use its best efforts to cause to be included with the shares to be
sold by it in the sale, on a share-by-share basis and on the same
terms and conditions, the Shares issuable or issued to Holder pursuant
this Warrant.
(b) Rejection of Co-Sale Offer. If Holder has not accepted such
offer in writing within a period of ten (10) days from the date of
receipt of the notice, then the Selling Shareholder shall thereafter
be free for a period of ninety (90) days to sell the number of shares
specified in such notice, at a price no greater than the price set
forth in such notice and on otherwise no more favorable terms to the
Selling Shareholder than as set forth in such notice, without any
further obligation to Holder in connection with such sale. In the
event that the Selling Shareholder fails to consummate such sale
within such ninety-day period, the shares specified in such notice
shall continue to be subject to this Section.
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<PAGE> 15
(c) Acceptance of Co-Sale Offer. If Holder accepts such offer in
writing within ten (10) day period, such acceptance shall be
irrevocable unless the Selling Shareholder shall be unable to cause to
be included in his sale the number of Shares of stock held by Holder
and set forth in the written acceptance. In that event, the Selling
Shareholder and Holder shall participate in the sale pro rata based on
their ownership.
(d) Offers Not Covered. The restrictions under this Section 12
will not apply to any sale or transfer of any Common Stock by a
Selling Shareholder to immediate family members (parent, grandparent,
spouse, children, grandchildren and siblings), or trusts for the
benefit of such family members of such Selling Shareholder, or the
estate of a Selling Shareholder as long as such transferee
acknowledges that such Common Stock shall remain subject to the terms
of this Section 12, as if held by a Selling Shareholder, and such
transferee executes an agreement stating that it is bound by the terms
of this Section 12 and will hold such shares of Common Stock subject
to all such terms and conditions.
13. EQUITY PARTICIPATION. This Warrant is issued in connection with
the Loan Agreement. It is intended that this Warrant constitute an
equity participation under and pursuant to T.C.A. Section 47-24-101,
et seq. and that such equity participation be permitted under said
statutes and not constitute interest on the Note. If under any
circumstances whatsoever, fulfillment of any obligation of this
Warrant, the Loan Agreement, or any other agreement or document
executed in connection with the Loan Agreement, shall violate the
lawful limit of any applicable usury statute or any other applicable
law with regard to obligations of like character and amount, then the
obligation to be fulfilled shall be reduced to such lawful limit, such
that in no event shall there occur, under this Warrant, the Loan
Agreement, or any other document or instrument executed in connection
with the Loan Agreement, any violation of such lawful limit, but such
obligation shall be fulfilled to the lawful limit. If any sum is
collected in excess of the lawful limit, such excess shall be applied
to reduce the principal amount of the Note.
14. GOVERNING LAW. This warrant shall be governed by the laws of the
State of Tennessee applicable to agreements made entirely within the
State.
15. SEVERABILITY. If any provision(s) of this Warrant or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Warrant and the
application of such provisions to other
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<PAGE> 16
persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
16. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same Warrant.
17. JURISDICTION AND VENUE. The Company hereby consents to the
jurisdiction of the courts of the State of Tennessee and the United
States District Court for the Middle District of Tennessee, as well as
to the jurisdiction of all courts from which an appeal may be taken
from such courts, for the purpose of any suit, action or other
proceeding arising out of any of its obligations arising under this
Agreement or with respect to the transactions contemplated hereby, and
expressly waives any and all objections it may have as to venue in any
such courts.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC., a Delaware corporation
By: /s/ CHARLES R. MOLLO
-----------------------------------------
Title: CEO
--------------------------------------
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By: /s/ ELIZABETH LUNDIG
-----------------------------------------
Title: Assistant Vice President
--------------------------------------
The undersigned Shareholders join in the execution of this Warrant for the
purposes of acknowledging and agreeing to be bound by Section 12 hereof.
EMPIRE NATIONAL II, LLC
By: /s/ EDWARD GILBERT
-----------------------------------------
Title: Member
--------------------------------------
/s/ CHARLES R. MOLLO
------------------------------------------
Charles R. Mollo
/s/ JEFFREY S. DOSS
------------------------------------------
Jeffrey S. Doss
/s/ CAMERON WILSON
------------------------------------------
Cameron Wilson
/s/ JANICE L. BREEZE
------------------------------------------
Janice L. Breeze
17
<PAGE> 1
EXHIBIT 4.16
MOBILITY ELECTRONICS, INC.
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
OCTOBER 29, 1999
<PAGE> 2
MOBILITY ELECTRONICS, INC.
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This Series C Preferred Stock and Warrant Purchase Agreement (the
"Agreement") is made as of the 29th day of October, 1999, by and between
Mobility Electronics, Inc., a Delaware corporation (the "Company"), and Seligman
Communications and Information Fund, Inc. (the "Purchaser").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANT.
1.1 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK AND WARRANT.
(a) The Company has adopted and filed with the Secretary of State of
the State of Delaware a Certificate of the Designations, Preferences, Rights and
Limitations of Series C Preferred Stock of the Company, a copy of which is
attached hereto as Exhibit A (the "Certificate of Designations").
(b) Subject to the terms and conditions of this Agreement, Purchaser
agrees to purchase at the Closing (as defined below) and the Company agrees to
sell and issue to Purchaser at the Closing 333,333 shares of Series C Preferred
Stock at a purchase price of $6.00 per share; provided, however, that to the
extent any shares of Series C Preferred Stock are sold by the Company at a price
less than $6.00 per share, Purchaser will receive, and the Company agrees to
issue, additional shares of Series C Preferred Stock so that Purchaser receives
the benefit of such lower issuance price by issuing additional shares of Series
C Preferred Stock in an amount equal to the remainder of (i) the aggregate
amount of Purchaser's original investment divided by such lower issuance price
minus (ii) the aggregate number of shares of Series C Preferred Stock then
issued to Purchaser (subject to adjustment for all stock splits, stock
dividends, combinations, recapitalization and the like). The shares of Series C
Preferred Stock issued to Purchaser pursuant to this Agreement shall be
hereinafter referred to as the "Stock".
(c) Subject to the terms and conditions of this Agreement, at the
Closing the Company agrees to issue to Purchaser, at no additional cost, a
warrant to purchase up to 666,666 shares of common stock, par value $0.01 per
share (the "Common Stock"), of the Company, at an exercise price of $0.01 per
share, which warrant shall be in the form of Exhibit B attached hereto (the
"Warrant").
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1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take place at the
offices of Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas, at
10:00 a.m., on the date hereof, or at such other time and place as the Company
and the Purchasers mutually agree upon, orally or in writing (which time and
place are designated as the "Closing").
(b) At the Closing, the Company shall deliver to Purchaser: (i) a
certificate representing the Stock being purchased hereby; and (ii) the Warrant,
against payment of $1,999,998 by wire transfer to the Company's bank account.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to:
(i) carry on its business as now conducted and proposed to be conducted; (ii)
execute and deliver this Agreement and, the Investors' Rights Agreement in the
form attached hereto as Exhibit D (the "Investors' Rights Agreement") (together
with this Agreement, the "Agreements") and (iii) issue and sell the Stock, the
Warrant and the Common Stock issuable upon conversion of the Stock and exercise
of the Warrant (together, the "Securities") and to carry out the provisions of
the Agreements. The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure so to qualify would have
a material adverse effect on its business or properties. The jurisdictions in
which the Company is qualified to do business are listed on the Schedule of
Exceptions set forth in Exhibit C attached hereto.
2.2 CAPITALIZATION. The authorized capital of the Company consists of:
(a) 5,000,000 shares of Preferred Stock, of which (i) 2,500 shares
have been designated Series A Preferred Stock, none of which are issued and
outstanding; (ii) 4,186 shares have been designated Series B Preferred Stock,
none of which are issued and outstanding; and (iii) 4,500,000 shares have been
designated Series C Preferred Stock, 1,166,365 of which are issued and
outstanding immediately prior to the Company's current $5 million offering of
Series C Preferred Stock. All of the outstanding shares of Series C Preferred
Stock have been duly and validly authorized, fully paid and are nonassessable
and issued in compliance with all applicable federal and state securities laws.
(b) 75,000,000 shares of Common Stock, 10,992,825 shares of which
are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common
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Stock have been duly and validly authorized, fully paid and are nonassessable
and issued in compliance with all applicable federal and state securities laws.
(c) The Company has reserved 1,197,282 shares of Common Stock for
issuance to officers, directors, employees and advisors of the Company pursuant
to the Company's Amended and Restated 1996 Long Term Incentive (the "Stock
Plan"), and has issued and outstanding options under the Stock Plan to purchase
703,456 shares of Common Stock as of September 30, 1999.
(d) The Company has issued and outstanding the following other
securities: (i) warrants to purchase 3,330,059 shares of Common Stock (ii)
options to purchase 264,396 shares of Common Stock and (iii) approximately
$95,000 of 12% Convertible Debentures, 60% of which is convertible into shares
of Common Stock at a conversion price of $3.86 per share.
(e) Except for (i) conversion privileges of the Series C Preferred
Stock, (ii) outstanding options issued pursuant to the Stock Plan, (iii)
conversion and exercise privileges of the securities described in subsections
(c) and (d) above, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock. The Company is not a party or
subject to any agreement or understanding, and there is no agreement or
understanding between any person and/or entities, which affects or relates to
the voting or giving of written consents with respect to any security or by a
director of the Company. The Company has outstanding the registration rights set
forth in Section 2.2 of Exhibit C.
2.3 SUBSIDIARIES. The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of the Agreements, the performance of all obligations of the
Company under the Agreements and the authorization, issuance, sale and delivery
of the Securities has been taken or will be taken prior to the Closing, and the
Agreements, when executed and delivered by the Company, shall constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being issued to the
Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the
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consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under the Agreements and applicable state and federal securities laws.
Based in part upon the representations of the Purchasers in this Agreement, the
Stock will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon conversion of the Stock and
exercise of the Warrant has been duly and validly reserved for issuance, and
upon issuance in accordance with the terms of the Certificate of Designations or
the Warrant (as the case may be), shall be duly and validly issued, fully paid
and nonassessable and free of restrictions on transfer other than restrictions
on transfer under the Agreements, and applicable federal and state securities
laws and will be issued in compliance with all applicable federal and state
securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except for filings pursuant to applicable state securities laws
and Regulation D of the Securities Act of 1933, as amended (the "Securities
Act") which filing will be effected within fifteen (15) days after the sale of
the Stock.
2.7 LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the best knowledge of the Company, currently threatened against
the Company or any of its subsidiaries that questions the validity of the
Agreements or the right of the Company to enter into them, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition or affairs of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing. The foregoing includes, without limitation,
actions pending or to the best knowledge of the Company threatened in writing
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers. Neither the Company nor
any of its subsidiaries is a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its subsidiaries currently pending or which the Company or any
of its subsidiaries intends to initiate.
2.8 INTELLECTUAL PROPERTY. The Company owns or possesses sufficient
title and ownership of or licenses to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and proprietary
rights and processes necessary for its business as conducted and proposed to be
conducted without any conflict with, or infringement of, the rights of others.
There are no outstanding options, licenses or agreements of any kind relating to
the foregoing, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other
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than such licenses or agreements arising from the purchase of "off the shelf" or
standard commercial products. The Company has not received any communications
alleging that the Company has violated or, by conducting its business, would
violate any of the patents, trademarks, service marks, trade names, copyrights,
trade secrets or other proprietary rights or processes of any other person or
entity. The Company, to the best of its knowledge, is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interest of the Company
or that would conflict with the Company's business. To the best knowledge of the
Company, neither the execution or delivery of this Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business as proposed, will conflict with or result in a breach of
the terms, conditions, or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such employee is now obligated.
The Company does not believe it is or will be necessary to use any inventions of
any of its employees (or persons it currently intends to hire) made prior to
their employment by the Company.
2.9 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any provisions of
(i) its Certificate of Incorporation or Bylaws (as such documents are in force
and effect as of the Closing Date) or (ii) any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound, the
violation of, or default, which would have a material adverse effect on the
Company, or, to the best knowledge of the Company, of any provision of federal
or state statute, rule or regulation applicable to the Company. The execution,
delivery and performance of the Agreements and the consummation of the
transactions contemplated hereby or thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) The Company has avoided every condition, and has not performed
any act, the occurrence of which would result in the Company's loss of any right
granted under any license, distribution agreement or other agreement.
2.10 AGREEMENTS; ACTION.
(a) There are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, affiliates, or any
affiliate thereof.
(b) Except as created or incurred in the ordinary course of
business, as related to the Company's Universal Docking Station, or for
agreements explicitly contemplated by the Agreements, there are no agreements,
understandings, instruments, contracts or proposed
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transactions to which the Company or any of its subsidiaries is a party or by
which it is bound that involve (i) obligations (contingent or otherwise) of, or
payments to, the Company or any of its subsidiaries in excess of, $100,000, (ii)
the license of any patent, copyright, trade secret or other proprietary right to
or from the Company or any of its subsidiaries, (iii) the grant of rights
(excluding contract manufacturing rights and relationships) to manufacture,
produce, assemble, license, market, or sell its products to any other person or
affect the Company's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products; or (iv) indemnification by the Company
with respect to infringement of proprietary rights (other than indemnification
obligations arising from purchase or sale agreements entered into in the
ordinary course of business).
(c) Neither the Company nor any of its subsidiaries has (i) declared
or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $25,000 or in excess of $100,000 in the aggregate, other than in
the ordinary course of business, (iii) made any loans or advances to any person,
other than ordinary advances for travel and relocation expenses and the like, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
2.11 DISCLOSURE. The Company has fully provided Purchaser with all the
information that Purchaser has requested for deciding whether to acquire the
Stock and the Warrant and all information that the Company believes is
reasonably necessary to enable the Purchaser to make such a decision, including
the Company's 1999 Company Overview, dated September 1999 (the "Company
Overview"). No representation or warranty of the Company contained in this
Agreement and the exhibits attached hereto, any certificate furnished or to be
furnished to Purchaser at the Closing, or the Company Overview (when read
together) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
To the extent the Company Overview was prepared by management of the Company,
the Company Overview and the financial and other projections contained in the
Company Overview and other written information provided to the Purchaser were
prepared in good faith (with the exception of information prepared by third
party sources and identified as such in the Company Overview or other written
information and to which the Company makes no representation except that it has
no basis to believe such sections are inaccurate); however, the Company does not
warrant that it will achieve such projections.
2.12 NO CONFLICT OF INTEREST. The Company is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees which amount does not in the aggregate exceed $50,000.
None of the Company's officers or directors, or any members of their immediate
families, are, directly or indirectly, indebted to the Company (other than in
connection with purchases of the
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Company's stock) or to the best knowledge of the Company have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company except that officers, directors
and/or stockholders of the Company may own stock in (but not exceeding two
percent of the outstanding capital stock of) any publicly traded company that
may compete with the Company. None of the Company's officers or directors or any
members of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.13 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as contemplated in
the Investors' Rights Agreement, the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to any person or entity. To
the best knowledge of the Company, no stockholder of the Company has entered
into any agreements with respect to the voting of capital shares of the Company.
2.14 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances. The Company is in compliance
with all material terms of each material lease to which it is a party or
otherwise bound.
2.15 FINANCIAL STATEMENTS. The Company has made available to Purchaser
the financial statements set forth in the Company Overview (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except that the unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. The Financial Statements fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject to normal year-end audit adjustments. Except
as set forth in the Financial Statements, the Company has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to June 30, 1999 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in both cases, individually or in the aggregate
are not material to the financial condition or operating results of the Company.
2.16 CHANGES. Since June 30, 1999 there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except actions contemplated
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in the Company Summary and changes in the ordinary course of business that have
not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable right or
of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by which
the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer or
key employee of the Company; and the Company is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other distribution
in respect to any of the Company's capital stock, or any direct or indirect
redemption, purchase, or other acquisition of any of such stock by the Company;
(l) any declaration or payment of any dividend or other distribution
of the assets of the Company;
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(m) receipt of notice by the Company that there has been a loss of,
or material order cancellation by, any major customer of the Company;
(n) to the Company's knowledge, any other event or condition of any
character that might materially and adversely affect the business, properties,
prospects or financial condition of the Company; or
(o) any arrangement or commitment by the Company to do any of the
things described in this Section 2.16.
2.17 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.18 TAX RETURNS AND PAYMENTS. The Company has filed all tax returns and
reports as required by law. These returns and reports are true and correct in
all material respects. The Company has paid all taxes and other assessments due.
The Company has not made any elections pursuant to the Internal Revenue Code of
1986, as amended (the "Code") (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a material
effect on the Company, its financial condition, its business as presently
conducted or proposed to be conducted or any of its properties or material
assets. The Company had never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns and none of its state income or franchise
tax or sales or use tax returns has ever been audited by governmental
authorities. Since the date of the Financial Statements, the Company has not
incurred any taxes, assessments or governmental charges other than in the
ordinary course of business and the Company has made adequate provisions on its
books of account for all taxes, assessments and governmental charges with
respect to its business, properties and operations for such period. The Company
has withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes,
federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositories.
2.19 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.20 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the best knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
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Company pending, or to the best knowledge of the Company threatened, which could
have a material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. The employment of
each officer and employee of the Company is terminable at the will of the
Company. The Company has complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related
to employment. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement.
2.21 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS.
Substantially all current employees and officers of the Company have executed an
agreement with the Company regarding confidentiality and proprietary information
substantially in the form or forms delivered to the counsel for the Purchasers.
The Company is not aware that any of its employees or consultants is in
violation thereof.
2.22 PERMITS. The Company and each of its subsidiaries has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could materially and adversely affect
the business, properties, prospects, or financial condition of the Company. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
2.23 CORPORATE DOCUMENTS. The Certificate of Incorporation and Bylaws of
the Company are in the form provided to counsel for the Purchasers. The copy of
the minute books of the Company provided to the Purchasers' counsel contains
minutes of all meetings of directors and stockholders and all actions by written
consent without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.24 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
2.25 OFFERING. Subject in part to the truth and accuracy of each
Purchaser's representations and warranties set forth in Section 3 of this
Agreement, the offer, sale and issuance of the Securities as contemplated by
this Agreement are exempt from the registration requirements of the Securities
Act and any applicable state securities laws, and neither the Company nor any
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authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.26 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or supplier that
was significant to the Company during the period from June 30, 1999 to the date
hereof has terminated, materially reduced or threatened to terminate or
materially reduce its purchases from or provision of products or services to the
Company, as the case may be.
2.27 OUTSTANDING CAPITAL STOCK. There are no issued and outstanding
shares of capital stock of the Company which have dividend or redemption rights,
liquidation preferences, conversion rights, voting rights or otherwise which are
superior to or on a party with the Series C Preferred Stock.
2.28 YEAR 2000 COMPLIANCE. To the best knowledge of the Company after
due inquiry, the Company's software, hardware and other computer and information
technology (collectively, "Information Technology") is Year 2000 Compliant (as
defined in the next sentence). "Year 2000 Compliant" shall mean that such
Information Technology is designed to be used prior to, during and after the
calendar year 2000 A.D., and such Information Technology used during each such
time period shall accurately receive, provide and process data/time data
(including, but not limited to. calculation, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, including the years
1999 and 2000, and leap year calculations and will not malfunction, cease to
function, or provide invalid or incorrect results as a result of data/time data,
to the extent that other information technology, used in combination of the
information technology being acquired, properly exchanges data/time data with
it.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents
and warrants to the Company that:
3.1 AUTHORIZATION. Purchaser has full power and authority to enter into
this Agreement. The Agreements, when executed and delivered by Purchaser, will
constitute valid and legally binding obligations of Purchaser, enforceable in
accordance with their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors' rights
generally, and as limited by laws relating to the availability of a specific
performance, injunctive relief, or other equitable remedies, or (b) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Purchaser in reliance upon Purchaser's representation to the Company, which by
Purchaser's execution of this Agreement Purchaser hereby confirms, that the
Securities to be acquired by Purchaser will be acquired for investment for
Purchaser's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that Purchaser has no present
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intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Purchaser further represents that
Purchaser does not presently have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Securities. Purchaser
has not been formed for the specific purpose of acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. Purchaser has had an opportunity to
discuss the Company's business, management, financial affairs and the terms and
conditions of the offering of the Stock and Warrant with the Company's
management and has had an opportunity to review the Company's facilities.
Purchaser understands that such discussions, as well as the Company Overview and
any other written information delivered by the Company to Purchaser, were
intended to describe the aspects of the Company's business which it believes to
be material.
3.4 RESTRICTED SECURITIES. Purchaser understands that the Securities
have not been, and will not be, registered under the Securities Act, by reason
of a specific exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of Purchaser's representations as expressed herein.
Purchaser understands that the Securities are "restricted securities" under
applicable U.S. federal and state securities laws and that, pursuant to these
laws, Purchaser must hold the Securities indefinitely unless they are registered
with the Securities and Exchange Commission and qualified by state authorities,
or an exemption from such registration and qualification requirements is
available. Purchaser acknowledges that the Company has no obligation to register
or qualify the Securities for resale except as set forth in the Investors'
Rights Agreement. Purchaser further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Securities, and on requirements relating to the Company
which are outside of Purchaser's control, and which the Company is under no
obligation and may not be able to satisfy.
3.5 NO PUBLIC MARKET. Purchaser understands that no public market now
exists for any of the securities issued by the Company, and that the Company has
made no assurances that a public market will ever exist for the Securities.
3.6 LEGENDS. Purchaser understands that the Securities, and any
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends (or substantially similar legends):
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE
Page 12
<PAGE> 14
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 ACCREDITED INVESTOR. Purchaser is an accredited investor as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act as
presently in effect.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations of
Purchaser to the Company under this Agreement are subject to the fulfillment, on
or before the Closing, of each of the following conditions, unless otherwise
waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 shall be true and correct on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with all
covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver
to the Purchasers at the Closing a Compliance Certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 CONSENTS; QUALIFICATIONS. The Company shall have obtained any and
all consents, permits and waivers necessary or appropriate for consummation of
the transactions contemplated by the Agreements (except for such as may be
properly obtained subsequent to the Closing Date). All authorizations, approvals
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Stock pursuant to this Agreement shall be obtained and
effective as of the Closing.
4.5 OPINION OF COMPANY COUNSEL. Purchaser shall have received from
Jackson Walker L.L.P., counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit E.
4.6 RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE STOCK
AND EXERCISE OF THE WARRANT. The Common Stock issuable upon conversion of the
Stock and
Page 13
<PAGE> 15
exercise of the Warrant shall have been duly authorized and reserved for
issuance upon such conversion.
4.7 INVESTOR'S RIGHTS AGREEMENT. The Company and Purchaser shall have
executed and delivered the Investor's Rights Agreement in substantially the form
attached as Exhibit D.
4.8 DUE DILIGENCE. Purchaser shall, in its sole discretion have
completed their legal and financial due diligence and the results of such due
diligence shall, in the sole discretion of Purchaser, be acceptable to Purchaser
and its legal counsel. The Schedule of Exceptions delivered to Purchaser by the
Company shall contain no exception deemed unacceptable by Purchaser in its sole
discretion.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to Purchaser under this Agreement are subject to the fulfillment, on
or before the Closing, of each of the following conditions, unless otherwise
waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Purchaser contained in Section 3 shall be true and correct on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions contained in
this Agreement to be performed by Purchaser on or prior to the Closing shall
have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Stock and the Warrant pursuant to this Agreement shall be obtained and effective
as of the Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties and representations of the Company and Purchaser
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing for a period of two (2) years
following the Closing, except for the warranties and representations in Section
2.8 which shall survive the execution and delivery of this Agreement and the
Closing for a period of three (3) years following the Closing. The covenants set
forth in this Agreement shall survive until the consummation of an initial
public offering of Common Stock or the merger, acquisition or sale of
substantially all of the assets of the Company in which the stockholders of the
Company immediately prior to such event do not own a majority of the outstanding
shares of the surviving corporation.
Page 14
<PAGE> 16
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. 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.
6.3 GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties 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 law.
6.4 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.
6.5 NOTICES. Any notice required or permitted by this 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, addressed to the party to be notified at such
party's address as set forth on the signature page hereto, or as subsequently
modified by written notice.
6.6 FINDER'S FEE. Except for a placement agent fees payable by the
Company to BancBoston Robertson Stephens Inc., each party represents that it
neither is nor will be obligated for any finder's fee or commission in
connection with Purchaser's investment hereunder. Purchaser agrees to indemnify
and to hold harmless the Company from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which Purchaser or
any of its officers, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless each Purchaser from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
6.7 FEES AND EXPENSES. Each party shall be responsible for any fees or
expenses, incurred by it with respect to this Agreement, the documents referred
to herein and the transactions contemplated hereby and thereby.
6.8 ATTORNEY'S FEES'. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
Page 15
<PAGE> 17
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or
waived only with the written consent of the Company and the holders of at least
a majority of the Common Stock issued or issuable upon conversion of the Stock
and exercise of the Warrant. Any amendment or waiver effected in accordance with
this Section 6.9 shall be binding upon the Purchasers and each transferee of the
Stock (or the Common Stock issuable upon conversion thereof) and Warrant (of the
Common Stock issuable upon exercise thereof), each future holder of all such
securities, and the Company.
6.10 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, then (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.
6.11 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
6.12 ENTIRE AGREEMENT. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
6.13 CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written permission of the other parties hereto, it shall at all times keep
confidential and not divulge, or make accessible to anyone any confidential
information, knowledge or data concerning or relating to the business or
financial affairs of the other parties to which such party has been or shall
become privy by reason of this Agreement, discussions or negotiations relating
to this Agreement, the performance of its obligations hereunder or the ownership
of Securities purchased hereunder. The provisions of this Section 6.13 shall be
in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the parties hereto with respect to the
transactions contemplated hereby.
Page 16
<PAGE> 18
6.14 RELIANCE. Purchaser acknowledges that it is not relying upon any
person, firm or corporation, other than the Company and its officers and
directors, in making its investment or decision to invest in the Company.
6.15 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
The parties have executed this Agreement as of the date first written
above.
MOBILITY ELECTRONICS, INC.
By: /s/ RICHARD W. WINTERICH
------------------------------------------
Richard W. Winterich, Chief Financial Officer
Address: 15990 Greenway-Hayden
Suite 500
Scottsdale, Arizona 85260
SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC.
BY: J. & W. SELIGMAN & CO. INCORPORATED,
ITS INVESTMENT ADVISER
By: /s/ RICHARD R. SCHMALTZ
-------------------------
Name: Richard R. Schmaltz
-------------------------
Title: Managing Director
-------------------------
Address: 125 University Ave.
Palo Alto, CA 94301
(650) 470-2670
Page 17
<PAGE> 1
EXHIBIT 4.17
CONTRIBUTION AND INDEMNIFICATION AGREEMENT
THIS CONTRIBUTION AND INDEMNIFICATION AGREEMENT (this "Agreement")
dated as of April 20, 1998, is executed by and among Janice L. Breeze
("Breeze"), Jeffrey S. Doss ("Doss"), Charles R. Mollo ("Mollo"), Cameron
Wilson ("Wilson" and collectively with Breeze, Doss and Mollo, the
"Guarantors"), Electronics Accessory Specialists International, Inc., a
Delaware corporation (the "Company"), and the stockholders of the Company set
forth on the signature pages hereto (the "Stockholders").
WITNESSETH:
WHEREAS, the Company has obtained from NationsBank, N.A. ("Lender"),
certain working capital lines of credit and will in the future obtain such
additional lines of credit (the "Loans") as evidenced by certain notes (the
"Notes"); and
WHEREAS, as a condition to the funding of the Loans, Lender has
required and may require in the future that Guarantors execute and deliver
individual guaranties (the "Guaranty Agreements"), by which Guarantors agree to
guaranty payment of all or part of the Loans subject to the provisions therein
(all amounts owed by Guarantors under the Guaranty Agreements are referred to
herein as the "Guaranteed Sums"); and
WHEREAS, the Guarantors and Stockholders have agreed to indemnify any
Indemnitee (as defined below) against amounts paid with respect to the
Guaranteed Sums in excess of that Indemnitee's pro rata share set forth on
Exhibit A;
WHEREAS, in consideration of the agreements herein the Company has
agreed to issue to the Guarantors and Stockholders as a group purchase warrants
to purchase in the aggregate 225,000 shares of common stock of the Company, par
value $.01 per share (the "Common Stock"), at a price of $5.75 per share for a
period of five years (the "Warrants"); and
WHEREAS, the parties hereto have determined that valuable benefits
will be derived by each party hereto as a result of the extensions of credit to
be made available to the Company pursuant to the Loans.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and confessed, each of the
undersigned agree as follows:
ARTICLE I.
TERMS OF CONTRIBUTION AND INDEMNIFICATION
1.01 Contribution and Indemnification. In connection with the Loans,
and as a condition to Lender providing funds under the Notes, Guarantors have
guaranteed, or in the future will guarantee, repayment of the Guaranteed Sums
pursuant to the Guaranty Agreements. In the event that any Guarantor (in such
capacity, each an "Indemnitee") pays any amounts on the Guaranteed
<PAGE> 2
Sums, whether through direct payments or as a result of providing collateral
for the Guaranteed Sums (the "Guaranty Payment"), Indemnitee shall be entitled
to receive from each Stockholder and Guarantor (in such capacity, each an
"Indemnitor"), such Indemnitor's pro rata percentage, as set forth in Exhibit
A, of the Guaranty Payment (the "Contribution Percentage"). If any Indemnitor
is unable to pay the Contribution Percentage of the Guaranty Payment, each
Stockholder and Guarantor agrees to make a contribution to Indemnitee to the
extent necessary so that each Stockholder and Guarantor shares pro rata (based
on the percentages set forth in Exhibit A) the liability for such nonpayment.
IN SUCH REGARD, TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH STOCKHOLDER AND
GUARANTOR SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS INDEMNITEE FROM AND
AGAINST ANY AND ALL LIABILITY, CLAIMS, COSTS AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES AND EXPENSES) ARISING WITH RESPECT TO THE OBLIGATIONS AND
CONSTITUTING A GUARANTY PAYMENT.
1.02 Payments. Any amount due to Indemnitee by an Indemnitor under
this Agreement shall be due and payable within ten (10) days of demand
therefore by Indemnitee. Interest shall accrue at the Default Rate (as defined
in the Notes) on amounts past due; provided, however, that in no event shall
interest accrue on such amounts at a rate in excess of the maximum rate of
interest permitted by applicable law and interest shall accrue from the date
payment is due to, but not including, the date payment is made and on the basis
of a year of three hundred sixty-five (365) or three hundred sixty-six (366)
days, as the case may be. All payments to be made by any Indemnitor under this
Agreement shall be made to Indemnitee at the address set forth under the names
set forth below, in immediately available funds, not later than 2:00 p.m.,
Scottsdale, Arizona time, on the date on which such payment shall come due
(each such payment made after such time on such due date shall be deemed to
have been made on the next succeeding business day and interest shall continue
to accrue until such time). If the due date of any payment under this Agreement
would otherwise fall on a day that is not a business day, such payment date
shall be extended to the next succeeding business day and interest shall be
payable for any principal so extended for the period of such extension.
1.03 Non-Exclusive Remedy. The remedies available to Indemnitee
pursuant to the provisions of this Article I are not exclusive and, in such
regard, Indemnitee shall be entitled to join any Guarantor or Stockholder as a
party to any proceeding involving Indemnitee, any Guarantor, any Stockholder or
the Lender, including for purposes of enforcement of the provisions of this
Agreement.
1.04 Term. The term of this Agreement (the "Term") shall commence as
of the date hereof and continue in effect until the earlier of: (a) the
Guaranteed Sums are terminated or extinguished (but not by reason of the
payment of the Guaranteed Sums by any party hereto in a proportion other than
as specified in Section 1.01); or (b) the two-year anniversary of the date of
this Agreement. Notwithstanding the above: (a) if the Company is unable to
terminate the Guaranty Agreements prior to the expiration of the Term, the
Guarantors shall have the right to demand payment of the Guaranteed Sums, in
which event, each Stockholder shall pay its portion of the Guaranteed Sums; and
(b) if any claim for payment of any Guaranteed Sums is made hereunder prior to
the expiration
<PAGE> 3
of the Term, Stockholders' obligation hereunder as to payment of their share of
such Guaranteed Sums shall continue until the resolution of such claim.
1.05 Limitations. Notwithstanding anything in this Agreement to the
contrary: (a) the Guaranteed Sums will not exceed $4.7 million, unless
otherwise agreed to in writing by all Stockholders; and (b) after the second
anniversary of the date of this Agreement, the Company will use its best
efforts to cause the Guaranty Agreements to be terminated (whether by
refinancing or otherwise).
ARTICLE II.
WARRANTS
2.01 Issuance and Cancellation of Warrants. The Company hereby agrees
to issue to each of the Guarantors and Stockholders the pro rata share of the
Warrants set forth on Exhibit A. If any Guarantor or Stockholder breaches their
obligations set forth in Article I of this Agreement, the unexercised portion
of the Warrants held by such person shall be canceled and the remaining
unexercised portion of those Warrants shall be reissued (pro rata based on
Exhibit A) by the Company to the nonbreaching Guarantors and Stockholders.
MISCELLANEOUS PROVISIONS
3.01 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective heirs, legal
representatives, and assigns.
3.02 Amendments Waivers. Neither this Agreement nor any provision
hereof may be amended, waived, discharged, or terminated verbally, but only by
an instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
3.03 Non-Waiver. It is understood and agreed that any delay, waiver,
or omission by any party hereto to exercise any right or power arising
hereunder shall not be construed to be a waiver by such party of any
subsequently arising right or power hereunder.
3.04 Notices. Any notice, demand, offer, or other written instrument
required or permitted to be given pursuant to this Agreement shall be in
writing signed by the party giving such notice and shall be hand delivered or
sent by overnight courier, certified mail (return receipt requested), or
telefax to the other party(ies) at the relevant address set forth on the
signature pages below. Any party shall have the right to change the address to
which notice shall be sent or delivered to it hereunder by similar notice sent
in like manner to the other parties. A notice shall be deemed to be duly
received (a) if sent by hand, on the date when left with a responsible person
at the address of the recipient; (b) if sent by certified mail or overnight
courier, on the date of receipt by a responsible person at the address of the
recipient; or (c) if sent by telefax, upon receipt by the sender of an
acknowledgment or transmission report generated by the machine from which the
telefax was sent indicating that the telefax was sent in its entirety to the
recipient's telefax number.
<PAGE> 4
3.05 Attorneys' Fees. In the event any dispute between the parties to
this Agreement should result in litigation or any other proceeding (including
arbitration and mediation), the prevailing party shall be reimbursed by the
nonprevailing party for all reasonable costs and expenses, including reasonable
attorneys' fees, incurred by the prevailing party in connection with such
litigation or other proceeding and any appeal or enforcement thereof.
3.06 Severability. If any term or provision of this Agreement or
application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application
of such terms or provisions to persons or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by applicable law.
3.07 Time of the Essence. The parties to this Agreement agree that
time is of the essence to the performance of the obligations of the parties
hereunder.
3.08 Counterparts. The parties hereto may execute this Agreement in
multiple counterparts, all of which taken together shall constitute one and the
same instrument and each of which shall be deemed to be an original instrument
as against any party who has signed it.
3.09 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
OF THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES
ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, BOTH WRITTEN AND VERBAL, BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF.
3.10 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR
FROM THIS AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS IN SCOTTSDALE,
ARIZONA AND EACH PARTY HERETO HEREBY SUBMITS TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH ACTION AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER
OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT IN
ACCORDANCE WITH THIS SECTION 3.10.
3.11 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF ARIZONA, WITHOUT REGARD TO CHOICE
OF LAW PRINCIPLES OF SUCH LAWS.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date first hereinabove written.
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC
/s/ CHARLES R. MOLLO
---------------------------------
Charles R. Mollo
Chief Executive Officer
7955 East Redfield Road
Scottsdale, Arizona 85240
GUARANTORS:
/s/ JANICE L. BREEZE
---------------------------------
Janice L. Breeze
---------------------------------
---------------------------------
---------------------------------
/s/ JEFFREY DOSS
---------------------------------
Jeffrey Doss
---------------------------------
---------------------------------
---------------------------------
/s/ CHARLES R. MOLLO
---------------------------------
Charles R. Mollo
---------------------------------
---------------------------------
---------------------------------
/s/ CAMERON WILSON
---------------------------------
Cameron Wilson
---------------------------------
---------------------------------
---------------------------------
<PAGE> 6
STOCKHOLDERS:
/s/ RICHARD F. DAHLSON
---------------------------------
Richard F. Dahlson
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Empire Nationale II L.L.C.
By: /s/ EDWARD GILBERT
------------------------------
Its:
-----------------------------
---------------------------------
---------------------------------
---------------------------------
/s/ JEFFREY R. HARRIS
---------------------------------
Jeffrey R. Harris, Manager
Harris Family, LLC
---------------------------------
---------------------------------
---------------------------------
/s/ JEFFREY R. HARRIS
---------------------------------
New Vistas Investments
By: Jeffrey R. Harris
-----------------------------
Its: President
----------------------------
---------------------------------
---------------------------------
---------------------------------
/s/ KENNETH STEEL, JR.
---------------------------------
Kenneth Steel, Jr.
---------------------------------
---------------------------------
---------------------------------
<PAGE> 7
/s/ CHARLES R. MOLLO, MANAGER
---------------------------------
Mollo Family LLC
---------------------------------
---------------------------------
---------------------------------
/s/ JANICE L. BREEZE, MANAGER
---------------------------------
Breeze Family LLC
---------------------------------
---------------------------------
---------------------------------
<PAGE> 8
EXHIBIT A
MOBILITY ELECTRONICS, INC.
LOAN GUARANTEE PARTICIPATION
<TABLE>
<CAPTION>
% Loan
Participation Guarantee Warrants
<S> <C> <C> <C>
Breeze Family LLC 6.72% 168,100 15,114
Dahlson, Richard F. 2.79% 69,800 6,277
Doss, Jeffrey S. 12.46% 311,600 28,039
Empire National II LLC 23.00% 575,100 51,759
Harris Family LLC 5.73% 143,500 12,903
Mollo Family LLC 14.95% 373,900 33,646
New Vistas Investment Cor 19.57% 489,200 44,019
Steel, Kenneth Jr. 1.59% 39,800 3,574
Wilson, Cameron 13.19% 329,700 29,669
------ --------- -------
100.00% 2,500,700 225,000
</TABLE>
<PAGE> 1
EXHIBIT 4.18
WARRANT NO. A - _
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
d/b/a MOBILITY ELECTRONICS
(A DELAWARE CORPORATION)
FORM OF WARRANT TO PURCHASE
SHARES OF COMMON STOCK
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON ITS EXERCISE HAVE BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS CERTIFIES THAT, for value received, _________________ or
registered 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 1.2, below),
_____________________________________ (______) shares ("Shares") of fully paid
and non- assessable common stock, par value $0.01 per share ("Common Stock"),
of ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC., a Delaware
corporation (the "Company"), at the per share purchase price (the "Warrant
Price") set forth in subsection 1.1, subject to the further provisions of this
Warrant. The term "Warrants" as used herein shall mean this Warrant and all
instruments issued by the Company which are substantially identical to this
Warrant (except for the name of the Holder and the number of securities
purchasable by the Holder).
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 Warrant Price. The Warrant Price shall be Five Dollars and
75/100 ($5.75) per Share, subject to adjustment as provided in Section 4 below.
1.2 Method Of Exercise. The Holder of this Warrant may, at any
time prior to April 20, 2003 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 Secretary of the Company at its principal
offices;
<PAGE> 2
(b) 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; and
(c) the delivery to the Company, if necessary
to assure compliance with federal and state securities laws,
of an instrument executed by the Holder certifying that the
Shares are being acquired for the sole account of the Holder
and not with a view to any resale or distribution.
As used herein "Sales Transaction" means: (i) the consolidation or
merger of the Company with or into any other corporation or business entity
(other than a consolidation or merger effected to change the state of
incorporation of the Company or effected with a principal purpose of causing
the exercise of the Warrants or the termination of the Exercise Period), (ii)
the sale or other transfer in a single transaction or a series of related
transactions of all or substantially all of the assets of the Company, or (iii)
the liquidation, dissolution, winding-up or reorganization of the Company.
Notwithstanding the foregoing provisions requiring payment by check,
the Holder may from time to time at the Holder's option pay such Purchase Price
or any portion thereof by surrendering to the Company in lieu of such payment,
the right of such Holder to receive a number of shares of Common Stock having
an aggregate Market Value (as herein defined) equal to such Purchase Price (or
portion thereof) on the date of exercise (a "Cashless Exercise"). For purposes
of the foregoing, the term "Market Value" of a share of Common Stock as of a
relevant date means the closing price on the trading day preceding such date
with respect to the Common Stock on a national securities exchange, the Nasdaq
National Market or the Nasdaq Small-Cap Market. The closing price shall be (i)
the last sale price of shares of the Common Stock on such trading day or, if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof on such date, in each case as officially reported on the
principal national securities exchange, the Nasdaq National Market or the
Nasdaq Small-Cap Market on which the Common Stock is then listed or admitted to
trading; or (ii) if no shares of Common Stock are then listed or admitted to
trading on any national securities exchange, the Nasdaq National Market or the
Nasdaq Small-Cap Market, the average of the reported closing bid and asked
prices thereof on such date in the over-the-counter market as shown on the
National Association of Securities Dealers automated quotation system. The
foregoing option of the Holder shall be of no force or effect unless the Common
Stock is then listed, admitted to trading, or reported.
1.3 Satisfaction with Requirements of Securities Act of 1933.
Notwithstanding the provisions of subsection 1.2(c) and Section 7, 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 "Securities Act")
and all applicable state securities laws. The 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.
1.4 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
<PAGE> 3
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 Sections 1.2 and 7 hereof, 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 Secretary of the Company at its
principal offices 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 right 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.
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 of the Company 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 right 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
<PAGE> 4
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. The
Company shall, within thirty (30) days after making such adjustment, give
written notice (by first class mail, postage prepaid) to the registered Holder
of this Warrant at the address of that Holder shown on the Company's books.
That notice shall set forth, in reasonable detail, the event requiring the
adjustment and the method by which the adjustment was calculated and specify
the Warrant Price then in effect after the adjustment and the increased or
decreased number of Shares purchasable upon exercise of this Warrant. When
appropriate, that notice may be given in advance and include as part of the
notice required under other provisions of this Warrant.
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
<PAGE> 5
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 of the Company
entitled to receive such distribution.
4.6 Certificate as to Adjustments. In the case of each adjustment
or readjustment of the Warrant 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 Holder a certificate setting
forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect;
and
(c) The number of shares of Common Stock
issuable upon exercise of the Warrant 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 its 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 unissued 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.
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, including without limitation, the right to receive
dividends of other distributions, to
<PAGE> 6
exercise any preemptive rights, to vote, or to consent or to receive notice as
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 its shares of Common Stock or
make any distribution (other than a cash dividend) to the
holders of its shares of Common Stock;
(b) the Company shall offer to all of the
holders of its 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,
the Company shall give notice in writing of such event to the Holder at his
last address as it shall appear on the Company's records at least twenty 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 such proposed dissolution, liquidation or winding up. 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 any action taken in connection with such dividend, distribution
or subscription rights, or such proposed dissolution, liquidation or winding
up. 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
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.
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
<PAGE> 7
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 portion of this Warrant or the Shares
issuable upon the due exercise of this Warrant shall not be made, unless and
until:
(a) There is then in effect a registration
statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with
such registration statement; or
(b) (i) The Holder has notified the Company of
the proposed disposition and shall have furnished the Company
with a detailed statement of the circumstances surrounding
the proposed disposition, and (ii) the Holder has furnished
the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not
require registration of such securities under the Securities
Act and applicable state law.
Any 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.
The 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, that he understands the provisions of Rule 144 of the Securities and
Exchange Commission, and that the certificate or certificates evidencing such
shares of Common Stock will bear a legend substantially similar to the
following:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE, AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THESE
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED THEREUNDER."
8. LOSS OR MUTILATION
Upon receipt by the Company of satisfactory evidence of the ownership
of and the loss, theft, destruction, or mutilation of any Warrant, and (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.
<PAGE> 8
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 principal office. 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: April 20, 1998
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
/s/ Charles R. Mollo
----------------------------------------
Charles R. Mollo, President
<PAGE> 9
SUBSCRIPTION
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC.
Attn: President
7955 East Redfield Road
Scottsdale, Arizona 85260
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 ("Common Stock"),
of Electronics Accessory Specialists International, Inc, a Delaware
corporation.
Payment of the purchase price for the Shares 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 10.1
INDUSTRIAL MODIFIED GROSS LEASE
MONAGHAN COMPANY, LLC
and
COLONIAL TRUST COMPANY,
AS SUCCESSOR TRUSTEE
UNDER THE MONAGHAN IRREVOCABLE CHILDREN'S TRUST
CREATED DECEMBER 17, 1983
Landlord
and
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
Tenant
Dated: 12-20-96
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 SUMMARY OF BASIC TERMS.............................................1
ARTICLE 2 DELIVERY, TERM AND CONSTRUCTION....................................2
2.1 Term...............................................................2
2.2 Memorandum.........................................................2
2.3 Area Measurement...................................................2
2.4 Condition..........................................................2
2.5 Expansion Option...................................................2
ARTICLE 3 USE OF PREMISES....................................................3
3.1 Permitted Uses.....................................................3
3.2 Insurance Restrictions.............................................3
3.3 Improvements.......................................................3
3.4 Prohibitions.......................................................3
3.5 Common Areas.......................................................3
3.6 Rules and Regulations..............................................3
3.7 Compliance with Law................................................3
3.8 Audit..............................................................4
ARTICLE 4 SECURITY DEPOSIT...................................................4
ARTICLE 5 RENT...............................................................4
5.1 Base Rent..........................................................4
5.2 Adjustments........................................................4
5.3 Late Charges and Interest..........................................5
5.4 Excise Taxes.......................................................5
5.5 Obligations Are Rent...............................................5
5.6 Proration..........................................................5
ARTICLE 6 OPERATING COSTS....................................................5
6.1 Tenant's Share.....................................................5
6.2 Estimates..........................................................5
6.3 Annual Reconciliation..............................................5
6.4 Partial Year Proration; Variable Cost Adjustment...................5
6.5 "Operating Costs"..................................................6
6.6 Exclusions.........................................................7
6.7 Excess Expenses....................................................7
ARTICLE 7 TAXES..............................................................7
ARTICLE 8 INSURANCE AND INDEMNITY............................................8
8.1 Insurance Policies.................................................8
8.2 Policy Requirements................................................8
8.3 Evidence of Coverage...............................................8
8.4 Indemnity and Exculpation..........................................8
8.5 Landlord's Policies................................................9
ARTICLE 9 FIRE AND CASUALTY..................................................9
9.1 Termination Rights.................................................9
9.2 Restoration........................................................9
9.3 Abatement..........................................................9
9.4 Demolition of Project..............................................9
9.5 Agreed Remedies....................................................9
ARTICLE 10 CONDEMNATION.......................................................9
10.1 Automatic Termination..............................................9
10.2 Optional Termination..............................................10
10.3 Award.............................................................10
ARTICLE 11 MAINTENANCE.......................................................10
11.1 By Tenant.........................................................10
11.2 By Landlord.......................................................10
11.3 Cost Reimbursement................................................10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 12 UTILITIES........................................................10
ARTICLE 13 LANDLORD RIGHT OF ENTRY..........................................10
ARTICLE 14 SIGNS............................................................11
ARTICLE 15 TENANT ALTERATIONS...............................................11
15.1 Tenant Alterations...............................................11
15.2 Tenant Installations.............................................11
15.3 Mechanics Liens..................................................11
ARTICLE 16 ASSIGNMENT AND SUBLETTING........................................12
16.1 Consent Required.................................................12
16.2 Requests for Approval............................................12
16.3 Continued Responsibility.........................................12
16.4 Excess Proceeds..................................................12
16.5 Limitations......................................................12
16.6 No Waiver........................................................12
16.7 Transfer by Landlord.............................................12
ARTICLE 17 SUBORDINATION AND ATTORNMENT.....................................12
17.1 Subordination....................................................12
17.2 Lender Protection................................................13
17.3 Documentation....................................................13
17.4 Other Transactions...............................................13
ARTICLE 18 ESTOPPEL CERTIFICATES............................................13
ARTICLE 19 QUIET ENJOYMENT..................................................13
ARTICLE 20 SURRENDER AND HOLDOVER...........................................13
20.1 Surrender........................................................13
20.2 Holdover.........................................................14
ARTICLE 21 BREACH, DEFAULT, AND REMEDIES....................................14
21.1 Default..........................................................14
21.2 Remedies.........................................................14
21.3 Subtenancies.....................................................15
ARTICLE 22 LANDLORD LIABILITY...............................................15
ARTICLE 23 NOTICES..........................................................15
ARTICLE 24 BROKERAGE........................................................15
ARTICLE 25 GENERAL..........................................................16
25.1 Severability.....................................................16
25.2 No Waiver........................................................16
25.3 Effect of Payment................................................16
25.4 Delay............................................................16
25.5 Lender Notice....................................................16
25.6 No Offer.........................................................16
25.7 Successors.......................................................16
25.8 Integration......................................................16
25.9 Governing Law....................................................16
25.10 Deadlines Enforceable............................................16
25.11 Counterparts.....................................................16
ARTICLE 26 OPTION TO EXPAND.................................................17
ARTICLE 27 RIGHT OF FIRST REFUSAL...........................................17
ARTICLE 28 REPRESENTATIONS AND WARRANTIES...................................17
EXHIBIT A - THE PREMISES.....................................................20
EXHIBIT B - THE PROJECT......................................................21
EXHIBIT C - CONSTRUCTION PROVISIONS..........................................22
EXHIBIT D - RULES AND REGULATIONS............................................23
</TABLE>
<PAGE> 4
Dated December 20, 1996
INDUSTRIAL MODIFIED GROSS LEASE
MONAGHAN COMPANY, LLC an Arizona limited liability company, and COLONIAL TRUST
COMPANY, an Arizona corporation, as successor Trustee under the Monaghan,
Irrevocable Children's Trust created December 17, 1983 (collectively,
"Landlord"), hereby leases the Premises described below, for the Term and on the
terms and conditions set forth in this Lease, to ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC., a Delaware corporation ("Tenant").
ARTICLE 1 SUMMARY OF BASIC TERMS
1.1 The Premises: Unit A in the Building consisting of approximately 38,712
square feet of rentable area as illustrated on the attached Exhibit A.
1.2 The Building: The building located at 7955 East Redfield Road,
Scottsdale, Arizona.
1.3 "Project" means the Building identified in Section 1.2, and all lands
and facilities used in connection with the Building as reasonably
determined from time to time by Landlord. A site plan for the Project
in its current configuration is attached as Exhibit B.
1.4 Security Deposit: $29,398.00
1.5 The Term: TWENTY FIVE (25) MONTHS, beginning on the Commencement Date
and ending on the Expiration Date, (the "Initial Term") subject to the
provisions of Section 2.5.
1.6 Commencement and Expiration Dates: JANUARY 1, 1997 AND JANUARY 31,
1999, respectively, subject to the provisions of Section 2.1 and
Exhibit C.
1.7 Base Rent: $.75 per rentable square foot per month from the
Commencement Date through JANUARY 31, 1999, subject to adjustment under
the provisions of Section 5.2. THE FIRST THIRTY (30) DAYS OF RENT SHALL
BE ABATED.
1.8 Tenant's Proportionate Share: 51.68%, consisting of the ratio of the
rentable area of the Premises to the rentable, area of the Building.
1.9 Use of the Premises: GENERAL OFFICES, LIGHT ASSEMBLY, WAREHOUSE AND
DISTRIBUTION OF MOBILE ELECTRONICS AND RELATED PRODUCTS. No chemical
processing, nor use of hazardous chemicals, is permitted. TENANT
INTENDS TO DO INCIDENTAL PAINTING OF PROTOTYPES ON PREMISES AND WILL
PROVIDE ADEQUATE VENTILATION.
1.10 Tenant Improvement Allowance: Per Exhibit "C."
1.11 Tenant's Address for Notices:
ELECTRONICS ACCESSORY SPECIALISTS INTERNATIONAL, INC.
7955 EAST REDFIELD ROAD
SCOTTSDALE, AZ 85260
ATTENTION: JEFFREY DOSS, PRESIDENT
1.12 Landlord's Notice Address:
<PAGE> 5
Horizon Real Estate Group, Inc.
2999 North 44th Street, Suite 450
Phoenix, AZ 85018
with a copy to:
Charles M. King
Fennemore Craig
Two North Central Avenue
Suite 2200
Phoenix, Arizona 85004-2390
1.13 Brokers: Horizon Real Estate Group, Inc., representing Landlord, and
B-H Enterprises of Arizona, Inc., representing Tenant.
ARTICLE 2 DELIVERY, TERM AND CONSTRUCTION
2.1 Term. The Term of this Lease, and the dates of commencement and
expiration of the Term, are set forth in Sections 1.5 and 1.6. Landlord shall
not be liable for any direct or consequential damages resulting from delayed
delivery of the Premises (by reason of delayed construction or otherwise) and
the scheduled Commencement Date and the Expiration Date shall be postponed by an
amount equal to the period of delay. In the event the Premises are ready for
occupancy by Tenant in accordance with Exhibit C prior to January 1, 1997,
Tenant agrees to accept early occupancy, and the Commencement date shall be
adjusted to the date of possession. IN THE EVENT THE PREMISES ARE NOT DELIVERED
TO TENANT WITH ALL WORK REQUIRED IN EXHIBIT C SUBSTANTIALLY COMPLETED WITHIN 90
DAYS AFTER TENANT HAS EXECUTED THIS LEASE AND SIGNED ITS APPROVAL OF THE WORKING
DRAWINGS (SUBJECT TO TENANT DELAY), BASE RENTAL SHALL BE ABATED TO THE EXTENT OF
ONE DAY'S RENT PER DAY FOR EACH DAY OF DELAY (EXCEPTING TENANT DELAY) PAST THE
90TH DAY UNTIL THE WORK IS SUBSTANTIALLY COMPLETED.
2.2 Memorandum. At the request of either party at any time following
completion of the work described in Exhibit "C," a memorandum shall be executed
reflecting the date of completion of the work and confirming the Commencement
Date and Expiration Date.
2.3 Area Measurement. Landlord and Tenant have verified the area of the
Premises to their mutual satisfaction, and neither the Base Rent nor any other
obligation under this Lease shall be subject to adjustment as a result of any
future remeasurement of the Premises.
2.4 Condition. Landlord shall have no obligation to make any improvements
or alterations to the Premises or the Project whatsoever, except that Landlord
shall perform all of its obligation in accordance with Exhibit C ("Landlord's
Construction"). Subject to completion of Landlord's Construction and performance
of Landlord's maintenance and repair obligations under this Lease, Tenant
accepts the Premises in an AS IS condition, with all faults. Landlord represents
that so far as it is aware, there exist no substances or materials within the
Premises in violation of applicable environmental laws, including without
limitation the Resource Conservation and Recovery Act of 1976 and the
Comprehensive Environmental Response, Compensation and Liability Act, there
exist no asbestos-containing materials within the Premises, and there exist no
underground storage tanks in the Project. If any contamination of the Project in
violation of applicable environmental law not caused by Tenant shall be
discovered, Landlord shall remediate the contamination at its sole expense in
accordance with applicable law. LANDLORD REPRESENTS THAT THE PREMISES COMPLIED
WITH GOVERNING CODES AND ADA (AMERICANS WITH DISABILITIES ACT) REQUIREMENTS
PRIOR TO TENANT'S OCCUPANCY. TENANT'S RESPONSIBILITY FOR ADA COMPLIANCE SHALL BE
WITH RESPECT TO ANY UNIQUE OR SPECIFIC TENANT USE OF THE PREMISES. ADDITIONALLY,
ANY CHANGE IN FUTURE ENVIRONMENTAL OR ADA LAW WHICH NECESSITATES ACTION AT THE
PROPERTY, SHALL BE AT LANDLORD'S SOLE COST AND EXPENSE, UNLESS SUCH ACTION IS
REQUIRED DUE TO TENANT'S SPECIFIC USE.
2.5 Extension Option. Provided that Tenant is not then in default under
this Lease beyond any applicable cure period, and provided Tenant has not
exercised its Expansion Option, Tenant shall have the option to extend the
Initial Term of this Lease by ONE PERIOD OF TWO YEARS (the "Renewal Term") by
written notice given to Landlord not less than 120 days before the expiration of
the Initial Term. If the option is not exercised in a timely, manner, then the
Lease shall automatically expire at the end of the Initial Term, and Tenant
shall surrender possession of the Premises in accordance with the terms of this
Lease. All of the terms and conditions of this Lease shall continue to apply
during the Renewal Term. Tenant also is granted an Expansion Option (in Article
26) in this Lease. SHOULD THE EXPANSION OPTION BE EXERCISED, THE INITIAL TERM
HEREOF IS AUTOMATICALLY EXTENDED (SEE ARTICLE 26). Further, should the Expansion
Option be exercised, Tenant shall have the option to extend the Initial Term of
this Lease by UP TO THREE (3) ONE (1) YEAR LEASE TERMS by written notice given
to Landlord not less than 180 days before the expiration of the current term.
The three one year options shall be in lieu of the single two year option
described above.
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ARTICLE 3 USE OF PREMISES
3.1 Permitted Uses. Tenant shall use and occupy the Premises for the
purposes set forth in Section 1.9 and for no other purpose whatsoever without
Landlord's prior written consent. TENANT SHALL NOT OPERATE ITS BUSINESS ON THE
PREMISES PRIMARILY AT NIGHT.
3.2 Insurance Restrictions. Tenant shall not perform any act which would
cause the cancellation of any insurance policies related to the Project. Tenant
shall reimburse Landlord for any increases in insurance premiums paid by
Landlord directly related to the nature of Tenant's use of the Premises or the
nature of Tenant's business. AS OF THE DATE OF EXECUTION HEREOF, LANDLORD IS NOT
AWARE OF ANY PLANNED OR PENDING INCREASE IN SAID PREMIUM RELATED TO TENANT'S
PERMITTED USE.
3.3 Improvements. If due to the nature of Tenant's use of the Premises,
improvements or alterations are necessary to comply with any requirements
imposed by law, Tenant shall pay the entire cost of the improvements or
alterations. LANDLORD SHALL CAUSE ALL ALTERATIONS CONSTRUCTED BY IT IN
ACCORDANCE WITH EXHIBIT C TO COMPLY WITH THE AMERICANS WITH DISABILITIES ACT,
BUT TENANT SHALL BE RESPONSIBLE FOR ANY FURTHER ALTERATIONS TO THE PREMISES
REQUIRED BY THAT ACT TRIGGERED BY ALTERATIONS MADE BY TENANT BEYOND THE SCOPE OF
EXHIBIT C.
3.4 Prohibitions. Tenant shall not cause or maintain any nuisance in or
about the Premises and shall keep the Premises free of debris, rodents, vermin
and anything of a dangerous, noxious or offensive nature or which would create a
fire hazard (through undue load on electrical circuits or otherwise) or undue
vibration, noise or heat. Tenant shall not cause the safe floor loading capacity
to be exceeded. Tenant shall not disturb or interfere with the quiet enjoyment
of the premises of any other tenant.
3.5 Common Areas. All of the portions of the Project made available by
Landlord for use in common by tenants and their employees and invitees ("Common
Areas") at all times shall remain subject to Landlord's exclusive control and
Landlord shall be entitled to make such changes in the Common Areas as it deems
appropriate. Tenant shall be entitled to the use of 50% of the uncovered,
non-visitor parking spaces in the north parking lot of the Project on an
unreserved, first come, first serve basis; Tenant shall be entitled to 50% of
the covered, reserved parking spaces in the north parking lot of the Project;
Tenant shall be entitled to the use of not more than twelve (12) covered,
reserved parking spaces in the south parking lot; each of such covered, reserved
spaces in the south parking lot shall be provided rent-free. Additional covered
spaces in the south parking lot, when available and when reserved for Tenant,
shall be subject to a non-discriminatory monthly charge (not to exceed $25 per
space per month) payable as additional rent hereunder. Tenant shall be entitled
to the use of uncovered, unreserved parking spaces in the south parking area of
the Project on a first come, first serve basis in common with other tenants in
the Project, provided, however: Phoenix Newspapers, another tenant in the
Project, shall be entitled to the exclusive use of up to 80% of the uncovered
parking spaces in the south parking lot between the hours of 11:00 p.m. and 5:30
a.m., and at all other times not more than 100 parking spaces in the Project;
TENANT SHALL BE ENTITLED TO THE EXCLUSIVE USE OF UP TO 77 SPACES IN THE SOUTH
PARKING LOT DURING REGULAR BUSINESS HOURS (M-F 8:00A.M.-5:00P.M.). Landlord
reserves the right to reduce the number of unreserved spaces available to Tenant
in the lot in front of the Building in order to satisfy reasonable requirements
for visitor or handicapped parking so long as the reduction is equitably shared
by all tenants having parking rights in that lot. Landlord also reserves the
right to mark uncovered spaces as reserved spaces, in which case Tenant's spaces
shall be marked with its name. Tenant shall have the non- exclusive use of the
truckwell in the south parking area in common with other tenants in the Project.
However, Tenant shall be subject to reasonable restrictions by Landlord on its
use and access to the truckwell at such times and on such days as Phoenix
Newspapers, Inc. receives its deliveries of printed newspapers for immediate
distribution.
3.6 Rules and Regulations. Tenant shall comply and shall cause its
employees to comply with the rules and regulations for the Project. The current
rules and regulations are attached as Exhibit D. Landlord from time to time by
notice to Tenant may amend the rules and regulations and establish other
reasonable non-discriminatory rules and regulations for the Project.
3.7 Compliance with Law. Without in any manner limiting any other provision
of this Lease, Tenant hereby warrants and agrees for the full term of any
obligations under this Lease:
(a) to comply fully with all federal, state and local laws, rules,
orders, or regulations pertaining to health or the environment ("Environmental
Laws"), including, without limitation, the comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA") and the Resource
Conservation and Recovery Act of 1987, as amended ("RCRA").
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(b) that Tenant will not dispose of nor permit or acquiesce in the
disposal of any hazardous or toxic waste (including, but not limited to, any
paints, solvents, or paint thinners) products on, under or around the Premises,
UNLESS IN DESIGNATED CONTAINERS AND PROCEDURES IMPLEMENTED BY AND AT TENANT'S
SOLE COST AND EXPENSE.
(c) to defend, INDEMNIFY and hold harmless Landlord for any and
all costs, claims, demands, damages including attorneys' fees and court costs
and investigatory and laboratory fees, related to any breach of this Lease by
Tenant, including, without limitation, any adverse health or environmental
condition (including without limitation any violation of Environmental Laws)
CAUSED BY TENANT during the term of this Lease. This indemnification to Landlord
shall survive the termination of the Lease by ONE YEAR FOR DISCOVERY OF SUCH
CONDITIONS OR RECEIPT OF CLAIMS, WHICHEVER IS FIRST TO OCCUR. HOWEVER, THE
INDEMNIFICATION SHALL SURVIVE THE TERMINATION OF THE LEASE BEYOND ONE YEAR FOR
PURPOSE OF DEFENDING CLAIMS MADE OR CURING BREACHES DISCOVERED DURING THE PERIOD
ENDING ONE YEAR AFTER THE TERMINATION OF THE LEASE.
(d) to comply with all reporting obligations imposed under the
Federal Emergency Planning and Community Right to Know Act of 1986 and any
similar state or local laws, rules or regulations.
(e) to comply with all pretreatment requirements imposed by law
with respect to the disposal of waste or effluent into the sanitary sewer
system;
(f) to use its best efforts to prevent any dumping, spillage,
leakage or runoff of substances regulated under. Environmental Laws ("Regulated
Substances") into dry wells, storm drains, water retention areas, Common Areas
or any areas where such substances could be absorbed into the soil;
(g) to obtain and maintain all permits required by federal, state
or local laws, rules or regulations;
(h) to prepare, and upon request provide a copy to Landlord of,
all response plans required by applicable law; and
(i) not to keep, store, or use within the Premises any Regulated
Substances except such quantities that are reasonably necessary for Tenant's
business and such quantities which are customarily associated with office usage,
such as copier AND CLEANING supplies.
3.8 Audit. UPON REASONABLE NOTICE, but not more than twice in any one year
(unless warranted by an incident CAUSED BY TENANT, ITS AGENTS OR EMPLOYEES)
Landlord may retain an environmental consultant or engineer to conduct an audit
or environmental assessment of the Premises and Tenant's compliance with
applicable laws, rules and regulations. Tenant shall extend its full cooperation
with the audit or investigation. If Tenant is found not to be substantially in
compliance with applicable law, all reasonable costs associated with AUDITS OR
ASSESSMENTS INITIATED FOLLOWING AN INCIDENT IN WHICH TENANT, ITS AGENTS OR
EMPLOYEES ARE FOUND RESPONSIBLE shall be paid by Tenant to Landlord upon demand;
otherwise all costs shall be borne by Landlord. In addition, Tenant, at
Landlord's request from time to time, shall complete such questionnaires and
provide such information with respect to Tenant's activities and operations on
the Premises as Landlord shall reasonably require.
ARTICLE 4 SECURITY DEPOSIT
UPON EXECUTION OF THIS LEASE TENANT SHALL BE CREDITED FOR ITS PRIOR DEPOSIT WITH
LANDLORD OF A SECURITY DEPOSIT IN THE AMOUNT SET FORTH IN SECTION 1.4 to secure
Tenant's performance of this Lease. The deposit shall not bear interest, shall
not be required to be maintained in a separate account, and shall be returned,
less any unpaid claims against Tenant, upon the expiration of this Lease and the
surrender of possession of the Premises, to Tenant or the last assignee of
Tenant's interest.
ARTICLE 5 RENT
5.1 Base Rent. Tenant shall pay to Landlord, in advance, on the first day
of each calendar month, beginning on the Commencement Date, Base Rent in the
amount set forth in Section 1.7, subject to adjustment under Section 5.2.
5.2 Adjustments. The Base Rent shall not be subject to adjustment during
the Initial Term hereunder (EXCEPT PURSUANT TO ARTICLE 26). IN THE EVENT TENANT
EXERCISES ITS TWO YEAR RENEWAL OPTION, THE BASE RENT
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FOR THE RENEWAL TERM SHALL BE $.80 PER RENTABLE SQUARE FOOT PER MONTH. IN THE
EVENT TENANT EXERCISES ANY OF ITS THREE ONE YEAR RENEWAL OPTIONS FOLLOWING
EXERCISE OF ITS EXPANSION OPTION, THE BASE RENT FOR EACH OPTION TERM SHALL BE
ADJUSTED UPWARDS TO THE GREATER OF THE PREVAILING RATE FOR COMPARABLE SPACE IN
THE SCOTTSDALE AIRPARK, OR 5% HIGHER THAN THE BASE RENT FOR THE TERM THEN
ENDING.
5.3 Late Charges and Interest. Tenant shall pay to Landlord a late charge
equal to 5% of the Base Rent or any other amount payable under this Lease is not
paid within fifteen days after the date it is due and payable. The late charge
constitutes liquidated damages to compensate Landlord for costs and
inconveniences of special handling and disruption of cash flow and is not a
penalty. The assessment or collection of a late charge shall not constitute the
waiver of a default and shall not bar the exercise of other remedies for
nonpayment. In addition to the late charge, all amounts not paid within fifteen
days after the date due shall bear interest from the date due (i) until the
happening of an Event of Default, at the rate of 12% per annum and (ii)
thereafter, at the rate set forth in Section 21.2.
5.4 Excise Taxes. Tenant shall pay to Landlord all sales, use, transaction
privilege, or other excise tax levied, or imposed upon, or measured by, any
amount payable by Tenant under this Lease. IN ACCORDANCE WITH ARIZONA LAW,
TENANT'S PAYMENT OF ITS SHARE OF TENANT IMPROVEMENT COSTS OVER AND ABOVE THE
ALLOWANCE PROVIDED BY LANDLORD SHALL NOT BE SUBJECT TO THE TRANSACTION PRIVILEGE
TAX, EXCEPT THAT SUCH COSTS ARE INTENDED TO INCLUDE SALES TAX CHARGED BY THE
CONTRACTOR TO LANDLORD.
5.5 Obligations Are Rent. All amounts payable to Landlord under this Lease
constitute rent and shall be payable without notice, demand, deduction or offset
to such person and at such place as Landlord may from time to time designate by
written notice to Tenant.
5.6 Proration. Base Rent payable with respect to a period consisting of
less than a full calendar month shall be prorated.
ARTICLE 6 OPERATING COSTS
6.1 Tenant's Share. Tenant shall pay to Landlord Tenant's Proportionate
Share of the increase, if any, in Operating Costs for each calendar year above
the Operating Costs incurred in the calendar year 1997. TENANT'S PROPORTIONATE
SHARE OF THE INCREASE IN 1997 IS $0.00, BY DEFINITION.
6.2 Estimates. From time to time after the end of 1997, Landlord shall by
written notice specify Landlord's estimate of Tenant's obligation under Section
6.1. Tenant shall pay one-twelfth of the estimated annual obligation on the
first day of each calendar month.
6.3 Annual Reconciliation. Within 180 days after the end of each calendar
year, Landlord shall provide to Tenant a written summary of the Operating Costs
for the calendar year, determined on an accrual basis in accordance with
generally accepted accounting principles, and broken down by principal
categories of expense. The statement also shall set forth Tenant's Proportionate
Share of Operating Costs and shall show the amounts paid by Tenant on account.
Any difference between Tenant's obligation and the amounts paid by Tenant on
account shall be paid or refunded, as the case may be, within fifteen days after
the statement is provided. IN THE EVENT TENANT DISAGREES WITH SAID STATEMENT, IT
MAY, AT ITS SOLE COST AND EXPENSE, CONDUCT AN AUDIT TO VERIFY LANDLORD'S
RECONCILIATION BY A PRACTICING CPA. TENANT SHALL HAVE 120 DAYS FOLLOWING ITS
RECEIPT OF SAID STATEMENT TO CONDUCT ITS AUDIT AND LANDLORD AGREES TO TIMELY
PROVIDE ALL DOCUMENTATION REASONABLY REQUIRED BY THE CPA TO CONDUCT SAID AUDIT.
IN THE EVENT TENANT AND LANDLORD DISAGREE ON THE RESULTS OF TENANT'S AUDIT
FINDINGS, THEN A MUTUALLY AGREED TO CPA SHALL BE HIRED TO CONDUCT ITS OWN AUDIT.
COST OF THE JOINTLY APPOINTED CPA SHALL BE BORNE 50/50 BETWEEN LANDLORD AND
TENANT. THE RESULTS OF THE JOINTLY APPOINTED AUDIT SHALL BE FINAL AND BINDING.
FOLLOWING THE AUDIT(S), ANY REMAINING BALANCE DUE LANDLORD SHALL BE PAID
FORTHWITH, AND ANY ADJUSTMENT IN FAVOR OF TENANT SHALL BE REFUNDED TO TENANT
FORTHWITH.
6.4 Partial Year Proration; Variable Cost Adjustment. During the last year
of the Term, Tenant's responsibility for Operating Costs shall be adjusted in
the proportion that the number of days of that calendar year during which the
Lease is in effect bears to 365. Tenant's obligations under this Article 6 for
the payment of Operating Costs during the Lease Term, including the payment of
any deficiency following receipt of the annual statement under Section 6.3,
shall survive the expiration or termination of this Lease BY A PERIOD NOT TO
EXCEED ONE YEAR. LANDLORD'S OBLIGATIONS UNDER THIS ARTICLE 6 FOR THE PAYMENT OF
OPERATING COSTS DURING THE LEASE TERM, INCLUDING THE REFUNDING OF ANY
OVERPAYMENT BY TENANT FOLLOWING RECEIPT OF THE ANNUAL STATEMENT UNDER SECTION
6.3, SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THIS LEASE BY A PERIOD NOT
TO EXCEED ONE YEAR. If the mean level of occupancy of the Building during a
calendar year is less than 100% of the
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rentable area, the Operating Costs shall be adjusted to reflect the fact that
some costs, such as HVAC, vary with level of occupancy while other costs, such
as real estate taxes, may not. In order to allocate those variable costs to
Occupied space while allocating non-variable costs to occupied and unoccupied
space alike, Landlord shall determine, IN ITS REASONABLE DISCRETION, what the
total Operating Costs would have been had the Building been fully occupied
during the entire calendar year (AND THE YEAR 1997, IF APPLICABLE) on the
average, and that adjusted total shall be the figure employed in the statement
and calculations described in Sections 6.1 and 6.3.
6.5 "Operating Costs" consist of all costs of operating, maintaining and
repairing the Project, including, without limitation, the following:
(a) Premiums for property, casualty, liability, rent interruption
or other insurance.
(b) Reasonable salaries, wages and other amounts paid or payable
for personnel including the Project manager, superintendent, operation and
maintenance staff, and other employees of Landlord involved in the maintenance
and operation of the Project, including contributions and premiums towards
fringe benefits, unemployment and worker's compensation insurance, pension plan
contributions and similar premiums and contributions and the total charges of
any independent contractors or managers engaged in the repair, care, maintenance
and cleaning of any portion of the Project, TO THE EXTENT TIME IS SPENT AND
WAGES AND OTHER AMOUNTS ARE PROPORTIONATELY ALLOCABLE.
(c) Cleaning, sweeping, restriping or sealcoating of parking
areas.
(d) Landscaping, including irrigating, trimming, mowing,
fertilizing, seeding, and replacing plants.
(e) Utilities, including fuel, gas, electricity, water, sewer, and
other services, except that costs of electrical power provided to the Premises
shall be paid as provided in Article 12.
(f) Maintaining, operating, repairing and replacing equipment
(REPLACEMENT COSTS BEING LIMITED BY 6.5(k)).
(g) Other items of repair or maintenance of the Project, including
roofing repairs and exterior painting not to exceed $7,500 per annum.
(h) Policing and security, if any, and sprinkler monitoring and
testing charges.
(i) The cost of the rental of any equipment, including sprinkler
monitoring equipment, and the cost of supplies used in the maintenance and
operation of the Project.
(j) Audit fees and the cost of accounting services incurred in the
preparation of statements referred to in this Lease and financial statements,
and in the computation of the rents and charges payable by tenants of the
Project.
(k) Costs of capital expenditures incurred for the purpose of
reducing Operating Costs, and costs of improvements, repairs, or replacements
which otherwise constitute Operating Costs under this Article but which are
properly charged to capital accounts shall not be included in Operating Costs in
a single year but shall instead be amortized over their useful lives, as
determined by the Landlord in accordance with generally accepted accounting
principles, and only the annual amortization amount shall be included in
Operating Costs.
(l) A reasonable fee for the administration and management of the
Project appropriate to the nature of the Project as reasonably determined by the
Landlord from time to time, but not in excess of prevailing market rates, AND
SUBJECT TO A MAXIMUM INCREASE, IF ANY, OF 5% PER ANNUM.
(m) Intentionally omitted.
(n) General and special real and personal property taxes and
assessments for the Project, including assessments payable to the Scottsdale
Airpark Property Owners' Association, and expenses incurred in efforts to reduce
taxes or assessments. Special assessments shall be included only to extent of
the annual installment if the assessment is payable over a period of years or if
an option to pay the assessment over a term of years exists.
(o) Refuse removal, to the extent not contracted for and paid
directly by other tenants. To the extent another Tenant contracts for a pays
directly for refuse removal, Tenant's Proportionate Share of refuse removal
costs shall be adjusted to the proportion that the area of the Premises bears to
the area of the Project less the area
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of space leased to tenant contracting for separate refuse removal services.
6.6 Exclusions. Notwithstanding anything to the contrary in Section 6.5,
"Operating Costs" shall not include:
(a) Amounts reimbursed by other sources, such as insurance
proceeds, equipment warranties, judgments or settlements.
(b) Utilities or other expenses paid directly by tenants to
suppliers or paid by tenants to Landlord for separately metered or special
services and electrical power provided to leased space in the Project.
(c) Ground rents.
(d) Payments on any mortgage or other encumbrance.
(e) Premiums on liability insurance coverage in excess of
$5,000,000.
(f) Construction of tenant improvements.
(g) Replacement of the roof and replacements (but not repairs) of
other structural elements.
(h) Parking lot resurfacing.
(i) Leasing commissions.
(j) Correction of defects in material or workmanship in the
initial construction of the Project.
(k) General overhead and administrative expenses of Landlord not
directly related to the operation of the Project.
(l) Costs of negotiating or enforcing leases of other tenants.
(m) Costs for preventive maintenance or repair of heating,
ventilation, and air conditioning equipment serving the Premises, which shall be
paid for by Tenant pursuant to Article 11.3.
6.7 Excess Expenses. Notwithstanding anything to the contrary in this
Article 6, if any tenant's (including Tenant's) use or occupancy of its leased
premises results in expenditures for refuse removal, exterior lighting, or truck
driveway repair and maintenance in excess of what would be typical for a tenant
of a facility comparable to the Project, then the portion of such costs in
excess of typical levels of demand shall be excluded from Operating Costs.
Tenant shall pay to Landlord its allocable share of such costs (based on
Tenant's share of such excessive usage) directly to Landlord periodically upon
request. In the event of a dispute with respect to whether Tenant's use results
in excessive exterior lighting or truck driveway repair and maintenance, or over
the portion of such costs to be allocated to Tenant, a binding determination
shall be made by the regularly employed electrical or paving contractor familiar
with the Project. If requested, Tenant shall make monthly payments on account of
Tenant's obligations under this Section on an estimated basis, subject to annual
reconciliation in the same manner as Operating Costs. Landlord's obligations
with respect to record keeping and Tenant's rights to review related records
shall be the same as those related to records of Operating Costs. TENANT SHALL
ALSO BE RESPONSIBLE FOR THE COST OF ADDITIONS TO THE PROJECT'S ELECTRICAL OR
HVAC CAPACITY WARRANTED BY TENANT'S INSTALLATION OF ELECTRIC DEVICES AND
EQUIPMENT IN THE PREMISES WHICH INCREASE RECEPTACLE LOADS ABOVE 6.6 WATTS PER
SQUARE FOOT. AT THE TIME LANDLORD DETERMINES THAT THE THRESHOLD OF 6.6 WATTS PER
SQUARE FOOT HAS BEEN REACHED OR EXCEEDED, LANDLORD SHALL REVIEW TENANT'S
EQUIPMENT AND USAGE WITH TENANT AND DETERMINE THE EXTENT TO WHICH ADDITIONAL
CAPACITY MAY BE REQUIRED. LANDLORD SHALL NOT INSTALL ADDITIONAL CAPACITY AT
TENANT'S EXPENSE UNTIL AFTER PROVIDING TENANT WITH THE ESTIMATED COST THEREOF,
AND ALLOWING TENANT TO REDUCE ITS CAPACITY UTILIZATION.
ARTICLE 7 TAXES
7.1 Landlord shall pay before delinquent all general and special real
property taxes assessed or levied on the Project, to reimbursement under Article
6.
7.2 Tenant shall pay before delinquent all taxes levied or assessed upon,
measured by, or arising from (a) the
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conduct of Tenant's business; (b) Tenant's leasehold estate; or (c) Tenant's
property.
ARTICLE 8 INSURANCE AND INDEMNITY
8.1 Insurance Policies. Tenant shall, at its expense, take out and keep in
full force and effect the following insurance:
(a) All-risk property insurance including sprinkler leakage in an
amount equal to the full replacement cost of all property owned by Tenant.
(b) INTENTIONALLY DELETED.
(c) Plate glass insurance coverage.
(d) Comprehensive liability insurance applying to the use and
occupancy of the Premises and the business operated by Tenant, including
coverage for "premises/operations", "products and completed operations", and
"blanket contractual" liabilities, written on an occurrence basis with limits
not less than $1,000,000, naming Landlord, its agents, affiliates and contract
property manger as additional insureds.
(e) At all time during the Lease Term, Tenant shall procure and
maintain workers' compensation insurance in accordance with applicable law and
employer's liability insurance with a limit not less than $500,000 BODILY INJURY
EACH ACCIDENT; $500,000 BODILY INJURY BY DISEASE - EACH PERSON; AND $500,000
BODILY INJURY BY DISEASE - POLICY LIMIT.
8.2 Policy Requirements. Tenant's insurance policies shall:
(a) where applicable, contain the mortgagee's standard mortgage
clause and in any event a waiver of any subrogation rights which Tenant's
insurers may have against Landlord and against those for whom the Landlord is in
law responsible;
(b) be taken out with insurers reasonably acceptable to Landlord
and be in a form satisfactory from time to time to Landlord;
(c) be non-contributing and apply as primary and not as excess to,
any other insurance available to the Landlord;
(d) not be invalidated with respect to the interests of the
Landlord and the holder of any encumbrance on the Project by reason of any
breach or violation by Tenant of any warranties, representations, declarations
or conditions contained in the policies; and
(e) contain an undertaking by the insurers to notify the Landlord,
and the holder of any encumbrance on the Project designated by Landlord, in
writing not less than thirty days prior to any material change, cancellation or
termination.
8.3 Evidence of Coverage. Tenant shall deliver to Landlord certificates of
insurance or, if required by Landlord, certified copies of each such insurance
policy: (a) as soon as practicable after the placing of the required insurance
and (b) periodically thereafter before expiration, renewal or replacement of the
policies then in force. No review or approval of any such insurance certificate
by Landlord shall derogate or diminish Landlord's rights or Tenant's
obligations. Tenant shall not take possession of the Premises without having
complied with the requirements of this Section.
8.4 Indemnity and Exculpation. Tenant shall defend, indemnify and hold
Landlord harmless from any and all claims arising from Tenant's use of the
Premises or the conduct of its business or from any activity, work, or thing
done, permitted or suffered by Tenant in or about the Premises, regardless of
fault or negligence which is imputed to Landlord as the owner of the PROJECT but
which involves a condition of the Premises within the control of Tenant, its
employees or contractors. Tenant shall not be required, however, to indemnify
Landlord against a claim arising from Landlord's active negligence, breach of
lease, breach of contract, or willful misconduct. Landlord shall not be liable
and Tenant hereby waives all claims for any damage to any property in or about
the Premises or the Project or injury or inconvenience to Tenant's business, by
or from any cause whatsoever (including without limiting the foregoing, rain or
water leakage of any character from the roof, windows,
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walls, basement, pipes, plumbing works or appliances). Tenant acknowledges that
it is protecting itself against logs by maintaining appropriate insurance
coverage.
8.5 Landlord's Policies. No insurable interest is conferred upon Tenant
under any policies of insurance carried by Landlord, and Tenant shall not be
entitled to share or receive proceeds of any insurance policy carried by
Landlord.
ARTICLE 9 FIRE AND CASUALTY
9.1 Termination Rights. If all or part of the Premises is rendered
untenantable by damage from fire or other casualty which in Landlord's
reasonable determination cannot be substantially repaired (employing normal
construction methods without overtime or other premium) under applicable laws
and governmental regulations within, 180 days from the date of the fire or other
casualty, then either Landlord or Tenant may elect to terminate this Lease as of
the date of such casualty by written notice delivered to the other not later
than ten days after notice of such determination is given by Landlord. Landlord
shall provide its determination of the estimated time to restore the Premises
within thirty days after the casualty. IN THE EVENT THE LEASE IS TERMINATED AS A
RESULT OF THIS CLAUSE, RENT SHALL BE ABATED TO THE EXTENT OF THE DAMAGED AREA OR
UTILITY OF THE PREMISES, AND PRO RATED TO THE DATE OF THE CASUALTY. ANY UNEARNED
RENT PREVIOUSLY PAID BY TENANT SHALL BE REFUNDED BY LANDLORD.
9.2 Restoration. If in Landlord's reasonable determination the damage
caused by the fire or casualty can be substantially repaired (employing normal
construction methods without overtime or other premium) under applicable laws
and governmental regulations within 180 days from the date of the fire or other
casualty, or if neither party exercises its right to terminate under Section
9.1, Landlord shall repair such damage other than damage to furniture, chattels
or trade fixtures which do not belong to the Landlord, which shall be repaired
forthwith by Tenant at its own expense.
9.3 Abatement. During any period of restoration, the Base Rent payable by
Tenant shall be proportionately reduced to the extent that the Premises are
thereby rendered untenantable from the date of casualty until completion by
Landlord of the repairs to the Premises (or the part thereof rendered
untenantable) or until Tenant again uses the Premises (or the part thereof
rendered untenantable) in its business, whichever first occurs.
9.4 Demolition of Project. Notwithstanding anything to the contrary in
Section 9.1, if all or a substantial part (whether or not including the
Premises) of the Project is rendered untenantable by damage from fire or other
casualty to such a material extent that in the opinion of Landlord the Project
must be totally or partially demolished, whether or not to be reconstructed in
whole or in part, Landlord OR TENANT may elect to terminate this Lease as of the
date of the casualty (or on the date of notice if the Premises are unaffected by
such casualty) by written notice delivered to Tenant not more than sixty days
after the date of the fire or casualty.
9.5 Agreed Remedies. Except as specifically provided in this Article, there
shall be no reduction of rent and Landlord shall have no liability to Tenant by
reason of any injury to or interference with Tenant's business or property
arising from fire or other casualty, howsoever caused, or from the making of any
repairs resulting therefrom in or to any portion of the Project or the Premises.
Tenant waives any statutory or other rights of termination by reason of fire or
other casualty, it being the intention of the parties to provide specifically
and exclusively in this Article for the rights of the parties with respect to
termination of this Lease as a result of a casualty.
ARTICLE 10 CONDEMNATION
10.1 Automatic Termination. If during the Term all or any MATERIAL part of
the Premises is permanently taken for any public or quasi-public use under any
statute or by right of eminent domain, or purchased under threat of such taking,
this Lease shall automatically terminate on the date on which the condemning
authority takes possession of the Premises.
10.2 Optional Termination. If during the term any part of the Project is
taken or purchased by right of eminent domain or in lieu of condemnation,
whether or not the Premises are directly affected, then if in the reasonable
opinion of Landlord substantial alteration or reconstruction of the Project is
necessary or desirable as a result thereof, or the amount of parking available
to the Project is materially and adversely affected, Landlord shall have the
right to terminate this Lease by giving Tenant at least thirty days written
notice of such termination.
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10.3 Award. Landlord shall be entitled to receive and retain the entire
award or consideration for the affected lands and improvements and Tenant shall
not have or advance any claims against Landlord for the value of its property or
its leasehold estate or the unexpired term of this Lease or for costs of removal
or relocation or business interruption expense or any other damages arising out
of the taking or purchase. Nothing herein shall give Landlord any interest in or
preclude Tenant from seeking and recovering on its own account from the
condemning authority any award of compensation attributable to the taking or
purchase of Tenant's chattels or trade fixtures or attributable to Tenant's
relocation expenses provided that any such separate claim by Tenant shall not
reduce or adversely affect the amount of Landlord's award. If any such award
made or compensation paid to Tenant specifically includes an award or amount for
Landlord, Tenant shall promptly account therefor to Landlord.
ARTICLE 11 MAINTENANCE
11.1 By Tenant. Tenant shall maintain the Premises and the improvements
therein (including all doors, plate glass, and electrical and plumbing systems
serving the Premises), in good condition and repair, utilizing licensed and
bonded contractors. Tenant shall provide all janitorial services required
for the Premises. IF LANDLORD, IN ITS REASONABLE DISCRETION, FINDS THE
PERFORMANCE OF TENANT'S CONTRACTOR(S) TO BE UNSATISFACTORY, OR IN ANY WAY
DETRIMENTAL TO THE OPERATION OF THE PROJECT, LANDLORD MAY REQUIRE TENANT TO
DISMISS SAID CONTRACTOR(S) AND PROVIDE NEW CONTRACTOR(S) ACCEPTABLE TO LANDLORD.
Tenant also shall make such repairs and alterations necessary to comply with the
requirements of any governmental or quasi-governmental authority having
jurisdiction which requirements are applicable based on Tenant's specific use,
of the Premises; Landlord shall bear the costs of alterations to comply with
governmental requirements of a general nature affecting any occupancy.
11.2 By Landlord. Landlord shall maintain the Project and all Common Areas
in good condition and repair in accordance with standards then prevailing for
comparable properties of like age and character. Landlord shall repair
structural defects in roof or walls, shall repair and maintain any common
utility facilities in the Common Areas and shall maintain and repair all
heating, ventilation and air conditioning systems and equipment. In the event
heating, ventilation, or air conditioning equipment serving the Premises
requires repair, Tenant shall contact Landlord and Landlord shall promptly carry
out all repairs. Notwithstanding anything to the contrary in Section 11.1,
Landlord shall be responsible for any facilities located in the Project that are
shared with another tenant.
11.3 Cost Reimbursement. Tenant shall pay within thirty days after demand
from time to time, in addition to its obligations under Article 6, all amounts
REASONABLY incurred by Landlord for preventative maintenance contracts and for
maintenance and repair (excluding replacements) for heating, ventilation and air
conditioning systems or equipment serving the Premises. MINIMUM SPECIFICATIONS
FOR PREVENTIVE MAINTENANCE CONTRACTS SHALL INCLUDE FILTER CHANGES, LUBRICATION
AND INSPECTIONS MONTHLY DURING THE PERIOD FROM JUNE THROUGH SEPTEMBER AND
BI-MONTHLY FROM OCTOBER THROUGH MAY. In the case any such systems or equipment
shared with another tenant, the costs shall be equitably apportioned by
Landlord. NOTWITHSTANDING THE FOREGOING, LANDLORD SHALL WARRANT THE HVAC
EQUIPMENT AGAINST BREAKDOWNS AND FAILURES FOR THE FIRST 90 DAYS OF THE LEASE
TERM AT ITS SOLE COST AND EXPENSE.
ARTICLE 12 UTILITIES
Notwithstanding anything to the contrary in this Lease, Tenant shall pay to
Landlord upon demand all costs of electrical power provided to the Premises,
calculated at the same rates as charged by the utility supplier, as measured by
submeters which shall be installed and read by Landlord. LANDLORD SHALL FURNISH
TENANT WITH A REPORT FROM A QUALIFIED ELECTRICIAN OR ELECTRICAL ENGINEER
CERTIFYING THAT ALL OF THE OTHER TENANTS' USAGE IS BEING. MEASURED BY THEIR
SUBMETERS.
ARTICLE 13 LANDLORD RIGHT OF ENTRY
Upon reasonable notice to Tenant, Landlord shall have access to the Premises for
purposes of showing the Premises to current or prospective lenders, to
prospective purchasers of the Project, and, during the twelve-month period
preceding the expiration of the term of this Lease, to prospective tenants.
Landlord shall at all times have access to the Premises for purposes of
inspection and performing Landlord's obligations and exercising its rights under
this Lease. LANDLORD SHALL MAKE REASONABLE EFFORTS TO MINIMIZE DISRUPTIONS OF
TENANT'S OPERATIONS WHILE EXERCISING ITS RIGHT OF ENTRY.
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ARTICLE 14 SIGNS
Tenant shall not place or permit to be placed any sign, picture, advertisement,
notice, lettering or decoration on any part of the outside of the Premises or
anywhere in the interior of the Premises which is visible from the outside of
the Premises without Landlord's prior written approval, not to be unreasonably
withheld. Landlord acknowledges that Tenant is the largest of three tenants in
the Project, and shall therefore be permitted to exclusive use of the existing
monument sign on Redfield Road for purposes of identifying itself by name
(only), subject to Landlord's prior review of the proposed sign faces and
materials, and subject to Tenant's compliance with any requirements of the
Scottsdale Industrial Airpark Owners Association or the City of Scottsdale.
ARTICLE 15 TENANT ALTERATIONS
15.1 Tenant Alterations. Tenant may from time to time at its own expense
make changes, additions and improvements in the Premises, provided that any such
change, addition or improvement shall:
(a) comply with the requirements of any governmental or
quasi-governmental authority having jurisdiction (including, without limitation,
the Americans with Disabilities Act), with the requirements of Landlord's
insurance carriers, and with Landlord's reasonable safety and access
requirements, including restrictions on flammable materials and elevator usage;
(b) not be commenced until Landlord has received satisfactory
evidence that all required, permits have been obtained;
(c) be made only with the prior written consent of Landlord (which
may be withheld in Landlord's sole discretion, to the extent, IN LANDLORD'S
OPINION, IT NEGATIVELY IMPACTS the structure or electrical, HVAC, plumbing or
sprinkler systems of the Building, but which otherwise shall not be unreasonably
withheld);
(d) be constructed in good workmanlike manner and conform to
complete working drawings prepared by a licensed architect and submitted to and
approved by Landlord;
(e) be of a quality that equals or exceeds the then current
standard for the Project and comply with all building, fire and safety codes;
(f) be carried out only during hours approved by Landlord by
licensed contractors selected by tenant and approved in writing by Landlord
(WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED), who shall
deliver to Landlord before commencement of the work performance and payment
bonds as well as proof of workers' compensation and general liability insurance
coverage, including coverage for completed operations and contractual liability,
with Landlord and its agents and designees named as additional insureds, in
amounts, with companies, and in form reasonably satisfactory to Landlord, which
shall remain in effect during the entire period in which the work shall be
carried out. Notwithstanding the foregoing, only subcontractors selected or
designated by Landlord may be used to make connection with the Project's main
electrical, plumbing or HVAC systems, except connections to circuit panels,
pipes or ducts within the Premises; and
(g) upon completion, be shown on accurate "as built" reproducible
drawings in the form of reverse sepia transparencies or mylars delivered to
Landlord.
15.2 Tenant Installations. Tenant may install in the Premises its usual
trade fixtures and personal property in a proper manner, provided that no
installation shall interfere with or damage the mechanical or electrical systems
or the structure of the Building. Landlord may require that any work that may
affect structural elements or mechanical, electrical, heating, air conditioning,
plumbing or other systems be performed by Landlord at Tenant's cost or by a
contractor designated by Landlord. No antenna or other equipment shall be placed
or installed on the roof without Landlord's prior consent and approval, not to
be unreasonably withheld, as to weight, placement, penetrations, method of
attachment and screening.
15.3 Mechanics Liens. Tenant shall pay before delinquency all costs for work
done or caused to be done by Tenants in the Premises which could result in any
lien or encumbrance on Landlord's interest in the Project or any part thereof,
shall keep the title to the Project and every part thereof free and clear of any
lien or encumbrance in respect of such work, and shall indemnify and hold
harmless Landlord and Landlord's agents
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and employees against any claim, loss, cost, demand or legal or other expense,
whether in respect of any lien or otherwise, arising out of the supply of
material, services or labor for such work. Tenant shall immediately notify
Landlord of any such lien, claim of lien or other action of which it has or
reasonably should have knowledge and that affects the title to the Project or
any part thereof, and shall cause the same to be removed by bonding or otherwise
within five days, failing which Landlord may take such action as Landlord deems
necessary to remove same and the entire cost thereof shall be immediately due
and payable by Tenant to Landlord. If provided by applicable law, Tenant shall
cause such postings to be made and notices given as shall prevent any mechanics'
lien for work done for Tenant from attaching to the Project.
ARTICLE 16 ASSIGNMENT AND SUBLETTING
16.1 Consent Required. Tenant shall not assign its interest under this Lease
or sublet all or any part of the Premises without Landlord's prior written
consent, which shall not be unreasonably withheld OR DELAYED. Tenant shall not
at any time pledge, hypothecate, mortgage or otherwise encumber its interest
under this Lease as security for the payment of a debt or the performance of a
contract. Tenant shall not permit its interest under this Lease to be
transferred by operation of law. Any purported assignment or sublease made
without Landlord's consent, OR FOR WHICH LANDLORD IS NOT FURNISHED WITH A FULLY
EXECUTED COPY OF SUCH ASSIGNMENT OR SUBLEASE, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO LANDLORD, SHALL BE VOID. LANDLORD AGREES NOT TO WITHHOLD ITS
CONSENT TO ASSIGNMENTS OR SUBLEASES IN WHICH THE ASSIGNEE OR SUBLESSEE IS A
COMPANY EITHER WHOLLY OWNED BY TENANT, OR IN WHICH TENANT MAINTAINS A
CONTROLLING, MAJORITY INTEREST.
16.2 Requests for Approval. Landlord shall be under no obligation to decide
whether consent will be given or withheld unless Tenant has first provided to
Landlord: (a) the name and legal composition of the proposed assignee or
subtenant and the nature of its business; (b) the use to which the proposed
assignee or subtenant intends to put the Premises; (c) the terms and conditions
of the proposed assignment or sublease and of any related. transaction between
Tenant and the proposed assignee or subtenant; (d) information related to the
experience, integrity and financial resources of the proposed assignee or
subtenant; (e) such information as Landlord may request to supplement, explain
or provide details of the matters submitted by Tenant pursuant to subparagraphs
(a) through (d); and (f) reimbursement for all costs REASONABLY incurred by
Landlord, including attorneys' fees, in connection with evaluating the request
and preparing any related documentation. Landlord shall respond within 15 days
to such requests; FAILURE OF LANDLORD TO RESPOND WITHIN 15 DAYS SHALL BE DEEMED
APPROVAL.
16.3 Continued Responsibility. Tenant shall remain fully liable for
performance of this Lease, notwithstanding any assignment or sublease, for the
entire Lease Term.
16.4 Excess Proceeds. If consent to an assignment or sublease is given,
Tenant shall pay to Landlord, as additional rent, one half of all amounts
received from the assignee or subtenant in excess of the amounts otherwise
payable by Tenant to Landlord with respect to the space involved, measured on a
per square foot basis, AND AFTER DEDUCTING REASONABLE FEES ACTUALLY PAID FOR
BROKERAGE SERVICES.
16.5 Limitations. Without limiting appropriate grounds for withholding
consent, it shall not be unreasonable for Landlord to withhold consent if the
proposed assignee or subtenant is a tenant in another building owned by Landlord
or by an affiliate of Landlord or of any of Landlord's constituent partners or
principals or if the use by the proposed assignee or subtenant would contravene
this Lease or any restrictive use covenant or exclusive rights granted by
Landlord or if the proposed assignee or subtenant does not intend to occupy the
Premises for its, own use or if the nature of the proposed assignee or subtenant
is not compatible with the Project.
16.6 No Waiver. No consent shall constitute consent to any further
assignment or subletting.
16.7 Transfer by Landlord. Upon a sale or other transfer of the Project (or
a portion thereof containing the Premises) by Landlord, Landlord's interest in
this Lease shall automatically be transferred to the transferee, the transferee
shall automatically assume all of Landlord's obligations under this Lease
accruing from and after the date of transfer, and the transferor shall be
released of all obligations under this Lease arising after the transfer. Tenant
shall upon request attorn in writing to the transferee.
ARTICLE 17 SUBORDINATION AND ATTORNMENT
17.1 Subordination. This Lease is and shall be subject and subordinate in
all respects to all existing and future mortgages or deeds of trust now or
hereafter encumbering the Project or any part hereof. The holder of
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any mortgage or deed of trust may elect to be subordinate to this Lease;
provided, however, that in connection with, any future mortgage or deed of
trust, Tenant shall be entitled to receive as a condition of the subordination a
non-disturbance agreement from the lender on its standard form providing that
Tenant's possession of the Premises shall not be disturbed notwithstanding any
foreclosure or trustee's sale.
17.2 Lender Protection. Upon a transfer in connection with foreclosure or
trustee's sale proceedings or in connection with a default under an encumbrance,
whether by deed to the holder of the encumbrance in lieu of foreclosure or
otherwise, Tenant, if requested, shall in writing attorn to the transferee, but
the transferee shall not be:
(a) subject to any offsets or defenses which Tenant might have
against Landlord; or
(b) bound by any prepayment by Tenant of more than one month's
installment of rent; or
(c) subject to any liability or obligation of Landlord except
those arising after the transfer, OR THOSE WHICH ARE CONTINUING UNFULFILLED
OBLIGATIONS OF LANDLORD AS OF THE TRANSFER. THE TRANSFEREE SHALL NOT, HOWEVER,
BE SUBJECT TO PRE-TRANSFER CLAIMS FOR DAMAGES IN EXCESS OF THE COST TO CURE
UNFULFILLED LANDLORD OBLIGATIONS.
17.3 Documentation. The subordination provisions of this Article shall be
self-operating and no further instrument shall be necessary. Nevertheless
Tenant, on request, shall execute and deliver any and all instruments further
evidencing such subordination.
17.4 Other Transactions. Landlord may at any time and from time to time
grant, receive, dedicate, relocate, modify, surrender or otherwise deal with
easements, rights of way, restrictions, covenants, equitable servitudes or other
matters affecting the Project without notice to or consent by Tenant, SO LONG AS
THEY DO NOT MATERIALLY OR ADVERSELY AFFECT TENANT'S BUSINESS.
ARTICLE 18 ESTOPPEL CERTIFICATES
Tenant shall at any time within ten days after written request from
Landlord execute, acknowledge and deliver to Landlord a statement in writing:
(a) certifying 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) and the date to which the
rent and other charges are paid in advance, if any; (b) confirming the
commencement and expiration dates of the term; (c) confirming the amount of the
security deposit held by Landlord; (d) acknowledging 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; and (e) confirming such other
matters as to which Landlord may reasonably request confirmation. Any such
statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Premises or the Project. If Landlord desires to finance or
refinance the Project, Tenant hereby agrees to deliver to any lender designated
by Landlord financial statements of Tenant as may be reasonably required by such
lender. SUCH STATEMENTS SHALL BE LIMITED TO THE MOST RECENTLY COMPLETED FISCAL
YEAR OF TENANT, PLUS APPLICABLE YEAR TO DATE REPORTS. All such financial
statements shall be received by Landlord in confidence and shall be used only
for the purposes herein set forth.
ARTICLE 19 QUIET ENJOYMENT
If Tenant pays the rent and observes and performs the terms, covenants
and conditions contained in this Lease, Tenant shall peaceably and quietly hold
and enjoy the Premises for the Term without hindrance or interruption by,
Landlord, or any other person lawfully claiming by, through or under Landlord
unless otherwise permitted by the terms of this Lease. Tenant acknowledges that
the exercise by the Landlord of any of the rights conferred on Landlord under
this Lease and the entry upon the Premises for or in connection with such
purposes will not be deemed to be a constructive or actual eviction of the
Tenant and will not be considered to be a breach of Landlord's covenant of quiet
enjoyment.
ARTICLE 20 SURRENDER AND HOLDOVER
20.1 Surrender. Upon the expiration or termination of this Lease or of
Tenant's right to possession, Tenant shall surrender the Premises in a clean
undamaged condition, reasonable wear and tear and damage by casualty excepted,
and shall remove all of Tenant's equipment, fixtures and property and repair all
damage caused by the
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removal. Tenant shall not remove permanent improvements that were provided by
Landlord at the commencement of this Lease and shall not remove permanent
improvements later installed by Tenant unless directed to do so by Landlord.
20.2 Holdover. If Tenant holds over without Landlord's consent, Tenant
shall, at Landlord's election, be a tenant at will or a tenant from
month-to-month. In either case rent shall be payable monthly in advance at a
rate equal to 125% of the rate in effect immediately before the holdover began.
A holdover month-to-month tenancy may be terminated by either party as of the
first day of a calendar month upon at least ten days' prior notice. A holdover
tenancy at will is terminable at any time by either party without notice,
regardless of whether rent has been paid in advance. Upon a termination under
this Section, unearned rent shall be refunded following the surrender of
possession provided Tenant is not otherwise in breach of this Lease.
ARTICLE 21 BREACH, DEFAULT, AND REMEDIES
21.1 Default. The following shall constitute "Events of Default":
(a) Tenant's failure to pay rent or any other amount due under
this Lease within five days after WRITTEN notice of nonpayment; or
(b) Tenant's failure to execute, acknowledge and return a
subordination agreement under Article 17 or an estoppel certificate under
Article 18 within ten days after request where the failure continues for an
additional ten days after notice that it was not received during the initial
ten-day period; or
(c) Tenant's failure to perform any other obligation under this
Lease within fifteen days after WRITTEN notice of nonperformance; provided,
however, that if the breach is of such a nature that it cannot be cured within
fifteen days, no Event of Default shall be deemed to have occurred by reason of
the breach if cure is commenced promptly and diligently pursued to completion
within a period not longer than ninety days; and provided further, that in the
event of a breach involving an imminent threat to health or safety, Landlord may
in its notice of breach reduce the period for cure to such shorter period as may
be reasonable under the circumstances; or
(d) Tenant vacates, abandons, or otherwise ceases to use the
Premises on a substantial continuing basis except temporary absence excused by
reason of fire, casualty, failure of services or other cause wholly beyond
Tenant's control; for these purposes, absence for SIXTY consecutive business
days shall conclusively be deemed an abandonment.
21.2 Remedies. Upon the occurrence of an Event of Default, Landlord, at any
time thereafter without further notice or demand may exercise any one or more of
the following remedies concurrently or in succession:
(a) Terminate Tenant's right to possession of the Premises by
legal process or otherwise, with or without terminating this Lease, and retake
exclusive possession of the Premises.
(b) From time to time relet all or portions of the Premises, using
reasonable efforts to mitigate Landlord's damages. In connection with any
reletting, Landlord may relet for a period extending beyond the term of this
Lease and may make alterations or improvements to the Premises without releasing
Tenant of any liability. Upon a reletting of all or substantially all of the
Premises, Landlord shall be entitled to recover all of its then prospective
damages for the balance of the Lease Term measured by the present value of the
difference between amounts payable under this Lease and the anticipated net
proceeds of reletting.
(c) From time to time recover accrued and unpaid rent and damages
arising from Tenant's breach of the Lease, regardless of whether the Lease has
been terminated, together with applicable late charges and interest at the rate
of 18% per annum or the highest lawful rate, whichever is less.
(d) Enforce the statutory Landlord's lien on Tenant's property.
(e) Recover all costs, expenses and attorneys' fees incurred by
Landlord in connection with enforcing this Lease, recovering possession,
reletting the Premises or collecting amounts owed, including, without
limitation, costs of alterations, brokerage commissions, and other costs
incurred in connection with any reletting.
(f) Perform the obligation on Tenant's behalf and recover from
Tenant, upon demand, the entire
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amount expended by Landlord plus 10% for special handling, supervision, and
overhead.
(g) Pursue other remedies available at law or in equity.
21.3 Subtenancies. Upon a termination of Tenant's right to possession,
whether or not this Lease is terminated: (a) subtenancies and other rights of
persons claiming under or through Tenant shall be terminated or (b) Tenant's
interest in such subleases or other arrangements shall be assigned to Landlord.
Landlord may separately elect termination or assignment with respect to each
such subtenancy or other matter.
21.4 DEFAULT BY LANDLORD. LANDLORD SHALL NOT BE IN DEFAULT UNLESS LANDLORD
FAILS TO PERFORM ITS OBLIGATIONS WITHIN FIFTEEN (15) DAYS AFTER WRITTEN NOTICE
FROM TENANT OF SUCH DEFAULT. IN THE EVENT THE NATURE OF THE ALLEGED DEFAULT IS
SOMETHING THAT REASONABLY REQUIRES MORE THAN FIFTEEN (15) DAYS TO CURE, LANDLORD
SHALL NOT BE DEEMED IN DEFAULT IF IT HAS, WITHIN THE FIFTEEN (15) DAY NOTICE
PERIOD, COMMENCED TO CURE THE DEFAULT AND DILIGENTLY PURSUES THE CURE UNTIL THE
CONDITION CREATING THE DEFAULT IS ABATED OR CORRECTED. IN THE EVENT LANDLORD HAS
NOT CURED THE DEFAULT WITHIN THE TIME ALLOWED, TENANT MAY PURSUE ALL REMEDIES
AVAILABLE AT LAW OR IN EQUITY.
ARTICLE 22 LANDLORD LIABILITY
Notwithstanding anything to the contrary in this Lease, neither Landlord nor
Landlord's directors, officers, shareholders, employees, agents, constituent
partners, beneficiaries, trustees and representatives, successors or assigns
(collectively, "Landlord's Affiliates") shall be personally responsible or
liable for any representation, warranty, covenant, undertaking or agreement
contained in the Lease, and the sole right and remedy of the Tenant or any
subsequent sublessee or assignee shall be against Landlord's interest in the
Project. Neither Tenant nor any subsequent sublessor or assignee shall seek to
obtain any judgment imposing personal liability against Landlord, Landlord's
Affiliates, or their successors or assigns nor execute upon any judgment or
place any lien against any property other than Landlord's interest in the
Project. Landlord shall give written notice to Tenant of any change in ownership
affecting more than 50% of the ownership of Landlord.
ARTICLE 23 NOTICES
Any notice from one party to the other shall be in writing and shall be deemed
duly served: (a) if delivered personally to a corporate officer of Tenant, or if
mailed by registered or certified mail addressed to Tenant at the Premises or
(b) if mailed by registered or certified mail to Landlord at the address set
forth in Section 1.12 or such other address as Landlord may designate. Any
notice to Tenant prior to Tenant's taking possession of the Premises, however,
shall instead be sent to the address set forth in Section 1.11. Any notice shall
be deemed to have been given three days after it was mailed, if mailed, and when
delivered, if personally delivered.
ARTICLE 24 BROKERAGE
TENANT WARRANTS AND REPRESENTS THAT IT HAS DEALT WITH NO BROKER OR OTHER PERSON,
OTHER THAN HORIZON REAL ESTATE GROUP, INC. AND B-H ENTERPRISES OF ARIZONA, INC.
IN CONNECTION WITH THIS LEASE. TENANT SHALL DEFEND, INDEMNIFY AND HOLD LANDLORD
HARMLESS FROM ALL CLAIMS OR LIABILITIES ARISING FROM ANY CLAIM OF COMMISSION
FROM ANY OTHER PARTY CLAIMING THROUGH TENANT. LANDLORD AGREES TO COMPENSATE THE
BROKERS AS CONSIDERATION FOR SERVICES RENDERED IN EXECUTION OF THIS LEASE A FEE
OF 5% OF THE BASE RENT RESERVED HEREUNDER (DIVIDED EQUALLY BETWEEN HORIZON REAL
ESTATE GROUP AND B-H ENTERPRISES) IN TWO EQUAL INSTALLMENTS, FIRST ON THE
EXECUTION HEREOF BY ALL PARTIES, AND SECOND UPON THE FIRST PAYMENT OF BASE RENT
BY TENANT. LANDLORD FURTHER AGREES TO COMPENSATE BROKERS IN THE EVENT THE LEASE
TERM IS RENEWED OR THE PREMISES ARE EXPANDED PURSUANT TO TERMS CONTAINED IN THIS
LEASE. UPON EXPANSION PER THE EXPANSION OPTION, THE BROKERS SHALL BE PAID 5%
(DIVIDED EQUALLY) OF THE BASE RENT DUE FROM THE OCCUPANCY DATE OF THE EXPANDED
PREMISES UNTIL THE DATE WHICH IS FIVE YEARS FROM THE COMMENCEMENT DATE, AND 3%
OF THE BASE, RENT FOR THE BALANCE OF THE INITIAL TERM AS EXTENDED BY THE
EXPANSION OPTION. UPON EXERCISE OF THE TWO YEAR RENEWAL OPTION, THE BROKERS
SHALL BE PAID 5% (DIVIDED EQUALLY) OF THE BASE RENT DUE FOR THE TWO YEAR RENEWAL
TERM. NO BROKERAGE COMPENSATION SHALL BE PAID IN THE EVENT TENANT RENEWS THE
LEASE FOLLOWING EXERCISE OF THE EXPANSION OPTION, NOR FOR ANY EXPANSION
RESULTING FROM TENANT'S EXERCISE OF A RIGHT OF FIRST REFUSAL ON OTHER UNOCCUPIED
SPACE IN THE PROJECT.
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ARTICLE 25 GENERAL
25.1 Severability. If any term, covenant or condition of this Lease, or the
application thereof, is to any extent held or rendered invalid, it shall be and
is hereby deemed to be independent of the remainder of the Lease and to be
severable and divisible therefrom, and its invalidity, unenforceability or
illegality shall not affect, impair or invalidate the remainder of the Lease or
any part thereof
25.2 No Waiver. The waiver by Landlord, OR BY TENANT, of any breach of any
term, covenant or condition contained in this Lease shall not be deemed to be a
waiver of such term, covenant or condition or of any subsequent breach of the
same or of any other term, covenant or condition contained in this Lease. The
subsequent acceptance of rent by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any term, covenant or condition of this Lease,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of rent. No term, covenant or condition of this Lease shall be deemed
to have been Waived by Landlord OR TENANT unless such waiver is in writing by
Landlord OR TENANT.
25.3 Effect of Payment. No payment by Tenant or receipt by the Landlord of a
lesser amount than the monthly payment of rent herein stipulated is deemed to be
other than on account of the earliest stipulated rent, nor is, any endorsement
or statement on any check or any letter accompanying any check or payment of
rent deemed an acknowledgment of full payment or accord and satisfaction, and
Landlord may accept and cash any check or payment without prejudice to
Landlord's right to recover the balance of the rent due and pursue any other
remedy provided in this Lease.
25.4 Delay. If either party is delayed or hindered in or prevented from the
performance of any term, covenant or act required hereunder by reasons of
strikes, labor troubles, inability to procure materials or services, power
failure, restrictive governmental laws or regulations, riots, insurrection,
sabotage, rebellion, war, act of God, or other reason whether of a like nature
or not that is beyond the control of the party affected, financial inability
excepted, then, IF NOTICE IS GIVEN WITHIN TEN (10) DAYS AFTER COMMENCEMENT OF
THE FORCE MAJEURE EVENT, the performance of that term, covenant or act is
excused for the period of the delay and the party delayed shall be entitled to
perform such term, covenant or act within the appropriate time period after the
expiration of the period of such delay. Nothing in this Section, however, shall
excuse Tenant from the prompt payment of any amount payable under this Lease nor
from the consequences of Tenant Delay as provided in Exhibit C (if attached).
25.5 Lender Notice. In the event of a material default by Landlord of a
sufficiently serious nature that Tenant considers the utility of the Premises to
Tenant to be significantly impaired, Tenant shall give written notice of the
default to Landlord and shall simultaneously send a copy of the notice to the
holder of any encumbrance, the name and address of whom has previously been
finished in writing to Tenant.
25.6 No Offer. The submission of this Lease for examination does not
constitute a reservation of an option to lease the Premises, and this Lease
becomes effective as a lease only upon its execution and delivery by Landlord
and Tenant.
25.7 Successors. All rights and liabilities under this Lease extend to and
bind the successors and assigns of Landlord and permitted successors and assigns
of Tenant. No rights, however, shall inure to the benefit of any transferee of
the Tenant unless the transfer has been consented to by the Landlord in writing
as provided in Section 16.1. If there is more than one Tenant, they are all
bound jointly and severally by the terms, covenants and conditions of this
Lease.
25.8 Integration. This Lease and the Exhibits hereto attached, set forth all
the covenants, promises, agreements, conditions and understandings between
Landlord and Tenant concerning the Premises and there are no other covenants,
promises, agreements, conditions or understandings, either oral or written,
between them. No alteration, amendment or addition to this Lease shall be
binding upon Landlord or Tenant unless in writing and signed by Tenant and
Landlord.
25.9 Governing Law. This Lease will be construed in accordance with and
governed by the laws of the State of Arizona.
25.10 Deadlines Enforceable. Time is of the essence of this Lease and of
every part hereof.
25.11 Counterparts. This Lease may be executed in counterparts, which
together shall constitute a single instrument.
16
<PAGE> 20
ARTICLE 26 OPTION TO EXPAND
26. AT ANY TIME DURING THE INITIAL TERM HEREOF, TENANT SHALL HAVE THE OPTION TO
EXPAND ITS PREMISES INTO THE ADJACENT SUITE PRESENTLY OCCUPIED BY PHOENIX
NEWSPAPERS, INC. (THE "EXPANSION OPTION"). UPON RECEIPT OF TENANT'S NOTICE,
LANDLORD SHALL INITIATE THE PROCESS OF RELOCATING PHOENIX NEWSPAPERS, INC. TO
OTHER SPACE. LANDLORD SHALL HAVE ONE YEAR FROM RECEIPT OF TENANT'S NOTICE TO
HAVE PHOENIX NEWSPAPERS VACATE THE SPACE. UPON THE DATE PHOENIX NEWSPAPERS
VACATES, LANDLORD AND TENANT SHALL COMMENCE ALTERATIONS AS REQUIRED FOR TENANT'S
USE OF THE EXPANSION PREMISES. THE PROCESS OF ARCHITECTURAL DESIGN, BIDDING, AND
COMPLETION OF THE WORK SHALL FOLLOW THE SAME PROCESS AS IN EXHIBIT C, EXCEPT
THAT LANDLORD'S COSTS SHALL BE LIMITED TO $25,000. BASE RENT FOR THE EXPANSION
SPACE SHALL BE ADDED TO THE BASE RENT FOR THE (INITIAL) PREMISES AS SET FORTH IN
ARTICLE 1.7 AND SHALL COMMENCE ON THE DATE THE SPACE IS VACATED BY PHOENIX
NEWSPAPERS AND SHALL BE $.68 PER SQUARE FOOT OF EXPANSION SPACE PER MONTH , NET
OF ALL OPERATING COSTS, FROM OCCUPANCY UNTIL APRIL 30, 2000, AND $.75 PER SQUARE
FOOT OF EXPANSION SPACE PER MONTH, NET OF ALL OPERATING COSTS, FROM MAY 1, 2000
TO THE END OF THE INITIAL TERM. IN ORDER TO PREPARE ONE RENTAL CHARGE FOR
TENANT, LANDLORD SHALL CONVERT THE NET RENTAL RATES ($.68 AND $.75) TO RENTAL
RATES DENOMINATED AS PER THE INITIAL TERM BY ADDING THE OPERATING COSTS PER
RENTABLE SQUARE FOOT FROM 1997. THE RESULTING RATES SHALL THEN BE BLENDED WITH
THE BASE RENT FOR THE (INITIAL) PREMISES TO ARRIVE AT THE BASE RENT FOR THE
TOTAL PREMISES OF 64,000+/- SQUARE FEET. BY WAY OF EXAMPLE, IF THE OPERATING
COSTS IN 1997 ARE ASSUMED TO BE $.17 PER SQUARE FOOT, THE BASE RENT OF THE
EXPANDED 64,000+/- SQUARE FEET WOULD INITIALLY BE:
<TABLE>
<CAPTION>
Base 1997 Oprtg Gross Monthly
Sq Ft Rate Costs Rate Rent
- ------------------------------- ------------ ----------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Initial Premises 38,712 0.75 NA 0.7500 29,034.00
Expansion Area 24,757 0.68 0.17 0.8500 21,043.45
------------ ----------- --------------- ---------------- -----------------
Total Expanded Area 63,469 0.7890 50,077.45
</TABLE>
CONCURRENTLY, TENANT'S PROPORTIONATE SHARE SHALL BE INCREASED TO THE PERCENTAGE
OF TENANT'S TOTAL RENTABLE AREA, DIVIDED BY THE TOTAL RENTABLE AREA OF THE
PROJECT. AS FURTHER CONSIDERATION FOR THE EXPANSION OPTION, THE INITIAL TERM
SHALL BE AUTOMATICALLY EXTENDED SO THAT THE EXPIRATION DATE IS FIVE YEARS FROM
THE DATE TENANT OCCUPIES THE EXPANDED PREMISES. THE EXPANSION OPTION, ONCE
EXERCISED, IS IRREVOCABLE BY TENANT. IF THE ORIGINAL EXPIRATION DATE IS TO OCCUR
PRIOR TO TENANT'S OCCUPANCY OF THE EXPANDED PREMISES, THE TERM SHALL CONTINUE
WITH BASE RENT AND OTHER CHANGES PAYABLE ON THE ORIGINAL 38,712 SQUARE FEET
UNTIL THE EXPANSION SPACE IS VACATED BY PHOENIX NEWSPAPERS, INC.
ARTICLE 27 RIGHT OF FIRST REFUSAL
27. IF DURING THE INITIAL TERM, OR ANY EXTENDED OR RENEWAL TERM HEREOF, ANY
SPACE BECOMES AVAILABLE FOR LEASE WITHIN THE PROJECT, TENANT SHALL ENJOY THE
RIGHT OF FIRST REFUSAL ON THAT SPACE AS FOLLOWS. UPON RECEIPT BY LANDLORD OF A
BONA FIDE OFFER TO LEASE FROM A TENANT, WHICH OFFER LANDLORD ELECTS TO ACCEPT
TENANT SHALL HAVE A PERIOD OF FIVE (5) BUSINESS DAYS FOLLOWING RECEIPT OF
LANDLORD'S NOTICE OF INTENT TO LEASE THE SPACE DURING WHICH TENANT MAY ELECT TO
LEASE THE AFFECTED SPACE ON THE SAME RATE AND TERMS AS OFFERED TO LANDLORD,
EXCEPT THAT TENANT'S LEASE TERM ON ITS CURRENT SPACE AND THE AFFECTED SPACE
SHALL BE EXTENDED TO THE PROSPECTIVE EXPIRATION DATE IN THE OFFER TO LEASE.
LANDLORD'S NOTICE OF INTENT TO LEASE MUST BE IN WRITING, BE SUFFICIENTLY CLEAR
AS TO EXPRESS THE RENTAL RATE, ANY ALTERATIONS TERMS, AND OTHER SALIENT TERMS,
SO THAT TENANT MAY MAKE AN INFORMED DECISION TO EXERCISE ITS RIGHT OF FIRST
REFUSAL. FAILURE OF TENANT TO RESPOND AFFIRMATIVELY EXERCISING ITS RIGHT TO
ENTER INTO THE LEASE OFFERED SHALL BE DEEMED A REJECTION OF THE OFFER. LANDLORD
SHALL THEREUPON BE FREE TO ENTER INTO THE LEASE WITH THE PARTY THAT MADE THE
OFFER ON TERMS NO LESS FAVORABLE THAN OFFERED TO TENANT. IF THE SAID LEASE IS
NOT CONSUMMATED WITHIN 60 DAYS FOLLOWING LANDLORD'S NOTICE, OR IF THE TERMS ARE
MADE MATERIALLY MORE FAVORABLE TO THE INTENDED LESSEE, TENANTS RIGHT OF FIRST
REFUSAL SHALL AGAIN BE EFFECTIVE AS TO THE SPACE IN QUESTION.
ARTICLE 28 REPRESENTATIONS AND WARRANTIES
28. EACH PARTY REPRESENTS AND WARRANTS TO THE OTHER THAT, AS OF THE EXECUTION
HEREOF:
(a) AUTHORITY. IT HAS FULL POWER, AUTHORITY AND LEGAL RIGHT TO
EXECUTE THIS LEASE, AND TO LEASE THE PREMISES TO TENANT OR FROM LANDLORD
PURSUANT TO THE TERMS HEREOF AND TO KEEP AND OBSERVE ALL OF THE TERMS OF THIS
LEASE ON ITS PART TO BE PERFORMED.
17
<PAGE> 21
(b) LEGAL STATUS AND AUTHORITY. IT (AND EACH ENTITY EXECUTING THE
LEASE AS OR ON BEHALF OF IT) (i) IS DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD
STANDING UNDER THE LAWS OF ITS STATE OF ORGANIZATION OR INCORPORATION; (ii) IS
DULY QUALIFIED TO TRANSACT BUSINESS AND IS IN GOOD STANDING IN THE STATE OF
ARIZONA; AND (iii) HAS ALL NECESSARY APPROVALS, GOVERNMENTAL AND OTHERWISE, AND
FULL POWER AND AUTHORITY TO OWN THE PROJECT (IF LANDLORD) OR LEASE THE PREMISES
(IF TENANT) AND CARRY ON ITS BUSINESS AS NOW CONDUCTED. LANDLORD NOW HAS AND
SHALL CONTINUE TO HAVE THE FULL RIGHT, POWER AND AUTHORITY TO OPERATE AND LEASE
THE PROJECT, AND TO PERFORM ALL OF THE OTHER OBLIGATIONS TO BE PERFORMED BY
LANDLORD UNDER THIS LEASE. TENANT NOW HAS AND SHALL CONTINUE TO HAVE THE FULL
RIGHT, POWER AND AUTHORITY TO LEASE THE PREMISES FROM LANDLORD, AND TO PERFORM
ALL OF THE OTHER OBLIGATIONS TO BE PERFORMED BY TENANT UNDER THIS LEASE.
(c) VALIDITY OF DOCUMENTS. THE EXECUTION, DELIVERY AND PERFORMANCE
OF THE LEASE (i) ARE WITHIN ITS POWER; (ii) HAVE BEEN AUTHORIZED BY ALL
REQUISITE PARTNERSHIP, CORPORATE, OR LIMITED LIABILITY COMPANY ACTION (AS THE
CASE MAY BE); (iii) HAVE RECEIVED ALL NECESSARY APPROVALS AND CONSENTS; (iv)
WILL NOT VIOLATE, CONFLICT WITH, RESULT IN A BREACH OF OR CONSTITUTE (WITH
NOTICE OR LAPSE OF TIME, OR BOTH) A DEFAULT UNDER ANY PROVISION OF LAW, ANY
ORDER OR JUDGMENT OF ANY COURT OR GOVERNMENTAL AUTHORITY, THE ARTICLES OF
INCORPORATION, BY-LAWS, OPERATING AGREEMENT OR OTHER GOVERNING INSTRUMENT OF IT,
OR ANY INDENTURE, AGREEMENT, OR OTHER INSTRUMENT TO WHICH IT (AND EACH ENTITY
EXECUTING THE LEASE AS OR ON BEHALF OF LANDLORD OR TENANT) IS A PARTY OR BY
WHICH THE PROJECT MAY BE BOUND OR AFFECTED.
(d) LITIGATION. THERE IS NO ACTION, SUIT, OR PROCEEDINGS,
JUDICIAL, ADMINISTRATIVE OR OTHERWISE (INCLUDING ANY CONDEMNATION OR SIMILAR
PROCEEDINGS) OF A MATERIAL NATURE, PENDING OR, TO THE BEST OF THE PARTY'S
KNOWLEDGE, THREATENED OR CONTEMPLATED AGAINST, OR AFFECTING IT, OR THE PROJECT
THAT MIGHT ADVERSELY AFFECT THE OTHER PARTY'S INTEREST IN THE PREMISES OR THE
RIGHTS OF THE OTHER PARTY UNDER THE LEASE.
(e) STATUS OF PROPERTY. TO THE BEST OF LANDLORD'S KNOWLEDGE
HEREOF: (i) LANDLORD HAS OBTAINED ALL NECESSARY CERTIFICATES, LICENSES AND OTHER
APPROVALS, GOVERNMENTAL AND OTHERWISE, NECESSARY FOR THE OPERATION OF THE
PROJECT AND THE CONDUCT OF ITS BUSINESS, AND ALL REQUIRED ZONING, BUILDING CODE,
LAND USE, ENVIRONMENTAL AND OTHER SIMILAR PERMITS OR APPROVALS, ALL OF WHICH ARE
IN FULL FORCE AND EFFECT AS OF THE DATE HEREOF AND NOT SUBJECT TO REVOCATION,
SUSPENSION, FORFEITURE OR MODIFICATION. (ii) THE PROJECT AND THE PRESENT AND
CONTEMPLATED USES AND OCCUPANCY THEREOF ARE IN FULL COMPLIANCE WITH ALL
APPLICABLE LAWS, INCLUDING, WITHOUT LIMITATION, ZONING ORDINANCES, BUILDING
CODES, LAND USE AND ENVIRONMENTAL LAWS, LAWS RELATED TO THE DISABLED (INCLUDING,
BUT NOT LIMITED TO, THE ADA) AND OTHER SIMILAR LAWS. (iii) THE PROJECT IS SERVED
BY ALL UTILITIES REQUIRED FOR THE CURRENT OR CONTEMPLATED USE THEREOF, WITH THE
EXCEPTION OF NATURAL GAS. ALL UTILITY SERVICE IS PROVIDED BY PUBLIC UTILITIES
AND THE PROJECT HAS ACCEPTED OR IS EQUIPPED TO ACCEPT SUCH UTILITY SERVICE. (iv)
ALL PUBLIC ROADS AND STREETS NECESSARY FOR SERVICE OF AND ACCESS TO THE PROJECT
FOR THE CURRENT OR CONTEMPLATED USE THEREOF HAVE BEEN COMPLETED, ARE SERVICEABLE
AND ALL-WEATHER AND ARE PHYSICALLY AND LEGALLY OPEN FOR USE BY THE PUBLIC. (v)
THE PROJECT IS SERVED BY PUBLIC WATER AND SEWER SYSTEMS. (vi) THE PROJECT IS
FREE FROM DAMAGE CAUSED BY FIRE OR OTHER CASUALTY. (vii) ALL COSTS AND EXPENSES
OF ANY AND ALL LABOR, MATERIALS, SUPPLIES AND EQUIPMENT USED IN THE CONSTRUCTION
OF THE PROJECT HAVE BEEN PAID IN FULL. (viii) ALL LIQUID AND SOLID WASTE
DISPOSAL, SEPTIC AND SEWER SYSTEMS LOCATED ON THE PROJECT ARE IN A GOOD AND SAFE
CONDITION AND REPAIR AND IN COMPLIANCE WITH ALL APPLICABLE LAWS.
(f) FINANCIAL CONDITION. IT (AND EACH ENTITY EXECUTING THIS LEASE
AS OR ON BEHALF OF IT) IS SOLVENT, AND NO BANKRUPTCY, REORGANIZATION, INSOLVENCY
OR SIMILAR PROCEEDING UNDER ANY FEDERAL OR STATE LAW WITH RESPECT TO IT (AND
EACH ENTITY EXECUTING THIS LEASE AS OR ON BEHALF OF IT) HAS BEEN INITIATED.
(g) TITLE. LANDLORD WARRANTS TO TENANT THAT LANDLORD HAS GOOD AND
MARKETABLE TITLE TO THE PROJECT AND HAS THE FULL POWER, AUTHORITY AND RIGHT TO
EXECUTE, DELIVER AND PERFORM ITS OBLIGATIONS UNDER THIS LEASE AND TO LEASE THE
PREMISES TO TENANT AND THAT LANDLORD OWNS THE PROJECT FREE AND CLEAR OF ALL
LIENS, ENCUMBRANCES AND CHARGES WHATSOEVER EXCEPT FOR CURRENT PROPERTY TAXES,
PROPERTY OWNER ASSOCIATION ASSESSMENTS, AND CHARGES FOR LABOR, MATERIALS AND
SERVICES BEING FURNISHED TO THE PROJECT BY LANDLORD'S VENDORS AND CONTRACTORS.
18
<PAGE> 22
In Witness Whereof, the parties have entered into this lease as of the day and
year first above written.
LANDLORD: TENANT:
MONAGHAN COMPANY, LLC ELECTRONICS ACCESSORY
an Arizona limited liability company SPECIALISTS INTERNATIONAL, INC.
a Delaware corporation
By /s/ J. MONAGHAN By /s/ MONTE HALL
--------------------------------- ---------------------------
Its Its Controller
--------------------------------- ---------------------------
COLONIAL TRUST COMPANY, an Arizona
corporation, as successor Trustee under the
Monaghan Irrevocable Children's Trust created
December 17, 1983.
By: /s/ A. ROLSON
-------------------------------
Its: VP
-------------------------------
19
<PAGE> 23
EXHIBIT A
THE PREMISES
[Floor Plan]
20
<PAGE> 24
EXHIBIT B
THE PROJECT
[Site Plan Map]
21
<PAGE> 25
EXHIBIT C
CONSTRUCTION PROVISIONS
1. Space Plan. Attached to this Lease as Exhibit C-1 is a preliminary
space plan prepared by Architecture Plus (Job No.________, dated
_______________) approved by Landlord and Tenant showing the size, nature and
location of the improvements to be constructed in the Premises (the
"Improvements"). Promptly following execution of this Lease, Tenant shall meet
with Landlord's architect and shall provide such information and make such
selections as may be necessary for the expeditious completion of the planning
process. Exhibit C-1 expresses all of the demolition, alterations, and
improvements to be performed by Landlord ("Landlord's Work").
2. Working Drawings. Landlord's Work shall not be commenced unless and
until working drawings prepared by Architecture Plus are completed and approved
in writing by Tenant.
3. Cooperation. During the entire course of the process described above,
both Landlord and Tenant shall review and respond to submissions by the other
party with reasonable dispatch. Tenant shall respond with its approval or
comments within three days after receipt of initial drawings, specifications, or
other materials requiring Tenant's review and within three days after receipt of
revised versions of such documents or materials. From time to time at the
request of either party Landlord and Tenant shall devise, and revise as
necessary, working schedules for construction of the Improvements. Tenant shall
not permit any supplier, installer, contractor, or other person employed by
Tenant to interfere in any way with the progress of the work. Access by Tenant's
suppliers, contractors and installers shall be subject to (i) scheduling by
Landlord upon at least ten days' prior notice by Tenant, and (ii) compliance
with all requirements imposed by Landlord with respect to insurance,
cooperation, permits, licenses, bonding, hours of work, safety and use of
flammable substances.
4. Cost. The working drawings shall be put out to bid to at least three
contractors of Landlord's choosing. Landlord shall inform Tenant of all bids and
shall choose the contractor for award of the job after consultation with Tenant.
To the extent the bid price, together with architectural fees, building permit
and plan check fees, and any related out of pocket costs to Landlord for the
Work exceeds $50,000, Tenant shall advance to Landlord payment of the excess, if
any, prior to commencement of the Work. In the event of change orders during the
completion of the Work, Tenant shall pay to Landlord the amount of additive
change orders above the $50,000 threshold, and Landlord shall refund to Tenant
from such advances the amount of any price reduction change orders.
5. Punchlist. Within ten days after substantial completion of Landlord's
Work, Tenant shall deliver to Landlord a written punchlist specifying all
defects in materials or workmanship in the Improvements. Any defects not
specified in the punchlist, except latent defects not readily discoverable by
inspection, are waived. Landlord shall promptly cause all matters appearing on
the punchlist to be corrected.
6. Delay. If completion of construction of Improvements within the
Premises is delayed by Tenant Delay, then the Commencement Date shall be deemed
to have occurred and rent shall begin to accrue as of the date when they would
have done so but for the Tenant Delay. "Tenant Delay" means delay as a result
of: (a) Tenant's failure to meet with the architect and to provide all required
information and make necessary selections for the expeditious development of
Plans; (b) Tenant's failure to provide comments on proposed Plans in a timely
manner; (c) Tenant's request for materials, finishes or installations requiring
more time to obtain, construct or install than Landlord's standard; or (d)
Tenant's change in any Plans after the revisions to the initial draft; or, (e)
performance or completion by a party employed by Tenant. Landlord shall not be
liable for any direct or consequential damages resulting from delayed delivery
of the Premises by reason of delayed construction or otherwise.
7. Existing Equipment and Devices. Landlord shall be responsible, at its
sole cost and expense, for repairing or replacing, as necessary, all connected
electrical devices, heating, ventilation and air conditioning devices, plumbing
fixtures, light fixtures, fire sprinklers and related life safety devices, and
electrical devices prior to the Commencement Date, and shall warrant such
devices for a period of 90 days following the Commencement Date. Landlord makes
no warranty as to the adequacy or suitability of such devices for Tenant's use
and occupancy; only that such devices shall be in good working order for the
period of the 90 day warranty. Landlord makes no warranty, and is under no
obligation to service any existing security alarm, telephone wiring or devices
beyond the US West IMPOP, or pneumatic systems.
22
<PAGE> 26
EXHIBIT D
RULES AND REGULATIONS
1. Tenant shall not obstruct any driveways, parking areas, or sidewalks.
2. Landlord shall not in any way be responsible to any Tenant for any loss
of property on the Premises, however occurring, or for any damage to any
Tenant's property.
3. Landlord will furnish Tenant free of charge with two keys to each door
in the Premises, AND SHALL HAVE RE-KEYED ALL EXTERIOR/ENTRY DOORS. LANDLORD MAY
MAKE A REASONABLE CHARGE FOR ANY ADDITIONAL KEYS OBTAINED THROUGH LANDLORD.
TENANT SHALL NOT ALTER ANY EXTERIOR LOCK OR INSTALL A NEW OR ADDITIONAL LOCK OR
BOLT ON ANY ENTRY DOOR OF ITS PREMISES WITHOUT PRIOR APPROVAL OF LANDLORD AND
WITHOUT PROVIDING LANDLORD AND THE FIRE DEPARTMENT WITH KEYS. Tenant, upon the
termination of its tenancy, shall deliver to Landlord the keys of all doors
which have been furnished to Tenant, and in the event of loss of any keys so
furnished, shall pay Landlord therefor.
4. Tenant shall not place a load upon any floor which exceeds the load per
square foot which such floor was designed to carry and which is allowed by law.
Landlord shall have the right to prescribe the weight, size and position to all
equipment, materials, furniture or other property brought into the Building.
Heavy objects shall, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant which cause noise or vibration that may be
transmitted to the structure of the Building or to any space in the Building to
such a degree as to be objectionable to Landlord or to any tenants shall be
placed and maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate excessive noise or vibration. The
persons employed to move such equipment in or out of the Building must be
acceptable to Landlord. Landlord will not be responsible for loss of, or damage
to, any such equipment or other property from any cause, and all damage done to
the Building by maintaining or moving such equipment or other property shall be
repaired at the expense of Tenant.
5. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
6. Tenant shall not interfere with radio or television broadcasting or
reception from or in the Building or elsewhere.
7. Except as approved by Landlord, Tenant shall not mark, drive nails,
screw or drill into the partitions, woodwork or plaster or in any way deface the
Premises. PLACEMENT OF NAILS AND PICTURE BOOKS FOR DISPLAY OF ARTWORK IS HEREBY
APPROVED. Tenant shall not cut or, bore holes for wires. Tenant shall not affix
any floor covering to the floor of the Premises in any manner except as approved
by Landlord. Tenant shall repair any damage resulting from noncompliance with
this rule.
8. No cooking shall be done or permitted by any Tenant on the Premises,
except by the Tenant of Underwriters' Laboratory approved microwave oven or
equipment for brewing coffee, tea, hot chocolate and similar beverages shall be
permitted provided that such equipment and use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations.
9. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building.
10. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
11. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation of
good order in and about the Building. Tenant agrees to abide by all such rules
and regulations in this Exhibit D stated and any additional rules and
regulations which are adopted.
12. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
23
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made and entered into to be
effective as of the 29th day of January, 1999 (the "Effective Date"), by and
between MOBILITY ELECTRONICS, INC., a Delaware corporation ("Tenant"), and
MONAGHAN COMPANY, L.L.C., an Arizona limited liability company and COLONIAL
TRUST COMPANY, an Arizona corporation, as successor trustee under the MONAGHAN
IRREVOCABLE CHILDREN'S TRUST created December 17, 1983 (collectively,
"Landlord").
RECITALS
A. Landlord and Tenant, as successor-in-interest to ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC., a Delaware corporation, have heretofore entered
that certain Industrial Modified Gross Lease dated December 20, 1996, and all
riders, addenda and exhibits attached thereto and made a part thereof, as
amended or modified by that certain First Addendum to Exhibit "C" dated December
20, 1996 (as amended, the "Original Lease"), pursuant to which Tenant leased
from Landlord certain premises described as "Unit A" (the "Premises"),
consisting of approximately 38,712 square feet of rentable area (more or less)
within the building having an address at 7955 East Redfield Road, Scottsdale,
Arizona (the "Building").
B. Tenant has requested and Landlord has agreed to amend the Original Lease
to, among other things, extend the Term of the Lease (as defined in Article 1.5
of the Original Lease), from January 31, 1999 (the "Original Expiration Date")
to January 31, 2002 (the "Extended Expiration Date"), if not sooner terminated
in accordance with the terms and conditions of the Original Lease, as amended or
modified by this Amendment (the "Lease"), all upon and subject to the terms and
conditions of the Lease.
NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
Landlord and Tenant do hereby amend the Original Lease and covenant and agree as
follows:
AGREEMENTS:
1. Incorporation of Recitals; Capitalized Terms. The Recitals set forth
above are deemed by the parties to be true and correct and are incorporated
herein by this reference and shall be binding upon Landlord and Tenant the same
as if set forth in full in this paragraph. Capitalized terms in this Amendment
shall have the same meanings given them in the Original Lease unless otherwise
expressly defined in this Amendment. In the event of any conflict between the
terms of the Original Lease and the terms of this Amendment, the terms of this
Amendment shall govern and control.
2. Extension of the Term. The Expiration Date of the Lease (as defined
in Article 1.5, of the Original Lease), is hereby extended from the Original
Expiration Date to the
<PAGE> 2
Extended Expiration Date (the "Extended Term"), such extension to be upon all of
the terms and conditions of the Lease.
3. Schedule of Annual Rent. Commencing as of the Effective Date, the
amount of the "Base Rent" (as set forth in Article 1.7 of the Original Lease)
shall be amended in accordance with the following schedule of Base Rent:
<TABLE>
<CAPTION>
MONTHLY GROSS MONTHLY BASE
RENT TERM RSF BASE RENT PSF RENT
--------- --- ------------- ------------
<S> <C> <C> <C>
Effective Date through the Original
Expiration Date 38,712 $.75 $29,034.00
February 1, 1999 through January 31, 2000 38,712 $.80 $30,969.60
February 1, 2000 through January 31, 2001 38,712 $.85 $32,905.20
February 1, 2001 through the Extended
Expiration Date 38,712 $.90 $34,840.80
</TABLE>
The Rent payable by Tenant as set forth in this paragraph shall govern and
control any conflicting terms of the Lease.
4. Condition of Premises. Tenant agrees that the tenant improvement
work, if any, to be done to the Premises under the Lease has been completed and
that Landlord has no further obligation or duty therefor. Tenant hereby
acknowledges and warrants to Landlord that it has had the opportunity to inspect
and familiarize itself with the Premises and has done so and accepts the same in
its current "AS IS, WHERE IS" condition, with all faults. This in no way alters
the Landlord's responsibilities under Section 11.2 of the Original Lease.
5. Security Deposit. Tenant agrees that it shall increase its Security
Deposit with Landlord (as set forth in Article 1.4 of the Original Lease) in
accordance with the following schedule, to be held and applied pursuant to the
terms of the Lease:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
SECURITY DEPOSIT INCREASE SECURITY DEPOSIT
DATE INCREASE AMOUNT TOTAL SECURITY DEPOSIT
------------------------- ---------------- ----------------------
<S> <C> <C>
February 1, 1999 $1,571.60 $30,969.60
February 1, 2000 $1,935.60 $32,905.20
February 1, 2001 $1,935.60 $34,840.80
</TABLE>
6. Option to Extend. Article 2.5 and Article 5.2 of the Original Lease
are hereby deleted, terminated and of no further force or effect and Tenant
shall have no other right or option to extend the Term of the Lease beyond the
Extended Expiration Date.
7. Option to Expand. Article 26 of the Original Lease is hereby
deleted, terminated and of no further force or effect and Tenant shall have no
other right or option to increase the square footage of the Premises under the
Lease.
8. Right or First Refusal. Article 27 of the Original Lease is hereby
deleted, terminated and of no further force or effect and Tenant shall have no
other right or option of first refusal in connection with any space in the
Building.
9. Brokers. Tenant hereby represents and warrants to Landlord that it
has not dealt with any realtor, broker or agent in connection with this
Amendment. Tenant shall indemnify, protect, defend and hold Landlord harmless
for, from and against any cost, expense, asserted claims, claims, damages,
liabilities, actions or causes of action arising out of or relating to any claim
of brokerage commission or finders fee in which any broker, agent or finder
alleges to have represented Tenant in connection with this Amendment.
10. Notice. Current addresses for the giving of Notice under the Lease
are as follows:
<TABLE>
<S> <C>
TENANT: Mobility Electronics, Inc.
7955 East Redfield Road
Scottsdale, Arizona 85260
Attention: Rick Winterich, CFO
LANDLORD: with a copy to:
Monaghan Company, L.L.C. Fennemore Craig
5035 Cottontail Run East 3003 North Central Avenue, Suite 2600
Paradise Valley, Arizona 85253 Phoenix, Arizona 85012-2913
Attn: Michael Monaghan Attn: Charles M. King, Esq.
</TABLE>
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<PAGE> 4
11. Validity and Enforcement. Tenant hereby confirms that there are no
defaults under the Original Lease by Landlord and that Landlord is in full
compliance and has complied with all obligations and performances to be
performed or paid on its part. Tenant represents and warrants that the execution
and delivery of this Amendment by Tenant and Tenant's performance under the
Lease: (i) are within Tenant's power; (ii) have been authorized by all requisite
partnership or corporate action of Tenant; (iii) have received all necessary
approvals and consents of Tenant; and (iv) will not violate, conflict with,
result in a breach of or constitute (with notice or lapse of time, or both) a
default under any provision of law, any order or judgment of any court or
governmental authority, the articles of incorporation, by-laws, operating
agreement or other governing instrument of Tenant.
12. Severability. The provisions of this Amendment are severable. As
such, the invalidity, in whole or in part, of any provision of this Amendment
shall not affect the validity or enforceability of any other provision of this
Amendment. If any clause or provision of this Amendment is determined to be
illegal, invalid or unenforceable under any present or future law by the final
judgment of a Court of competent jurisdiction, such clause or provision shall be
ineffective, but the remaining provisions of the Amendment will not be affected
and shall be construed in the broadest manner to effectuate the purposes of this
Amendment. Further, the parties agree to replace any void or unenforceable
provision of this Amendment with a valid and enforceable provision which will
achieve, to the extent possible, the economic, business and other purposes of
the void or unenforceable provision.
13. Full Force and Effect. The Lease shall remain in full force and
effect in accordance with its terms and provisions, except as expressly amended
by the terms of this Amendment and except to the extent that the terms of the
Lease, by their very nature as reasonably determined by Landlord, would not
apply in light of this Amendment.
14. Miscellaneous. This Amendment shall be governed by Arizona law and
inures to the benefit of Landlord and its successors and assigns and shall bind
Tenant and its successors and assigns. This Amendment may be executed by the
parties in one or more counterparts. All counterparts shall be valid and binding
on the party or parties executing them and all counterparts together shall
constitute one and the same document for all purposes.
IN WITNESS WHEREOF, the parties have executed this Amendment to be
effective as of the date first set forth above.
LANDLORD: TENANT:
MONAGHAN COMPANY, L.L.C., an MOBILITY ELECTRONICS, INC., a
Arizona limited liability company Delaware corporation
By: /s/ JAMES G. MONAGHAN By: /s/ RICHARD WINTERICH
----------------------------------- --------------------------------
Name: James G. Monaghan Name: Richard Winterich
--------------------------------- -------------------------------
Its: Managing Member Its: CFO
---------------------------------- --------------------------------
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<PAGE> 5
COLONIAL TRUST COMPANY, an
Arizona corporation, as successor Trustee
under the MONAGHAN IRREVOCABLE
CHILDREN'S TRUST created December 7,
1983
By: /s/ CHRISTOPHER J. OLSON
---------------------------------
Name: Christopher J. Olson
-------------------------------
Its: Vice President
--------------------------------
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<PAGE> 1
EXHIBIT 10.3
STANDARD INDUSTRIAL LEASE--MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. PARTIES. This lease, dated, for reference purposes only, May 1, 1998, is
made by and between AIRPARK HOLDINGS I, L.L.C. (herein called "Lessor") and
E.A.S.I. (herein called "Lessee").
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
real property situated in the County of Maricopa, State of Arizona, commonly
known as 15690 N. 83rd Way, Scottsdale, AZ 85260 and described as approximately
20,000 sq. ft. of warehouse space herein referred to as the "Premises," as may
be outlined on an Exhibit attached hereto, including rights to the Common Areas
as hereinafter specified but not including any rights to the roof of the
Premises or to any Building in the Industrial Center. The Premises are a portion
of a building, herein referred to as the "Building." The Premises, the Building,
the Common Areas, the land upon which the same are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center."
2.2 VEHICLE PARKING. Lessee shall be entitled to common vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles."
2.2.1 Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS -- DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.
2.4 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall be right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations with respect thereto. Lessee
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said rules and regulations by other lessees of the Industrial Center.
2.6 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways; (b) To close temporarily any of the
Common Areas for maintenance purposes, so long as reasonable access to the
Premises remains available; (c) To designate other land outside the boundaries
of the Industrial Center to be a part of the Common Areas; (d) To add additional
buildings and improvements to the Common Areas; (e) To use the Common Areas
while engaged in making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof; (f) To do and perform such other acts
and make such other changes in, to, or with respect to the Common Areas and
Industrial Center as Lessor may, in the exercise of sound business judgment,
deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities required
by applicable law and in no event shall the number of parking spaces that Lessee
is entitled to under paragraph 2.2 be reduced.
3. TERM.
3.1 TERM. The term of this Lease shall be for month-to-month commencing on
May 1, 1998 and ending with on prior 30 day written notice from Lessee or
Lessor, unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease,
except as may be otherwise provided in this Lease, until possession of the
Premises is tendered to Lessee; provided, however, that if Lessor shall not have
delivered possession of the Premises within sixty (60) days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly provided
in this Lease, on the 1st day of each month of the term hereof, monthly payments
in advance of $6,800.00 plus applicable rental tax. Lessee shall pay Lessor upon
execution hereof $6,929.20 as Base Rent for May 1998. Rent for any period during
the term hereof which is for less than one month shall be a pro rata portion of
the Base Rent. Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.
<PAGE> 2
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$-0- as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required of Lessee. If the monthly
rent shall, from time to time, increase during the term of this Lease, Lessee
shall, at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by Lessor
shall at all times bear the same proportion to the then current Base Rent as the
initial security deposit bears to the initial Base Rent set forth in paragraph
4. Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Lessor, shall
be returned, without payment of interest or other increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for storage only or
any other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was an owner or occupant of the Premises and, in such event, Lessor shall
correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises
and of the Common Areas. Lessee shall not use nor permit the use of the Premises
or the Common Areas in any manner that will tend to create waste or a nuisance
or shall tend to disturb other occupants of the Industrial Center.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in possession)
and Lessor warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage. Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs. Lessee expressly waives
the benefits of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Premises in good order, condition
and repair. Lessor shall not be liable for damages or loss of any kind or nature
by reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of Lessor.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a ventilating and air conditioning system maintenance contract),
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surfaces of exterior walls, ceilings, windows,
doors, plate glass, and skylights located within the Premises. Lessor reserves
the right to procure and maintain the ventilating and air conditioning system
maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days' prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing of the Premises in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, or the Industrial Center, except for nonstructural alterations to
the Premises not exceeding $2,500 in cumulative costs, during the term of this
Lease. In any event, whether or not in excess of $2,500 in cumulative cost,
Lessee shall make no change or alteration to the exterior of the Premises nor
the exterior of the Building nor the Industrial Center without Lessor's prior
written consent. As used in this paragraph 7.3 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Lessor may require that Lessee remove any or all of said
alterations, improvements, additions or Utility Installations at the
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<PAGE> 3
expiration of the term, and restore the Premises and the Industrial Center to
their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Industrial Center that Lessee shall desire to
make and which requires the consent of the Lessor shall be presented to Lessor
in written form, with proposed detailed plans. If Lessor shall give its consent,
the consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Industrial Center, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises and the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs
and participating in such action if Lessor shall decide it is to Lessor's best
interest to do so.
(d) All alterations, improvements additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall be the property of Lessor and shall
remain upon and be surrendered with the Premises at the expiration of the Lease
term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, and other than Utility
Installations, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of paragraph 7.2.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and the Industrial Center. Such Insurance shall be in an amount not
less than $500,000.00 per occurrence. The policy shall insure performance by
Lessee of the indemnity provisions of this paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, Insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $500,000.00 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Industrial Center Improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), special extended perils
("all risk," as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the Industrial
Center, or by the nature of such other lessee's occupancy which create an
extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
(c) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, Lessee's Share (as defined in paragraph 4.2(a)) of the amount of any
increase in premiums for the insurance required under paragraphs 8.2 and 8.3
over and above such premiums paid during the Base Period, as hereinafter
defined, whether such premium increase shall be the result of the nature of
Lessee's occupancy, any act or omission of Lessee, requirements of the holder of
a mortgage or deed of trust covering the Premises, increased valuation of the
Premises, or general rate increases. In the event that the Premises have been
occupied previously, the words "Base Period" shall mean the last twelve months
of the prior occupancy. In the event that the Premises have never been occupied
previously, the premiums during the "Base Period" shall be deemed to be the
lowest premiums reasonably obtainable for said insurance assuming the most
nominal use of the Premises. Provided, however, in lieu of the Base Period, the
parties may insert a dollar amount at the end of this sentence which figure
shall be considered as the insurance premium for the Base Period: $__________.
In no event, however, shall Lessee be responsible for any portion of the premium
cost attributable to liability insurance coverage in excess of $500,000.00
procured under paragraph 8.2.
(d) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises. Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
amount was computed. If the term of this Lease shall not expire concurrently
with the expiration of the period covered by such insurance. Lessee's liability
for premium increases shall be prorated on an annual basis.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance
policies required under paragraph 8.1 or certificates evidencing the existence
and amounts of such insurance within seven (7) days after the commencement date
of this Lease. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the negligence
of Lessor or Lessee or their agents, employees, contractors and/or invitees.
Lessee and Lessor shall, upon obtaining the policies of insurance required
hereunder, give notice to the insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any act or omission of Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon, and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property of Lessee or injury to persons, in, upon or about the Industrial Center
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or from damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Industrial Center, nor from
the failure of Lessor to enforce the provisions of any other lease of the
Industrial Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are damaged or
destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.
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(b) "Premises Total Destruction" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is fifty percent or more of
the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent or more of the then replacement cost of the
Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Partial Damage
or Premises Building Partial Damage, then Lessor shall, at Lessor's expense,
repair such damage to the Premises, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, and which falls into the classifications of either (i) Premises Total
Destruction, or (ii) Premises Building Total Destruction, or (iii) Industrial
Center Buildings Total Destruction, then Lessor may at Lessor's option either
(i) repair such damage or destruction, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible at Lessor's expense, and
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of occurrence of such damage of
Lessor's intention to cancel and terminate this Lease, in which case this Lease
shall be cancelled and terminated as of the date of the occurrence of such
damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage, whether or not an
Insured Loss, which falls within the classification of Premises Partial Damage,
Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Partial Damage,
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or
provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises pursuant to
the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence such repair or
restoration within ninety (90) days after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Industrial Center, provided,
however, that Lessee shall pay, in addition to rent, Lessee's Share (as defined
in paragraph 4.2(a)) of the amount, if any, by which real property taxes
applicable to the Premises increase over the fiscal real estate tax year
19___-19___. Such payment shall be made by Lessee within thirty (30) days after
receipt of Lessor's written statement setting forth the amount of such increase
and the computation thereof. If the term of this Lease shall not expire
concurrently with the expiration of the tax fiscal year, Lessee's liability for
increased taxes for the last partial lease year shall be prorated on an annual
basis.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proposition to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
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12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no
assignment shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating
Expenses, and to perform all other obligations to be performed by Lessee
hereunder. Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of rent shall constitute a
waiver or estoppel or Lessor's right to exercise its remedies for the breach of
any of the terms or conditions of this paragraph 12 or this Lease. Consent to
one assignment shall not be deemed consent to any subsequent assignment. In the
event of default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases.
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.00 for each such request.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by Lessee
to observe or perform any of the covenants, conditions or provisions of this
Lease to be observed or performed by Lessee, other than described in paragraph
(b) above, where such failure shall continue for a period of thirty (30) days
after written notice thereof from Lessor to Lessee; provided, however, that if
the nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.
13.2 REMEDIES. In the event of any such material default by Lessee, Lessor
may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
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(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue and other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required by Lessor within a reasonable time, but in no
event late than thirty (30) days after written notice by Lessee to Lessor and to
the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that the late payment by
Lessee to Lessor Base Rent, Lessee's Share of Operating Expenses or other sums
due hereunder will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Industrial Center. Accordingly, if any installment of Base
Rent, Operating Expenses, or any other sum due from Lessee shall not be received
by Lessor or Lessor's designee within ten (10) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a late charge equal to 6% of such overdue amount. The parties hereby
agree that such late charge shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
________________________________________________________________________________
________________________________________________ Licensed real estate broker(s),
a fee as set forth in a separate agreement between Lessor and said broker(s), or
in the event there is no separate agreement between Lessor and said broker(s),
the sum of $____ , for brokerage services rendered by said broker(s) to Lessor
in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option, as defined
in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or
any subsequently granted option which is substantially similar to an Option
granted to Lessee under this Lease, or if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying 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) and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge, any uncured defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises or of the business of the requesting party.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, reliance, or sell the Industrial Center,
or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or interest
Lessor herein named (and in case of any subsequent transfers then the grantor)
shall be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease; provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Industrial Center and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
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<PAGE> 7
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach of Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pa the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
affect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extension thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provision of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are denied prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
allotment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Industrial Center as Lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises or the Building any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities of
Lessor pursuant to this paragraph shall be without abatement of rent, nor shall
Lessor have any liability to Lessee for the same.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary to this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The Individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Industrial Center.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor; (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessor in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from the
this Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a [illegible] option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the date after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give
notice of such default to Lessee), or (iv) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(b) or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option.
(b) The period time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of default and/or Lessee
fails thereafter to diligently prosecute said cure to completion, or (iii)
Lessee commits a default described in paragraphs 13.1(a), 13.1(d) or 13.(e)
(without any necessity of Lessor to give notice of such default to Lessee), or
(iv) Lessor gives to Lessee three or more notices of default under paragraph
13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
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<PAGE> 8
41. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment, under protest, and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessee only when fully executed by Lessor and Lessee.
46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
47 through _______ which constitute a part of this Lease.
47. Lessee understands that Lessor has leased 12,000 square feet of adjacent
space and will be constructing improvements, including a demising wall, within
the building. Lessee hereby agrees to hold Lessor or its agents harmless from
any liability whatsoever from damaged or stolen materials or merchandise which
may arise during the construction period.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
/s/ AIRPARK HOLDINGS I, L.L.C. /s/ E.A.S.I.
- ------------------------------------- ----------------------------------
By: /s/ John Wright By: /s/ Jeffrey S. Doss
----------------------------------- ----------------------------------
By: Managing Member By: Exec VP Jeffrey S. Doss
----------------------------------- ----------------------------------
Executed on Executed on 5/1/98
--------------------------- --------------------------
(Corporate Seal) (Corporate seal)
ADDRESS FOR NOTICES AND RENT: ADDRESS:
- -------------------------------------- ------------------------------------
- -------------------------------------- ------------------------------------
NOTE:These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So.
Figueroa St., M-1, Los Angeles, CA 90071. (213) 687-8777.
<PAGE> 9
TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES
HAZARDOUS SUBSTANCES. The term "Hazardous Substances", as used in this Lease,
shall include, without limitation, flammables, explosives, radioactive
materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes,
toxic substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental authority.
TENANT'S (LESSEE'S) RESTRICTIONS. Lessee shall not cause or permit to occur:
1.) Any violation of any federal, state or local law, ordinance,
or regulation now or hereafter enacted, related to
environmental conditions on, under or about the Premises, or
arising from Lessee's use or occupancy of the Premises,
including but not limited to, soil and ground water
conditions; or
2.) The use, generation, release, manufacture, refining,
production, processing, storage or disposal of any Hazardous
Substance on, under or about the Premises, or the
transportation to or from the Premises of any Hazardous
Substance, except as specifically disclosed to this Lease.
ENVIRONMENTAL CLEAN-UP.
1.) Lessee shall, at Lessee's own expense, comply with all laws
regulation the use, generation, storage, transportation, or
disposal of Hazardous Substances ("Laws").
2.) Lessee shall, at Lessee's own expense, make all submissions
to, provide all information required by, and comply with all
requirements of all governmental authorities (the
"Authorities") under the Laws.
3.) Should any Authority or any third party demand that a clean-up
plan be prepared and that a clean-up be undertaken because of
any deposit, spill, discharge or other release of Hazardous
Substances that occurs during the term of this Lease, at or
from the Premises, or which arises at any time from Lessee's
use or occupancy of the Premises, then Lessee shall, at
Lessee's own expense, prepare and submit the required plans
and all related bonds and other financial assurances; and
Lessee shall carry out all such clean-up plans.
4.) Lessee shall promptly provide all information regarding the
use, generation, storage, transportation, or disposal of
Hazardous Substances that is requested by Owner. If Lessee
fails to fulfill any duty imposed under this Paragraph
(Environmental Clean-up) within a reasonable time, Lessor
(Owner) may do so; and in such case, Lessee shall cooperate
with Lessor (Owner) in order to prepare all documents Lessor
(Owner) deems necessary or appropriate to determine the
applicability of the Laws to the Premises and Lessee's use
thereof.
5.) Lessee's obligations and liabilities under this Paragraph
(Environmental Clean-up) shall survive the expiration of this
Lease. LESSEE'S INDEMNITY.
1.) Lessee shall indemnify, defend and hold harmless Lessor
(Owner), the manager of the property, and their respective
officers, directors, beneficiaries, shareholders, partners,
agents and employees from all fines, suits, procedures,
claims, and actions of every kind, and all costs associated
therewith (including attorneys' and consultants' fees) arising
out of or in any way connected with any deposit, spill,
discharge or other release of Hazardous Substances that occurs
during the term of this Lease, at or from the Premises, or
from Lessee's failure to provide all information, make all
submissions, and take all steps required by all Authorities
under the Laws and all other environmental laws. 2.) Lessee's
obligations and liabilities under this Paragraph (Lessee's
Indemnity) shall survive the expiration of this Lease.
Lessor represents, that to the best of Lessor's knowledge, the Premises are free
form all contamination by Hazardous Substances. Lessor's representations and
warranties under this paragraph shall survive the termination of this lease.
LESSOR: /s/ John Wright LESSOR: /s/ Jeffrey S. Doss
----------------------------- ---------------------
DATE: 5/1/98 DATE: 5/1/98
----------------------------- -----------------
<PAGE> 1
EXHIBIT 10.4
ASSET PURCHASE AGREEMENT AND
PLAN OF REORGANIZATION
This Asset Purchase Agreement and Plan of Reorganization, dated as of
July 29, 1997, is by and among Miram International, Inc., a Minnesota
corporation ("Seller"), John Moroz ("Moroz"), Mykola Moroz ("Mike Moroz") (Moroz
and Mike Moroz are each sometimes referred to herein as a "Shareholder" and
collectively as the "Shareholders") and Electronics Accessory Specialists
International, Inc., a Delaware corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Seller desires to sell, and Purchaser desires to purchase,
certain assets of Seller;
WHEREAS, Seller wishes to transfer its business and substantially all
of its assets to Purchaser solely in exchange for voting shares of Purchaser and
the assumption by Purchaser of certain liabilities of Seller in a transaction
intended to qualify as a reorganization within the remaining of Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended, it being
contemplated by Seller and Purchaser that Seller will thereafter, as an integral
part of the transaction, distribute the shares of Purchaser acquired hereunder
to Seller's shareholder in complete liquidation and dissolution of Seller, and
Seller and Purchaser desire that this Agreement be a "plan of reorganization" to
effectuate the intent of the parties hereto; and
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Assets" shall mean all the Technology and all of the
business, properties and assets (real and personal, tangible and
intangible) of every kind and wherever situated that are owned by
Seller, or in which Seller has any right or interest (including but not
limited to the Technology and the assets and properties set forth in
Exhibit 1.1(a) attached hereto and all contract rights, customer lists,
files, copyrights, marketing materials, patents, patents pending,
software and related documentation, know-how, designs, programs,
prototypes, trademark and tradename rights, and any other intellectual
property), but excluding the following: (i) the name "Miram
International, Inc." and all derivatives thereof, (ii) all tradenames
and trademarks held by Seller using the name "Miram"; and (iii) all
corporate
<PAGE> 2
organizational and capitalization books and records of Seller
(including, without limitation, minute books) (the "Excluded Assets").
(b) "Assumed Liabilities" shall mean those fixed and
determinable liabilities of Seller listed in Exhibit 1.1(b). Except for
the Assumed Liabilities, Purchaser shall not assume or agree to pay,
perform or discharge any liabilities or obligations of Seller, whether
accrued, absolute, contingent or otherwise.
(c) "Closing" shall mean the closing of the transactions
contemplated by this Agreement, which shall occur at 10:00 a.m., local
time, on the Closing Date in the offices of Purchaser in Scottsdale,
Arizona.
(d) "Closing Date" shall mean the date first above written.
(e) "Technology" shall mean that technology set forth on
Exhibit 1.1(d).
ARTICLE II
PURCHASE AND SALE
SECTION 2.1. PURCHASE AND SALE OF ASSETS. Subject to and upon the terms
and conditions contained herein, at the Closing, Seller hereby sells, transfers,
assigns, conveys and delivers to Purchaser, free and clear of all security
interests, liens, claims and encumbrances, and Purchaser hereby purchases,
accepts and acquires from Seller, the Assets, but not the Excluded Assets.
SECTION 2.2. PURCHASE PRICE.
(a) Closing Purchase Price. The consideration for the Assets
(the "Purchase Price"), which shall be payable to Seller, shall consist
of (i) 2,500 shares (the "Closing Shares") of the common stock, par
value $0.01 per share, of Purchaser (the "Common Stock"), and (ii) the
assumption by Purchaser of the Assumed Liabilities.
(b) Contingent Purchase Price.
(i) In addition to the Purchase Price, Purchaser will pay
additional consideration, if any, as provided in this Section
2.2(b). In the event Sales by Purchaser are: (i) equal to or
greater than $5,000,000 but less than $10,000,000 in calendar
year 1998 or 1999, then Seller shall receive 750 shares of
Common Stock (subject to appropriate adjustment for stock
splits, stock dividends or similar corporate events); or (ii)
equal to or greater than $10,000,000 in calendar year 1998 or
1999, then Seller shall receive 1,500 shares of Common Stock
(subject to appropriate adjustment for stock splits, stock
dividends or similar corporate events).
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"Sales" shall mean sales (net of returns and allowances) of
Technology Products, with such sales to be determined using
generally accepted accounting principles consistently applied.
"Technology Products" shall mean any product which includes or
incorporates any Technology. The maximum number of shares of
Common Stock issuable under this Section 2.2(b) is 1,500
(subject to appropriate adjustment for stock splits, stock
dividends or similar corporate events).
(ii) As soon as practicable after January 31, 1999 and
January 31, 2000, but not later in each instance than March
31, 1999 and March 31, 2000, Purchaser will deliver to Seller
a certificate, certified by Purchaser's independent
accountants, setting forth the Sales for 1998 and 1999 (the
"Sales Certificate").
(iii) Within thirty days after receipt of the Sales
Certificate, Seller shall notify Purchaser if it disagrees
with the calculation of Sales. If such notice is not given (or
at such time as Seller provides written notice to Purchaser
that it has no objection to such calculation), the Sales
Certificate provided by Purchase will be final and binding for
all purposes. If the parties are unable to resolve their
differences within 60 days of the receipt by Seller of the
Sales Certificate, Seller and Purchaser agree to retain the
accounting firm of KPMG Peat Marwick LLP to arbitrate the
dispute and render a decision within 30 days of such
retention, which decision shall be final and binding for all
purposes. Seller and Purchaser shall each pay one-half of the
costs of services rendered by such accounting firm.
(iv) Within ten days after the earlier of (A) the receipt
by Purchaser of written notice from Seller that it has no
objection to the calculation of the Sales pursuant to
Subsection 2(b)(ii) hereof, (B) the expiration of the 30-day
period for giving notice of disagreement with such
calculation, if no such notice is given, or (c) the resolution
of any dispute pursuant to Section 2.2(b)(iii), Purchaser will
deliver to Seller (or its shareholders upon a liquidation of
Seller) properly prepared certificates for the shares of
Common Stock deliverable under this Subsection 2.2(b). All
shares of Common Stock to be received by Seller (or its
shareholders upon a liquidation of Seller) under this Section
2.2 are referred to as the "Shares."
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
Seller and Shareholders, jointly and severally, represent and warrant
that the following are true and correct as of the date hereof:
SECTION 3.1. ORGANIZATION AND GOOD STANDING; QUALIFICATION. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, with all requisite corporate power and authority
to carry on the business in which it is engaged, to own the properties it owns,
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
SECTION 3.2. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Seller of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by Seller. This Agreement and each other
agreement contemplated hereby have been duly executed and delivered by Seller
and the Shareholders and constitute legal, valid and binding obligations of
Seller and the Shareholders, enforceable against Seller and the Shareholders in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
SECTION 3.3. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (i)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation or
Bylaws of Seller or any agreement, indenture or other instrument under which
Seller or any Shareholder is bound or to which any of the Assets are subject, or
result in the creation or imposition of any security interest, lien, charge or
encumbrance upon any of the Assets or (ii) violate or conflict with any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over Seller, the
Assets or any Shareholder.
SECTION 3.4. CONSENTS. Except as set forth in Schedule 3.4, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, any lender or lessor or any other person or entity
is required to authorize, or is required in connection with, the execution,
delivery and performance of this Agreement or the agreements contemplated hereby
on the part of Seller or the Shareholders.
SECTION 3.5. FINANCIAL STATEMENTS. Seller has furnished to Purchaser
Seller's unaudited balance sheet and related unaudited statements of income for
the twelve-month period ended December 31, 1996, including the notes thereto, as
well as unaudited balance sheets and related unaudited statements of income for
the five-month period ended May 31, 1997 (collectively, the "Seller Financial
Statements"). The Seller Financial Statements are true, correct and complete in
all material respects, are in accordance with the books and records of Seller,
fairly present the
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financial condition and results of operations of Seller as of the dates and for
the periods indicated and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis with prior periods.
SECTION 3.6. LIABILITIES AND OBLIGATIONS. Except as set forth in
Schedule 3.6(a), the Financial Statements reflect all liabilities of Seller,
accrued, contingent or otherwise (known or unknown and asserted or unasserted),
arising out of transactions effected or events occurring on or prior to the date
hereof. Except as set forth in the Seller Financial Statements, Seller is not
liable upon or with respect to, or obligated in any other way to provide funds
in respect of or to guarantee or assume in any manner, any debt, royalty or
other obligation or dividend of any person, corporation, association,
partnership, joint venture, trust or other entity, and Seller knows of no basis
for the assertion of any other claims or liabilities of any nature or in any
amount. Since April 1, 1997, Seller has not paid any dividends, or made any
distribution to, or in any way compensated or paid renumeration to, any
shareholder or any of their respective affiliates, except as provided in
Schedule 3.6(b). Except for the Note (as defined in Section 7.6 below), Seller
owes no money to any Shareholder, or is liable to any Shareholder for any
compensation, renumeration or reimbursement.
SECTION 3.7. EMPLOYEE, INDEPENDENT CONTRACTOR AND SERVICE MATTERS.
(a) CASH COMPENSATION. Schedule 3.7(a) contains a complete and accurate
list of the names, titles and cash compensation, including without limitation
wages, salaries, bonuses (discretionary and formula) and other cash compensation
(the "Cash Compensation") of all employees of Seller and independent contractors
that currently provide services for Seller. In addition, Schedule 3.7(a)
contains a complete and accurate description of (i) all increases in Cash
Compensation of employees of Seller during the current and immediately preceding
fiscal year of Seller and (ii) any promised increases in Cash Compensation of
employees of Seller that have not yet been effected.
(b) IO ENGINEERING. Schedule 3.7(b) contains a complete and accurate
list of all contracts, arrangements and agreements between the Seller and IO
Engineering, Gary A. Altenburg or James Ternus.
SECTION 3.8. EMPLOYEE BENEFIT PLANS. The Seller has no employee benefit
plans (within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended sponsored by Seller or to which Seller
contributes on behalf of its employees.
SECTION 3.9. TITLE; LEASED ASSETS.
(a) REAL AND PERSONAL PROPERTY. Seller owns no real property. A
description of all material tangible and intangible personal property owned by
Seller (collectively, the "Personal Property") is set forth in Schedule 3.9(a).
Seller has good, valid and marketable title to all the Personal Property. The
Personal Property, the leased personal property referred to in Section 3.9(b)
and the Excluded Assets constitute the only personal property used in the
conduct of Seller's
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business. Seller is the lawful owner of the Personal Property and, upon
consummation of the transactions contemplated hereby, Purchaser shall receive
good, valid and marketable title to the Personal Property (which is not leased)
free and clear of all security interests, liens, claims and encumbrances,
mortgages, pledges, restrictions, prior assignments and any other similar
claims.
(b) LEASES. A list and brief description of all leases of real and
personal property to which Seller is a party, either as lessor or lessee, are
set forth in Schedule 3.9(b). All such leases are valid and enforceable in
accordance with their respective terms except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
(c) RIGHT TO USE ASSETS. All tangible assets used in the conduct of
Seller's business are reflected in the Financial Statements in a manner that is
in conformity with generally accepted accounting principles applied on a
consistent basis with prior periods. Seller owns, leases or otherwise possesses
a transferable right to use all assets used in the conduct of its business and
will transfer (subject to the receipt of any requisite consents or approvals)
all of such rights to Purchaser at Closing.
SECTION 3.10. COMMITMENTS. Except as set forth in Schedule 3.10, Seller
has not entered into, nor are the Assets or the business of Seller bound by,
whether or not in writing, any agreement or contract, including, but not limited
to agreements or contracts for advertising, marketing or royalties
(collectively, the "Commitments"). True, correct and complete copies of the
written Commitments, and true, correct and complete written descriptions of the
oral Commitments, have heretofore been delivered or made available to Purchaser.
There are no existing defaults, events of default or events, occurrences, acts
or omissions that, with the giving of notice or lapse of time or both, would
constitute defaults by Seller, and no penalties have been incurred nor are
amendments pending, with respect to the Commitments, except as described in
Schedule 3.10. The Commitments are in full force and effect and are valid and
enforceable obligations of the parties thereto in accordance with their
respective terms, and no defenses, off-sets or counterclaims have been asserted
or, to the best knowledge of Seller, may be made by any party thereto, nor has
Seller waived any rights thereunder, except as described in Schedule 3.10.
Seller has not received notice of any default with respect to any Commitment.
Seller has not received notice of any plan or intention of any other party to
any Commitment to exercise any right to cancel or terminate any Commitment or
agreement, and Seller knows of no fact that would justify the exercise of such a
right.
SECTION 3.11. PATENTS, TRADE-MARKS, SERVICE MARKS, COPYRIGHTS AND
TECHNOLOGY.
(a) OWNERSHIP. Seller owns or possesses the right to use, all
Technology, patents, trade-marks, service marks and copyrights, if any,
necessary to conduct its business, or possesses adequate licenses or other
rights, if any, therefor, without conflict with the rights of others. Set forth
in Schedule 3.11 is a true and correct description of all (i) Technology,
trade-marks, trade-names, service marks and other trade designations, including
common law rights, registrations and applications therefor, and all patents,
copyrights and applications currently owned, pending, or
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applied for, in whole or in part, by Seller with respect to the Assets and
Seller's business or Technology, and all licenses, royalties, assignments and
other similar agreements relating to the foregoing to which Seller is a party
(including expiration date if applicable); and (ii) all agreements relating to
Technology, know-how or processes that Seller is licensed or authorized to use
by others, or which it licenses or authorizes others to use ("Proprietary
Rights").
(b) CONFLICTING RIGHTS OF THIRD PARTIES. To the best of Seller's
knowledge after due inquiry, Seller has the sole and exclusive right to use the
Proprietary Rights without infringing or violating the rights of any third
parties. No consent of third parties will be required for the transfer thereof
to Purchaser or the use thereof by Purchaser upon consummation of the
transactions contemplated hereby and the Proprietary Rights are freely
transferable. No claim has been asserted by any person to the ownership of or
right to use any Proprietary Right or challenging or questioning the validity or
effectiveness of any license or agreement constituting a part of any Proprietary
Right, and Seller knows of no valid basis for any such claim. Each of the
Proprietary Rights is valid and subsisting, has not been canceled, abandoned or
otherwise terminated and, if applicable, has been duly issued or filed.
(c) CLAIMS OF OTHER PERSONS. Seller has no knowledge of any claim that,
or inquiry as to whether, any product, activity or operation of Seller, use of
Proprietary Rights of Seller or the use of the Technology infringes upon or
involves, or has resulted in the infringement of, any proprietary right of any
other person, corporation or other entity; and no proceedings have been
instituted, are pending or, to Seller's knowledge, are threatened that challenge
the rights of Seller with respect thereto. Seller has not given and is not bound
by any agreement of indemnification for any Proprietary Right as to the
Technology or any property manufactured, used or sold by Seller.
SECTION 3.12. TRADE SECRETS AND CUSTOMER LISTS. To the best of Seller's
knowledge after due inquiry, Seller has the right to use, free and clear of any
claims or rights of others all trade secrets, customer lists and proprietary
information required for the marketing of all merchandise and services formerly
or presently sold or marketed by Seller. To the best of Seller's knowledge after
due inquiry, Seller is not using or in any way making use of any confidential
information or trade secrets of any third party, including without limitation
any past or present employee of Seller.
SECTION 3.13. COMPLIANCE WITH LAWS. Seller has complied with all laws,
regulations and licensing requirements and has filed with the proper authorities
all necessary statements and reports. There are no existing violations by Seller
of any federal, state or local law or regulation that would affect the property
or business of Seller. Seller possesses all necessary licenses, franchises,
permits and governmental authorizations to conduct its business as now
conducted, all of which are listed in Schedule 3.13.
SECTION 3.14. FINDER'S FEE. Neither Seller nor any Shareholder has
incurred any obligation for any finder's, broker's or agent's fee in connection
with the transactions contemplated hereby.
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SECTION 3.15. LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the best knowledge of Seller and
the Shareholders threatened, against or affecting, or to Seller's knowledge,
that would affect, Seller, any of the Assets, or the business of Seller. Seller
is not (i) subject to any continuing court or administrative order, writ,
injunction or decree applicable specifically to Seller or to its business,
assets, operations or employees or (ii) in default with respect to any such
order, writ, injunction or decree.
SECTION 3.16. ENVIRONMENTAL MATTERS. Neither Seller nor any of the
Assets are currently in violation of, or subject to any existing, pending or
threatened investigation or inquiry by any governmental authority or to any
remedial obligations under, any laws or regulations pertaining to health or the
environment (hereinafter sometimes collectively called "Environmental Laws"),
and this representation and warranty would continue to be true and correct
following disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the Assets. To the
best knowledge of Seller and the Shareholders, the Assets have never been used
in a manner that would be in violation of any of the Environmental Laws.
SECTION 3.17. THE SHARES. Seller acknowledges that it has been afforded
an opportunity to question the officers and directors of Purchaser concerning
Purchaser and that Seller has been provided with all information concerning
Purchaser which Seller has requested. Seller recognizes the speculative nature
of an investment in the Shares, and that such an investment involves a high
degree of risk. Seller acknowledges that the Shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), or the securities laws
of any state and is being offered and sold in reliance upon certain exemptions
from registration, and accordingly the Shares may not be resold unless
registered under the Act and applicable state securities laws or unless an
exemption from such registration is available, and that Purchaser will (i) cause
a legend to be placed on any share certificate which may be issued stating that
the shares of Common Stock represented by such certificate may not be
transferred unless registered under the Act and applicable state securities laws
or unless Seller obtains an opinion of counsel satisfactory to Purchaser that
such registration is not required and (ii) make appropriate notations in
Purchaser's records to prevent the transfer of any Common Stock in violation of
such laws. Seller will not offer to sell or otherwise transfer the Shares, or
any part thereof or interest therein, except in compliance with applicable
securities laws. Notwithstanding anything in this Section 3.17 to the contrary,
Purchaser acknowledges that the Shareholders may cause the Seller to be
liquidated and the shares to be distributed to the shareholders of Seller in
connection with such liquidation (the "Liquidating Distribution"). Purchaser
acknowledges that the Liquidating Distribution will not constitute a violation
of the Act or any applicable state securities laws.
SECTION 3.18. TAXES. Seller has duly and timely filed with the
appropriate governmental agencies all income, excise, corporate, franchise,
property, sales, use, payroll, withholding and other tax returns (including
information returns) and reports required to be filed by the United States or
any state or any political subdivision thereof or any foreign jurisdiction. All
such tax returns or reports are complete and accurate and properly reflect the
taxes of Seller for the periods covered thereby. Seller has paid or accrued all
taxes, penalties and interest that have become due with
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respect to any returns that it has filed and any assessments of which it is
aware. Seller is not delinquent in the payment of any tax, assessment or
governmental charge. No tax deficiency or delinquency has been asserted against
Seller. There is no unpaid assessment, proposal for additional taxes, deficiency
or delinquency in the payment of any of the taxes of Seller that could be
asserted by any taxing authority. There is no taxing authority audit of Seller
pending or threatened, and the results of any completed audits are properly
reflected in the Seller Financial Statements. Seller has not violated any
federal, state, local or foreign tax law. Seller has not granted an extension to
any taxing authority of the limitation period during which any tax liability may
be assessed or collected. All monies required to be withheld by Seller and paid
to governmental agencies for all income, social security, unemployment
insurance, sales, excise, use, and other taxes have been (i) collected or
withheld and either paid to the respective governmental agencies or set aside in
accounts for such purpose or (ii) properly reflected in the Seller Financial
Statements. The foregoing representations and warranties contained in this
Section 3.18 shall not be deemed to be breached or violated to the extent such
breach or violation could not result in the imposition of a lien on the Assets
or the imposition of any liability on Purchaser.
SECTION 3.19. UNIVERSAL DOCK PRODUCT. To the best of Seller's
knowledge, the items set forth in Exhibits 1 and 2 to Exhibit A to the Amendment
(as defined in Section 5.1 (g) below) are the only material items which need to
be completed on Seller's current universal dock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants that the following are true and
correct as of the date hereof:
SECTION 4.1. ORGANIZATION AND GOOD STANDING. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, with all requisite corporate power and authority to
carry on the business in which it is engaged, to own the properties it owns, to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
SECTION 4.2. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Purchaser of this Agreement, and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by Purchaser. This Agreement, and
each other agreement contemplated hereby have been duly executed and delivered
by Purchaser and constitute legal, valid and binding obligations of Purchaser,
enforceable against Purchaser in accordance with their respective terms, except
as may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 4.3. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement, or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms,
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conditions and provisions of, or constitute a default under, the Certificate of
Incorporation or Bylaws of Purchaser or any agreement, indenture or other
instrument under which Purchaser is bound or (b) violate or conflict with any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over Purchaser or
the properties or assets of Purchaser.
SECTION 4.4. FINDER'S FEE. Purchaser has not incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 4.5. CAPITALIZATION. As of the date hereof, the authorized
capital stock of Purchaser consists solely of (i) 200,000 shares of Common
Stock, of which 103,047 shares are issued and outstanding; and (ii) 6,686 shares
of preferred stock, $0.01 par value per share ("Preferred Stock"), 2,500 shares
of which constitute Series A Preferred Stock, of which no shares are issued and
outstanding (the "Series A Shares") and 4,186 shares of which constitute Series
B Preferred Stock, of which 4,186 shares are issued and outstanding (the "Series
B Shares") (collectively, the Common Stock, the Series A Shares and the Series B
Shares are referred to herein as the "Stock"). As of the date hereof, Purchaser
does not have outstanding any stock or securities convertible or exchangeable
for any shares of its Stock or containing any profit participation features, nor
shall it have outstanding any rights or options to subscribe for or to purchase
its Stock or any stock or securities convertible into or exchangeable for its
Stock or any stock appreciation rights or phantom stock plans, except as set
forth on Schedule 4.5. As of the date hereof, all of the outstanding shares of
Purchaser's capital stock are validly issued, fully paid and nonassessable.
Except as set forth on Schedule 4.5, there are no statutory, contractual or
other preemptive rights, rights of first refusal, anti-dilution rights or any
similar rights, held by stockholders or option holders of Borrower.
SECTION 4.6. CONSENTS. Except as set forth in Schedule 4.6, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, any lender or lessor or any other person or entity
is required to authorize, or is required in connection with, the execution,
delivery and performance of this Agreement or the agreements contemplated hereby
on the part of Purchaser.
SECTION 4.7. FINANCIAL STATEMENTS. Purchaser has furnished to Seller
Purchaser's audited balance sheet and related unaudited statements of income for
the twelve-month period ended December 31, 1996, including the notes thereto, as
well as unaudited balance sheets and related unaudited statements of income for
the five-month period ended May 31, 1997 (collectively, the "Purchaser Financial
Statements"). Except as set forth on Schedule 4.7, the Purchaser Financial
Statements are true, correct and complete in all material respects, are in
accordance with the books and records of Purchaser, fairly present the financial
condition and results of operations of Purchaser as of the dates and for the
periods indicated and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis with prior periods.
SECTION 4.8. LIABILITIES AND OBLIGATIONS. Except as set forth in
Schedule 4.8, the Purchaser Financial Statements reflect all liabilities of
Purchaser, accrued, contingent or otherwise
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(known or unknown and asserted or unasserted), arising out of transactions
effected or events occurring on or prior to the date hereof. Except as set forth
in the Purchaser Financial Statements, Purchaser is not liable upon or with
respect to, or obligated in any other way to provide funds in respect of or to
guarantee or assume in any manner, any debt, royalty or other obligation or
dividend of any person, corporation, association, partnership, joint venture,
trust or other entity, and Purchaser knows of no basis for the assertion of any
other claims or liabilities of any nature or in any amount.
SECTION 4.9. COMPLIANCE WITH LAWS. Purchaser has complied with all
laws, regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports. There are no existing
violations by Purchaser of any federal, state or local law or regulation that
would affect the property or business of Purchaser.
SECTION 4.10. LITIGATION. Except as set forth on Schedule 4.10, there
are no legal actions or administrative proceedings or investigations instituted,
or to the best knowledge of Purchaser threatened, against or affecting, or that
could affect, Purchaser, any of the assets of Purchaser, or the business of
Purchaser. Purchaser is not (i) subject to any continuing court or
administrative order, writ, injunction or decree applicable specifically to
Purchaser or to its business, assets, operations or employees or (ii) in default
with respect to any such order, writ, injunction or decree.
SECTION 4.11. ENVIRONMENTAL MATTERS. Neither Purchaser nor any of the
assets of Purchaser are currently in violation of, or subject to Environmental
Laws, and this representation and warranty would continue to be true and correct
following disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the assets of
Purchaser. To the best knowledge of Purchaser, the assets of Purchaser have
never been used in a manner that would be in violation of any of the
Environmental Laws.
SECTION 4.12. COMPLIANCE WITH LAWS. Purchaser has complied with all
laws, regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports. There are no existing
violations by Purchaser of any federal, state or local law or regulation that
could affect the property or business of Purchaser. Purchaser possesses all
necessary licenses, franchises, permits and governmental authorizations to
conduct its business as now conducted.
SECTION 4.13. TAXES. Purchaser has duly and timely filed with the
appropriate governmental agencies all income, excise, corporate, franchise,
property, sales, use, payroll, withholding and other tax returns (including
information returns) and reports required to be filed by the United States or
any state or any political subdivision thereof or any foreign jurisdiction. All
such tax returns or reports are complete and accurate and properly reflect the
taxes of Purchaser for the periods covered thereby. Except as set forth on
Schedule 4.13, Purchaser has paid or accrued all taxes, penalties and interest
that have become due with respect to any returns that it has filed and any
assessments of which it is aware. Purchaser is not delinquent in the payment of
any tax, assessment or governmental charge. No tax deficiency or delinquency has
been asserted against Purchaser. There is no unpaid assessment, proposal for
additional taxes, deficiency or delinquency in the payment of any of the taxes
of Purchaser that could be asserted by any taxing authority. There is no taxing
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authority audit of Purchaser pending or threatened, and the results of any
completed audits are properly reflected in the Purchaser Financial Statements.
Purchaser has not violated any federal, state, local or foreign tax law. All
monies required to be withheld by Purchaser and paid to governmental agencies
for all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been (i) collected or withheld and either paid to the
respective governmental agencies or set aside in accounts for such purpose or
(ii) properly reflected in the Purchaser Financial Statements.
SECTION 4.14. LIEN POSITION. Assuming that the Patent Application (as
defined in the Patent Collateral Assignment, which is defined in Section 5.1(k)
below) has been transferred to Purchaser free and clear of any lien, claim or
encumbrance, Purchaser has granted to Mike Moroz pursuant to the Patent
Collateral Assignment a first lien position on the Patents (as defined in the
Patent Collateral Assignment) to the extent provided in the Patent Collateral
Assignment.
ARTICLE V
CLOSING DELIVERIES
SECTION 5.1. DELIVERIES OF SELLER AND SHAREHOLDERS. At the Closing,
Seller and Shareholders (as appropriate) shall deliver, or cause to be
delivered, to Purchaser the following, all of which shall be in a form
satisfactory to counsel to Purchaser:
(a) A bill of sale, in the form of Schedule 5.1(a) attached
hereto;
(b) An assignment of each lease under which Seller is lessee
or lessor assigning the interest of Seller therein to Purchaser;
(c) An Assignment and Assumption Agreement, in the form of
Schedule 5.1(c) attached hereto ("Assignment Agreement");
(d) A copy of resolutions of the Board of Directors of Seller
and Shareholders authorizing the execution, delivery and performance of
this Agreement and all related documents and agreements, certified by
the Secretary of Seller as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(e) A certificate, dated within fifteen days of the Closing
Date, of the Secretary of State of Minnesota establishing that Seller
is in existence, has paid all franchise taxes and otherwise is in good
standing to transact business in the State of Minnesota;
(f) An Employment Agreement between Purchaser and Moroz, in
the form of Schedule 5.1(f) attached hereto (the "Employment
Agreement"); and
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<PAGE> 13
(g) The First Amendment to Consulting and Assignment Agreement
between Seller and IO Engineering, Inc. ("IOEI"), in the form of
Schedule 5.1(g) attached hereto (the"First Amendment");
(h) The Incentive Stock Option Agreement between Purchaser and
Moroz, in the form of Schedule 5.1(h) attached hereto (the "Incentive
Stock Option Agreement");
(i) A Preemptive Rights Agreement, in the form attached hereto
as Schedule 5.1(i) (the "Preemptive Rights Agreement");
(j) A Registration Rights Agreement , in the form of Schedule
5.1(j) attached hereto (the "Registration Rights Agreement");
(k) A Patent Collateral Assignment, in the form of Schedule
5.1(k) attached hereto (the "Patent Collateral Assignment");
(l) All documentation relating to or used in connection with
the Technology (including software source code);
(m) An Assignment of Patent Application, in the form of
Schedule 5.1(m) attached hereto;
(n) A License Agreement, in the form of Schedule 5.1(n)
attached hereto (the "License Agreement");
(o) Such other instrument or instruments of transfer as shall
be necessary or appropriate, as Purchaser or its counsel shall
reasonably request, to vest in Purchaser good and marketable title to
the Assets.
SECTION 5.2. DELIVERIES OF PURCHASER. At the Closing, Purchaser shall
deliver to Seller and the Shareholders (as appropriate):
(a) The Closing Shares;
(b) The Assignment Agreement;
(c) The Employment Agreement;
(d) A copy of the resolutions of the Board of Directors of
Purchaser authorizing the execution, delivery and performance of this
Agreement, and all related documents and agreements, each certified by
Purchaser's Secretary as being true and correct copies of the originals
thereof subject to no modifications or amendments;
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<PAGE> 14
(e) The Incentive Stock Option Agreement;
(f) The Registration Rights Agreement;
(h) The Patent Collateral Assignment;
(i) The Preemptive Rights Agreement; and
(j) The License Agreement.
ARTICLE VI
POST CLOSING MATTERS
SECTION 6.1. FURTHER INSTRUMENTS OF TRANSFER. Following the Closing,
at the request of Purchaser, Seller and Shareholders shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to vest in Purchaser good and marketable title to the Assets.
SECTION 6.2. CONTINGENT PURCHASE PRICE OBLIGATIONS. Purchaser
acknowledges that is has an affirmative obligation to manufacture, market, sell
and distribute the Technology Products, and that after the Closing and during
the 1998 and 1999 calendar years Purchaser will use reasonable commercial
efforts in manufacturing, marketing, selling and distributing the Technology
Products.
SECTION 6.3. TRANSACTION TAXES. Each party shall be responsible for any
taxes such party may have as a result of the transactions contemplated herein.
SECTION 6.4. SECTION 368(a)(1)(c) TREATMENT. The parties hereto agree
not to take any action or take any tax position inconsistent with the intended
treatment of this transaction as a Section 368(a)(1)(c) reorganization, and the
parties acknowledge that Seller will be liquidated and dissolved promptly after
the closing of the transactions contemplated hereunder.
ARTICLE VII
REMEDIES
SECTION 7.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations and warranties of the parties contained in this Agreement
shall survive the Closing for a period of eighteen (18) months, except for: (i)
representations and warranties in Sections 3.1, 3.2, 4.1 and 4.2 shall survive
forever; (ii) representations and warranties in Sections 3.16 and 4.11, and the
indemnification obligations set forth in Sections 7.2(c) and 7.3(c), shall
survive the Closing for a period of five (5) years; (iii) the representations
and warranties in Section 4.14 shall survive for so long as Note (as defined in
Section 7.6 below) remains unpaid; and (iv) representations and warranties with
respect to any tax or tax-related matters or any ERISA matters, which shall
survive
14
<PAGE> 15
the Closing until the running of any applicable statues of limitations. The
covenants and agreements contained herein shall survive the Closing without
limitation as to time unless the covenant or agreement specifies a time, in
which case such covenant or agreement shall survive until the expiration of such
specified term. The respective expiration dates for the survival of the
representations, warranties and covenants shall be referred to herein as the
relevant "Expiration Date."
SECTION 7.2. INDEMNIFICATION BY SELLER AND SHAREHOLDERS. Subject to
the terms and conditions of this Agreement, Seller and Shareholders, jointly and
severally, agree to indemnify, defend and hold Purchaser and its directors,
officers, agents, attorneys, affiliates and employees harmless from and against
all losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, attorneys' fees and expenses (collectively, "Damages"), asserted
against or incurred by such indemnities by reason of or resulting from: (a) a
breach of any representation, warranty or covenant of Seller contained herein,
notice of which is given on or prior to the relevant Expiration Date or in any
agreement executed in connection with the transactions contemplated hereby
(provided, however, any breach of Section 3.18 which does not result in
Purchaser incurring Damages shall not be indemnifiable under this Section 7.2);
(b) a failure to comply with any applicable bulk sale or transfer law; or (c)
except for the Assumed Liabilities, any liability of Seller arising out of or
relating to the operation of Seller's business prior to or on the Closing Date
to the extent such liabilities were incurred or the events giving rise to such
liabilities occurred on or prior to the Closing Date; provided, however, that no
claim shall be made for indemnification under this Section 7.2 until, and such
claims may be made only to the extent that, the dollar amount of all such
Damages shall exceed in the aggregate $10,000; provided further, however, the
aggregate liability of Seller and Shareholders for Damages shall not exceed
$300,000.
SECTION 7.3. INDEMNIFICATION BY PURCHASER. Subject to the terms and
conditions of this Agreement, Purchaser hereby agrees to indemnify, defend and
hold Seller and its directors, officers, agents, attorneys, affiliates and
employees and the Shareholders harmless from and against all Damages asserted
against or incurred by any of such indemnities by reason of or resulting from:
(a) a breach by Purchaser of any representation, warranty or covenant of
Purchaser contained herein (provided, however, any breach of Section 4.13 which
does not result in Seller incurring any Damages shall not be indemnifiable under
this Section 7.3); (b) the failure of Purchaser to pay, perform and discharge
when due any of the Assumed Liabilities; (c) any liability arising out of or
relating to the operation of the business transferred hereunder or the ownership
or use of the Assets after the Closing Date to the extent such liability were
incurred or the events giving rise to such liabilities occurred after the
Closing Date; provided, however, that no claim shall be made for indemnification
under this Section 7.3 until, and such claims may be made only to the extent
that, the dollar amount of all such Damages shall exceed in the aggregate of
$10,000; provided, further, however, the aggregate liability of Purchaser for
Damages shall not exceed $300,000.
SECTION 7.4. WAIVER. No waiver by any party of any default or breach
by another party of any representation, warranty, covenant or condition
contained in this Agreement, any exhibit or any document, instrument or
certificate contemplated hereby shall be deemed to be a waiver of any
15
<PAGE> 16
subsequent default or breach by such party of the same or any other
representation, warranty, covenant or condition. No act, delay, omission or
course of dealing on the part of any party in exercising any right, power or
remedy under this Agreement or at law or in equity shall operate as a waiver
thereof or otherwise prejudice any of such party's rights, powers and remedies.
All remedies, whether at law or in equity, shall be cumulative and the election
of any one or more shall not constitute a waiver of the right to pursue other
available remedies.
SECTION 7.5. REMEDIES NOT EXCLUSIVE. Subject to the provisions of
Section 7.6, the remedies provided in this Article shall not be exclusive of any
other rights or remedies available to one party against the other, either at law
or in equity.
SECTION 7.6. OFFSET. Any and all amounts owing or to be paid by
Purchaser to Seller or a Shareholder of Seller (including, without limitation,
any Assumed Liability, including, without limitation, the amounts owed by Seller
to Mykola Moroz pursuant to that Promissory Note, a copy of which is attached
hereto as Schedule 7.6 (the "Note"); provided, however, that any breach by Moroz
of Article VIII hereof shall not be subject to offset against the Note.),
hereunder or otherwise, shall be subject to offset and reduction
dollar-for-dollar by any amounts that may be owing at any time by Seller to
Purchaser in respect of any failure or breach of any representation, warranty or
covenant of Seller under or in connection with this Agreement or any other
agreement with Purchaser or any transaction contemplated hereby or thereby, as
reasonably determined by Purchaser. If Purchaser determines that such offset is
appropriate, notice shall be given to Seller of such determination at least 10
days prior to the due date of the payment to be reduced. If Seller objects in
writing to any such offset within such ten (10) day period, then Purchaser and
Seller shall submit such matter to final and binding arbitration in Wilmington,
Delaware, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). During the pendency of any offset action
hereunder (including any such arbitration action), Purchaser will make payments
under the Note into escrow with the AAA. If the conditions upon which the
reduction is based are cured by Seller prior to such due date, as determined by
Purchaser, the amount of such payment shall not be so reduced.
SECTION 7.7. COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement; (b) proving that another party breached any
of the terms of this Agreement or (c) defending against any suit or claim by a
party brought to enforce any terms of this Agreement.
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<PAGE> 17
ARTICLE VIII
NONCOMPETITION
SECTION 8.1. MOROZ PROHIBITED ACTIVITIES. In consideration for
Purchaser's execution and delivery of this Agreement, and other good and
valuable consideration, Moroz hereby agrees that for a period of five (5) years
following the Closing Date, he shall not knowingly, directly or indirectly, for
himself 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, investor, principal,
consultant or in any other capacity):
(a) engage or participate in any business which engages in any business
which engages in any business relating to the design, manufacture or sale of
port replicators and docking stations for portable computers in competition with
the business of Purchaser and its affiliates (the "Purchaser Group") in the
United States of America or any other country where the Purchaser Group conducts
business during such five-year period; provided, however, that this provision
shall not prohibit Moroz from purchasing or holding an aggregate equity interest
of up to 1%, so long as Moroz does not purchase or hold an aggregate equity
interest of more than 5%, in any business in competition with the Purchaser
Group;
(b) induce or attempt to influence any employee, agent or consultant of
the Purchaser Group to terminate his employment or relationship with Purchaser
Group, or to hire, retain or utilize any person who is an employee, agent or
consultant of the Purchaser Group, or was an employee, agent or consultant of
the Purchaser Group during such five-year period, whether or not so induced or
influenced, except that any such employee may be hired or retained with
Purchaser's prior written consent; or
(c) assist or finance any person or entity which competes (as defined
in subsection (a) hereof) with the Purchaser Group.
SECTION 8.2. MYKOLA MOROZ PROHIBITED ACTIVITIES. In consideration
for Purchaser's execution and delivery of this Agreement, and other good and
valuable consideration, Mykola Moroz hereby agrees that for a period of five (5)
years following the Closing Date, he shall not knowingly, directly or
indirectly, for himself 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, investor,
principal, consultant or in any other capacity):
(a) engage or participate in any business which engages in any business
relating to the design, manufacture or sale of port replicators and docking
stations for portable computers in competition with the business of the
Purchaser Group and its affiliates in the United States of America or any other
country where the Purchaser Group conducts business during such five-year
period; provided, however, that this provision shall not prohibit Mike Moroz
from purchasing or holding an aggregate equity interest of up to 1%, so long as
Mike Moroz does not purchase or hold
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<PAGE> 18
an aggregate equity interest of more than 5%, in any business in competition
with the Purchaser Group; or
(b) induce or attempt to influence any employee, agent or consultant of
the Purchaser Group to terminate his employment or relationship with the
Purchaser Group, or to hire, retain or utilize any person who is an employee,
agent or consultant of the Purchaser Group, or was an employee, agent or
consultant of the Purchaser Group during such five-year period, whether or not
so induced or influenced, except that any such employee, agent or consultant may
be hired or retained with Purchaser's prior written consent.
SECTION 8.3. DAMAGES. Because of the difficulty of measuring
economic losses to the Purchaser as a result of the breach of the foregoing
covenant, and because of the immediate and irreparable damage that would be
caused to Purchaser for which it would have no other adequate remedy, each
Shareholder agrees that, in the event of a breach by such Shareholder of the
foregoing covenant, the covenant may be enforced by Purchaser by injunctions and
restraining orders.
SECTION 8.4. REASONABLE RESTRAINT. It is agreed by the parties that
the foregoing covenants in this Article VIII impose a reasonable restraint on
each Shareholder in light of the activities and business of the Company on the
date of the execution of this Agreement and the future plans of the Company and
Purchaser. Each Shareholder hereby agrees that this covenant is a material and
substantial part of this transaction.
SECTION 8.5. SEVERABILITY; REFORMATION. The covenants in this
Article VIII are severable and separate, and the unenforceability of any
specific covenant shall not affect the provisions of any other covenant.
Moreover, in the event any court of competent jurisdiction shall determine that
the scope, time or territorial restrictions set forth are unreasonable, then it
is the intention of the parties that such restrictions be enforced to the
fullest extent that the court deems reasonable, and the Agreement shall thereby
be reformed.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
SECTION 9.2. ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto.
SECTION 9.3. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto.
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<PAGE> 19
Neither this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
SECTION 9.4. ENTIRE AGREEMENT. This Agreement, the Note and the other
agreements contemplated hereby constitute the entire agreement of the parties
regarding the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
SECTION 9.5. SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, 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
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.
SECTION 9.6. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF DELAWARE.
SECTION 9.7. CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
SECTION 9.8. NOTICE. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person.
Such notice shall be deemed received on the date on which it is hand-delivered
or on the third business day following the date on which it is so mailed. For
purposes of notice, the addresses of the parties shall be:
If to Purchaser: Electronics Accessory Specialists International, Inc.
7955 E. Redfield Road
Scottsdale, Arizona 85260
Attn: President
Fax: (602) 596-0349
If to Seller: Miram International, Inc.
2155 Niagra Lane North, Suite 110
Plymouth, Minnesota 55447
Attn: President
Fax: (612) 404-1242
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<PAGE> 20
Any party may change its address for notice by written notice given to the other
parties in accordance with this Section.
SECTION 9.9. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
EXECUTED as of the date first above written.
ELECTRONICS ACCESSORY
SPECIALISTS INTERNATIONAL, INC.
By: /s/ CHARLES R. MOLLO
------------------------
Charles R. Mollo,
Chief Executive Officer
MIRAM INTERNATIONAL, INC.
By: /s/ JOHN A. MOROZ
--------------------------
Name: John A. Moroz
------------------------
Its: President
-------------------------
/s/ JOHN MOROZ
-----------------------------
John Moroz
/s/ MYKOLA MOROZ
-----------------------------
Mykola Moroz
20
<PAGE> 1
EXHIBIT 10.5
PROMISSORY NOTE
$400,000 Minneapolis, Minnesota July 3, 1997
FOR VALUE RECEIVED, the undersigned, Miram International, Inc., a
Minnesota corporation ("Maker"), promises to pay to Mykola Moroz ("Payee"), the
sum of Four Hundred Thousand and No/100 Dollars ($400,000), or such other amount
as may be outstanding, together with interest on the unpaid principal balance
from day to day remaining at the rate of eight percent (8%) per annum. Interest
shall accrue on any matured, unpaid amounts at the rate of ten percent (10%) per
annum.
Principal of and interest on this Note shall be due and payable in
eight (8) equal quarterly installments of $54,603.92, on January 1, April 1,
July 1 and October 1, commencing on October 1, 1997. Notwithstanding the
foregoing, this Note shall be due and payable in full on the consummation of an
initial public offering by Maker of its common stock. Maker shall have the right
to prepay this Note at any time, in whole or in part, without premium or
penalty.
The entire unpaid principal balance of, and all accrued interest on,
this Note shall immediately become due and payable at the option of the holder
hereof upon the occurrence of any of the following events ("Events of Default"):
(a) The failure or refusal of Maker to make any payment of
this Note when due, and if such failure or refusal is not cured within
five (5) days after receipt by Maker of written notice from Payee of
such failure or refusal;
(b) The failure or refusal of Maker to punctually and properly
perform, observe and comply in all material respects with each
covenant, agreement or condition contained herein, and the breach of
such covenant, agreement or condition is not cured to Payee's
satisfaction within thirty (30) days after Maker's receipt of notice of
such breach from Payee.
(c) Maker shall (i) execute an assignment for the benefit of
creditors, (ii) admit in writing its inability, or otherwise, fail, to
pay its debts generally as they become due, or (iii) suffer the
appointment of a receiver, trustee, custodian or similar fiduciary; or
(d) Any petition for an order for relief shall be filed by or
against Maker under the Bankruptcy Code (if against Maker, the
continuation of such proceeding for more than thirty (30) days).
If an Event of Default shall occur, the holder of this Note may proceed to
protect and enforce any and all rights it may have, whether by contract or law.
In the event that any required payment of principal and/or interest hereunder is
not made within five (5) days after the date when due, Maker shall pay to Payee
a late payment charge equal to five percent (5%) of the amount of the
<PAGE> 2
overdue payment, for the purpose of reimbursing Payee for a portion of the
expense incident to handling the overdue payment.
Time is of the essence hereof. If an Event of Default occurs, then the
entire unpaid principal balance, with all accrued interest thereon, shall, at
the option of Payee, become immediately due and payable without notice, demand
or presentment for payment, and without notice of intention to accelerate or of
acceleration.
Maker, and each surety, endorser, guarantor, and other party ever
liable for the payment of any sum of money payable on this Note jointly and
severally at all times waive presentment, protest, notice of nonpayment, notice
of intention to accelerate and of acceleration, notice of protest and nonpayment
or dishonor, notice of intent to demand, diligence in collecting, and grace, and
consent to all extensions without notice for any period or periods of time and
partial payments before or after maturity, without prejudice to the holder.
THIS NOTE IS BEING EXECUTED AND DELIVERED IN THE STATE OF MINNESOTA,
AND THE LAWS OF SUCH STATE SHALL GOVERN THE CONSTRUCTION VALIDITY, ENFORCEMENT
AND INTERPRETATION HEREOF, EXCEPT TO THE EXTENT FEDERAL LAWS OTHERWISE GOVERN
THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND LIMITATION HEREOF.
All of the covenants, stipulations, promises and agreements contained
in this Note by or on behalf of Maker shall bind its successors and assigns,
whether so expressed or not.
Regardless of any provision contained herein, or in any document
executed in connection herewith, Payee shall never be entitled to receive,
collect, or apply, as interest on the indebtedness evidenced hereby, any amount
in excess of the highest lawful interest rate permitted under applicable law
(the "Highest Lawful Rate"), and in the event Payee ever receives, collects, or
applies, as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and if, the principal hereof is paid in full, any remaining excess
shall be refunded to Maker. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker
and Payee shall, to the maximum extent permitted under applicable law, (a)
characterize any nonprincipal payment as an expense, fee, or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
prorate, allocate, and spread, the total amount of interest throughout the
entire contemplated term hereof, provided, that if the principal balance hereof
is paid and performed in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence thereof
exceeds the Highest Lawful Rate, Payee shall either apply or refund to Maker the
amount of such excess as herein provided, and in such event, Payee shall not be
subject to any penalties provided by any laws for contracting for, charging, or
receiving interest in excess of the Highest Lawful Rate.
<PAGE> 3
Maker agrees to reimburse Payee for all expenses paid or incurred by
Payee (including fees and expenses of legal counsel) in connection with the
collection and enforcement of the Note.
PAYEE ACKNOWLEDGES THAT THIS NOTE IS NON-NEGOTIABLE.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
day and year first above written.
MIRAM INTERNATIONAL, INC.
By: /s/ JOHN A. MOROZ
--------------------------------
Name: John A. Moroz
------------------------------
Its: President
-------------------------------
<PAGE> 1
EXHIBIT 10.6
MOBILITY ELECTRONICS, INC.
AMENDED AND RESTATED
1996 LONG TERM INCENTIVE PLAN
(As further amended on January 13, 2000)
(Effective as of January 13, 2000)
<PAGE> 2
MOBILITY ELECTRONICS, INC.
AMENDED AND RESTATED
1996 LONG TERM INCENTIVE PLAN
(As further amended on January 13, 2000)
(Effective as of January 13, 2000)
1. Purpose. The purpose of this Amended and Restated 1996 Long Term
Incentive Plan (the "Plan") of Mobility Electronics, Inc., a Delaware
corporation (the "Company"), is to advance the interests of the Company and its
stockholders by providing a means to attract, retain, and reward Directors,
executive officers, and other key employees and consultants of and service
providers to the Company and its subsidiaries (including consultants and others
providing services of substantial value) and to enable such persons to acquire
or increase a proprietary interest in the Company, thereby promoting a closer
identity of interests between such persons and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 hereof. Such awards, together with
any other right or interest granted to a Participant under the Plan, are termed
"Awards." For purposes of the Plan, the following additional terms shall be
defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986. References to any
provision of the Code shall be deemed to include regulations thereunder and
successor provisions and regulations thereto.
(e) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that the Committee shall consist of two or more Directors,
each of whom is a "nonemployee director" within the meaning of Rule 16b-3 and an
"outside director" within the meaning of Section 162(m) of the Code.
<PAGE> 3
(f) "Director" means a member of the Board or a member of the board of
directors of a subsidiary of the Company.
(g) "Employee" means an employee (as defined under Section 3401(c) of
the Code and the regulations thereunder) of the Company or of any subsidiary of
the Company that adopts the Plan, including officers.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
(i) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, provided, however, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as reported in The Wall Street Journal (or other reporting service
approved by the Committee), (ii) the "Fair Market Value" of Stock subject to
Options granted effective upon consummation of the Initial Public Offering shall
be the Initial Public Offering price of the shares to issued and sold in the
Initial Public Offering, as set forth in the first final prospectus used in such
offering (the provisions of clause (i) notwithstanding) and (iii) the "Fair
Market Value" of Stock prior to the date of the Initial Public Offering shall be
as determined by the Board of Directors in their sole discretion.
(j) "Initial Public Offering" shall mean an underwritten initial public
offering of shares of Stock registered with the Securities and Exchange
Commission in compliance with the provisions of the Securities Act of 1933, as
amended.
(k) "Nonemployee Director" means a member of the Board who is not an
Employee; provided, however, that, as used in Section 2(e) without initial
capital letters, the term "nonemployee director" has the meaning provided in
that section.
(l) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(m) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(n) "Stock" means the common stock, par value $0.01 per share, of the
Company, and such other securities as may be substituted for Stock or such other
securities pursuant to Section 4 hereof.
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3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan and applicable law:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each such
person;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability or settlement of an Award,
and waivers or accelerations thereof, performance conditions relating to an
Award (including performance conditions relating to Awards not intended to
be governed by Section 7(e) and waivers and modifications thereof), based
in each case on such considerations as the Committee shall determine), and
all other matters to be determined in connection with an Award;
(iv) to determine whether, to what extent and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in
cash, Stock, other Awards, or other property, or an Award may be cancelled,
forfeited, or surrendered;
(v) to determine whether, to what extent and under what circumstances
cash, Stock, other Awards or other property payable with respect to an
Award will be deferred either automatically, at the election of the
Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement or other instrument
hereunder; and
(ix) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
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(b) Manner of Exercise of Committee Authority. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
be modified by the Committee (subject to Section 8(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Company or any subsidiary
of the Company the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and, with respect to Participants
not subject to Section 16 of the Exchange Act, to perform such other functions
as the Committee may determine, to the extent permitted under Rule 16b-3, if
applicable, and other applicable law.
(c) Limitation of Liability. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information furnished to
him by any officer or other Employee of the Company or any subsidiary, the
Company's independent certified public accountants or any executive compensation
consultant, legal counsel or other professional retained by the Company to
assist in the administration of the Plan. No member of the Committee, nor any
officer or Employee of the Company acting on behalf of the Committee, shall be
personally liable for any action, determination or interpretation taken or made
in good faith with respect to the Plan, and all members of the Committee and any
officer or Employee of the Company acting on its behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company with respect
to any such action, determination or interpretation.
4. Stock Subject to Plan.
(a) Amount of Stock Reserved. The total amount of Stock that may be subject
to outstanding awards, determined immediately after the grant of any Award,
shall not exceed 2,500,000 shares of Stock. Notwithstanding the foregoing, the
number of shares that may be delivered as Restricted Stock and Deferred Stock
(other than pursuant to an Award granted under Section 7(e)) shall not in the
aggregate exceed 550,000; provided, however, that the shares subject to
Restricted Stock or Deferred Stock Awards shall not be deemed delivered if such
Awards are forfeited, expire or otherwise terminate without delivery of shares
to the Participant. If an Award valued by reference to Stock may be settled only
in cash, the number of shares to which such Award relates shall be deemed to be
Stock subject to such Award for purposes of this Section 4(a). Any shares of
Stock delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued shares, treasury shares or shares acquired in the market
for a Participant's account.
(b) Annual Per-Participant Limitations. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
250,000 shares of Stock, subject
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to adjustment as provided in Section 4(c). In addition, with respect to Awards
that may be settled in cash (in whole or in part), no Participant may be paid
during any calendar year cash amounts relating to such Awards that exceed the
greater of the Fair Market Value of the number of shares of Stock set forth in
the preceding sentence at the date of grant or the date of settlement of Award.
This provision sets forth two separate limitations, so that Awards that may be
settled solely by delivery of Stock will not operate to reduce the amount of
cash-only Awards, and vice versa; nevertheless, Awards that may be settled in
Stock or cash must not exceed either limitation.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, liquidation, dissolution, or other similar corporate transaction or
event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Participants under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares of Stock reserved and available for
Awards under Section 4(a), including shares reserved Restricted and Deferred
Stock, (ii) the number and kind of shares of Stock specified in the annual
per-participant limitations under Section 4(b), (iii) the number and kind of
shares of outstanding Restricted Stock or other outstanding Award in connection
with which shares have been issued, (iv) the number and kind of shares that may
be issued in respect of other outstanding Awards and (v) the exercise price,
grant price or purchase price relating to any Award or, if deemed appropriate,
the Committee may make provision for a cash payment with respect to any
outstanding Award. In addition, the Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence) affecting the Company or any
subsidiary or the financial statements of the Company or any subsidiary, or in
response to changes in applicable laws, regulations, or accounting principles.
The foregoing notwithstanding, no adjustments shall be authorized under this
Section 4(c) with respect to Options, SARs or other Awards subject to Section
7(e) to the extent that such authority wold cause such Awards to fail to qualify
as "qualified performance-based compensation" under Section 162(m)(4)(C) of the
Code.
5. Eligibility. Executive officers and other Employees of the Company and
its subsidiaries, Directors, and persons who provide consulting, advisory, or
other services to the Company deemed by the Committee to be of substantial value
to the Company are eligible to be granted Awards under the Plan. In addition, a
person who has been offered employment by the Company or its subsidiaries is
eligible to be granted an Award under the Plan, provided that such Award shall
be cancelled if such person fails to commence such employment, and no payment of
value may be made in connection with such Award until such person has commenced
such employment.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional
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terms and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall determine, including terms requiring forfeiture of Awards in the
event of termination of employment or service of the Participant. Except as
provided in Section 6(f), 6(h), or 7(a), or to the extent required to comply
with requirements of the Delaware General Corporation Law that lawful
consideration be paid for Stock, only services may be required as consideration
for the grant (but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options on the following
terms and conditions ("Options"):
(i) Nature of Options. Options may be either incentive stock options
(within the meaning of Section 422 of the Code) ("Incentive Options") or
Options that do not qualify as Incentive Options ("Nonqualified Options");
provided, however, that an Incentive Option may be granted only to a person
who is an Employee on the date of grant of the Option.
(ii) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee; provided, however,
that such exercise price shall be not less than the Fair Market Value of a
share of Stock on the date of grant of such Option; and provided further
that, in the case of an Incentive Option granted to a person who, on the
date of grant of the Option, owns stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or
of any subsidiary of the Company, the exercise price per share of Stock
purchasable under such Incentive Option shall be not less than 110 percent
of the Fair Market Value of a share of Stock on the date the Incentive
Option is granted.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the
form of such payment, including, without limitation, cash, Stock, other
Awards or awards granted under other Company plans or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and the methods
by which Stock will be delivered or deemed to be delivered to Participants.
Notwithstanding the foregoing, no Incentive Option shall be exercisable
after the expiration of ten years from the date such Incentive Option is
granted; provided, that, in the case of an Incentive Option granted to a
person who, on the date of grant of the Option, owns stock possessing more
than ten percent of the total combined voting power of all classes of stock
of the Company or of any subsidiary of the Company, the Incentive Option
shall not be exercisable after the expiration of five years from the date
of grant of the Incentive Option.
(iv) Termination of Employment. Unless otherwise determined by the
Committee, upon termination of a Participant's employment with the Company
and its subsidiaries, such Participant may exercise any Options during the
three-month period (or such other period as may be specified by the
Committee in an Award Agreement) following
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<PAGE> 8
such termination of employment, but only to the extent such Option was
exercisable immediately prior to such termination of employment. Notwithstanding
the foregoing, if the Participant's employment with the Company is governed by
an employment agreement and the Committee determines that such termination is
"for cause" as defined in the Participant's employment agreement, all Options
held by the Participant shall terminate as of the termination of employment
unless otherwise specified in the Participant's Award Agreement.
(v) Automatic Grants of Options to Nonemployee Directors.
(A) Effective January 13, 2000, immediately and automatically each
then current Nonemployee Director and, upon initial election to the Board, each
new Nonemployee Director, will receive a Nonqualified Option to purchase 20,000
shares of Common Stock, which will be fully exercisable on the one-year
anniversary of the date of grant, but only if such Nonemployee Director has
continuously served as a director of the Company during such one-year period. In
addition, effective January 13, 2000, each Nonemployee Director will receive a
Nonqualified Stock Option to purchase 30,000 shares of Common Stock at the
annual meeting of stockholders of the Company following the initial year he has
served as a director, if such Nonemployee Director will continue as a director
for the following year (i.e, either through re-election or as a result of his
term not expiring), and every fourth year thereafter (the "Renewal Option").
Each Renewal Option will vest 25% annually, with the initial 25% becoming
exercisable on the date of grant of the option and an additional 25% becoming
exercisable on each of the first anniversaries of the grant date (but only if
such Nonemployee Director is a director of the Company at the time of vesting).
Effective at the Annual Meeting of Directors of the Company to be held on
January 13, 2000, and at each Annual Meeting of Directors thereafter, each
Nonemployee Director who is elected to serve on either the Audit Committee or
Compensation Committee of the Company shall receive an option to purchase 5,000
shares of Common Stock, which option shall be fully exercisable at the end of
the one-year term of such office (but only if such Nonemployee Director serves
on such committee for the entire term).
(B) The purchase price for Stock acquired pursuant to the exercise
of an Option granted pursuant to this subparagraph (v) shall be the Fair Market
Value of the Stock on the date of the grant of the Option. All Options granted
under this subparagraph (v) shall provide for a period of exercisability of four
years as to each Option (or, where vesting is in 25-percent increments, as to
each vested 25-percent portion of the Option), commencing on the date the Option
(or, if applicable, such 25-percent portion of the Option) vests. If a person
receiving an Option under this subparagraph (v) is not reelected to the Board,
resigns, or is removed from the Board for any reason, then any portion of such
persons Options granted under this subparagraph (v) that is not vested at such
time shall terminate.
(C) The Committee, in its discretion, may change the terms and
conditions of, and the number of shares of Stock subject to, an Option granted
pursuant to this
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subparagraph (v) at any time prior to or on the date such Option is to be
automatically granted hereunder.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs on
the following terms and conditions ("SARs"):
(i) Right to Payment. An SAR shall confer on the Participant to whom it
is granted a right to receive, upon exercise thereof, the excess of the
Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right, the Fair Market
Value of one share at any time during a specified period before or after
the date of exercise), over the grant price of the SAR as determined by the
Committee as of the date of grant of the SAR, which, except as provided in
Section 7(a), shall be not less than the Fair Market Value of one share of
Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method
by which Stock will be delivered or deemed to be delivered to Participants,
whether or not an SAR shall be in tandem with any other Award, and any
other terms and conditions of any SAR. Limited SARs that may be exercised
only upon the occurrence of a change in control of the Company (as defined
in the applicable Award Agreement) may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may determine.
Limited SARs may be either freestanding or in tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments,
or otherwise, as the Committee may determine. Except to the extent
restricted under the terms of the Plan and any Award Agreement relating to
the Restricted Stock, a Participant granted Restricted Stock shall have all
of the rights of a stockholder including, without limitations, the right to
vote Restricted Stock and the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided, however, that the
Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture
conditions relating to
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Restricted Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, such certificates shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, the Company may retain physical possession of the
certificate, and the Committee may require the Participant to deliver a
stock power to the Company, endorsed in blank, relating to the Restricted
Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be paid at the
dividend payment dates in cash or in the shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends, or the
payment of such dividends shall be deferred and/or the amount or value
thereof automatically reinvested in additional Restricted Stock, other
Awards, or other investment vehicles, as the Committee shall determine or
permit the Participant to elect. Stock distributed in connection with a
Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Stock or
other property has been distributed, unless otherwise determined by the
Committee.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock
subject to the following terms and conditions ("Deferred Stock"):
(i) Award and Restrictions. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock
by the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions as the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier specified
times, separately or in combination, in installments or otherwise, as the
Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the
Award Agreement evidencing the Deferred Stock), all Deferred Stock that is
at that time subject to such forfeiture conditions shall be forfeited;
provided, however, that the Committee may provide, by rule or regulation or
in any Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock will be
waived in whole or in part in the event of termination resulting from
specified causes.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other Awards
in lieu of Company obligations to pay
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cash under other plans or compensatory arrangements. Stock or Awards granted
hereunder shall be subject to such other terms as shall be determined by the
Committee.
(g) Dividend Equivalents. The Committee is authorized to grant dividend
equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend Equivalents"). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards ("Other Stock-Based
Awards") that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock or factors that may
influence the value of Stock, as deemed by the Committee to be consistent with
the purposes of the Plan, including, without limitation, convertible or
exchangeable debt securities, other rights convertible or exchangeable into
Stock, purchase rights for Stock, Awards with value and payment contingent upon
performance of the Company or any other factors designated by the Committee and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified subsidiaries. The Committee shall determine
the terms and conditions of such Awards. Stock issued pursuant to an Award in
the nature of a purchase right granted under this Section 6(h) shall be
purchased for such consideration, paid for at such times, by such methods, and
in such forms, including, without limitation, cash, Stock, other Awards, or
other property, as the Committee shall determine. Cash awards, as an element of
or supplement to any other Award under the Plan, may be granted pursuant to this
Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with or in substitution for any other Award granted
under the Plan or any award granted under any other plan of the Company, any
subsidiary or any business entity to be acquired by the Company or a subsidiary,
or any other right of a Participant to receive payment from the Company or any
subsidiary. Awards granted in addition to or in tandem with other Awards or
awards may be granted either as of the same time as or a different time from the
grant of such other Awards or awards.
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee.
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant, exercise
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or settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Stock, other Awards or other
property, and may be in a single payment or transfer, in installments or on a
deferred basis. Such payments may include, without limitation, provisions for
the payment or crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents in respect of
installment or deferred payments denominated in Stock.
(d) Loan Provisions. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(e) Performance-Based Awards. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(e), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives of an Award subject to this
Section 7(e) shall consist of one or more business criteria and a targeted level
or levels of performance with respect to such criteria, as specified by the
Committee subject to this Section 7(e). Performance objectives shall be
objective, shall be stated in writing not later than ninety (90) days after the
beginning of the period of service to which they relate, and shall otherwise
meet the requirements of Section 162(m)(4)(C) (or successor provisions) of the
Code and the regulations thereunder. Business criteria used by the Committee in
establishing performance objectives for Awards subject to this Section 7(e)
shall be selected exclusively from among the following:
(1) Annual return on capital;
(2) Annual earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or more objectives
based on meeting specified revenue, market penetration,
geographic business expansion goals, cost targets, and goals
relating to acquisitions or divestitures.
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The levels of performance required with respect to such business criteria may be
expressed in absolute or relative levels. Achievement of performance objectives
with respect to such Awards shall be measured over a period of not less than one
year nor more than five years, as the Committee may specify. Performance
objectives may differ for such Awards to different Participants. The Committee
shall specify the weight to be given to each performance objective for purposes
of determining the final amount payable with respect to any such Award. The
Committee may, in its discretion, reduce the amount of a payout otherwise to be
made in connection with an Award subject to this Section 7(e), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of performance objectives shall be in
writing. The Committee may not delegate any responsibility with respect to an
Award subject to this Section 7(e).
(f) Acceleration. The Committee may accelerate the exercisability or
vesting of any Award in whole or in part at any time and may provide for the
acceleration of any Award in whole or in part upon the occurrence of certain
events as may be set forth in one or more Award Agreements.
8. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the restriction
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the Plan,
including any Award or right which constitutes a derivative security as
generally defined in Rule 16a-1(c) under the Exchange Act, will not be
transferable by a Participant except by will or the laws of descent and
distribution or to a Beneficiary in the event of the Participant's death, and,
if exercisable, shall be exercisable during the lifetime of a Participant only
by such Participant or his guardian or legal representative; provided, however,
that such Awards and other rights may be transferred to one or more transferees
during the lifetime of the Participant, and may be exercised by such transferees
in accordance with the terms of such Award, but only if and to the extent then
permitted under Rule 16b-3, consistent with the registration of the offer and
sale of Stock on Form S-8 or Form S-3 or a successor registration form of the
Securities and Exchange Commission, and permitted by the Committee. Awards and
other rights under the Plan may not be pledged, mortgaged, hypothecated or
otherwise encumbered, and shall not be subject to the claims of creditors.
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(c) No Right to Continued Employment or Service. Neither the Plan nor any
action taken hereunder shall be construed as giving any Employee or other person
the right to be retained in the employ or service of the Company or any of its
subsidiaries, nor shall it interfere in any way with the right of the Company or
any of its subsidiaries to terminate any Employee's employment or other person's
service at any time.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award or any payroll or other payment to
a Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to Stockholders for approval; provided, however, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; provided, however, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
(f) No Rights to Awards: No Stockholder Rights. No Participant or Employee
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity or treatment of Participants and Employees. No Award
shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participants in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) Unfunded Status of Awards: Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other
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<PAGE> 15
Awards, or other property pursuant to any Award, which trusts or other
arrangements shall be consistent with the "unfunded" status of the Plan unless
the Committee otherwise determines with the consent of each affected
Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
that Options, SARs and other Awards designated as Awards subject to Section 7(e)
shall constitute "qualified performance-based compensation" within the meaning
of the Code Section 162(m). Accordingly, if any provision of the Plan or any
Award Agreement relating to such an Award does not comply or is inconsistent
with the requirements of Code Section 162(m), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements, and
no provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the performance objectives.
(k) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(l) Effective Date: Plan Termination. The Plan shall become effective as of
May 1, 1998, and shall continue in effect until the earlier of (i) such time as
the Plan is terminated by the Board or (ii) April 30, 2008. This Plan amends and
restates in its entirety the 1996 Long Term Incentive Plan of the Company.
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of
November 20, 1998, by and between Mobility Electronics, Inc., a Delaware
corporation ("Employer"), and RICHARD W. WINTERICH ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee shall, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Employer hereby employs Employee and Employee hereby accepts
employment with Employer upon the terms and conditions hereinafter set forth
with an initial start date of January 1, 1999.
2. Duties. Subject to the power of the Board of Directors of Employer to
elect and remove officers, Employee shall serve Employer as Vice President and
Chief Financial Officer of Employer, and shall perform, faithfully and
diligently, the services and functions relating to such office or otherwise
reasonably incident to such office as may be designated from time to time by the
Chief Executive Officer of Employer. Employee shall report directly to the Chief
Executive Officer of Employer. Employee shall be based in Scottsdale, Arizona,
but shall travel as required by his duties under this Agreement. Employee shall
devote his full time, attention, energies and business efforts to his duties
hereunder and to the promotion of the business and interests of Employer and its
affiliates.
3. Term. Unless earlier terminated pursuant to Section 6 below, the term of
this Agreement shall commence as of January 1, 1999. and shall end on December
31, 2001; provided, however, that the term shall automatically renew for an
additional one-year period at the end of the original three-year term and any
additional one-year term, unless either party gives written notice to the other
party, at least ninety (90) days prior to the end of the applicable term, of
such party's termination of this Agreement at the end of the applicable term. As
used herein, "Term"shall mean the original term and any additional renewal
term(s).
4. Compensation. As compensation for his services rendered under this
Agreement, during the Term Employee shall be entitled to receive the
compensation as provided in Exhibit A
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attached hereto. In addition, Employer shall reimburse Employee (1) for all
reasonable and necessary out-of-pocket travel and other expenses incurred by
Employee in rendering services required under this Agreement, on a monthly basis
upon submission of a detailed monthly statement and reasonable documentation and
(2) for one time out-of-pocket moving cost(s) for household goods and non-equity
Chicago house closing cost(s) (up to a maximum of $60,000) from Chicago to
Scottsdale, Arizona.
5. Confidentiality.
(a) Acknowledgment of Proprietary Interest. Employee recognizes the
proprietary interest of Employer and its affiliates in any Trade Secrets
(as hereinafter defined) of Employer and its affiliates. Employee
acknowledges and agrees that any and all Trade Secrets currently known by
Employee or learned by Employee during the course of his engagement by
Employer or otherwise, whether developed by Employee alone or in
conjunction with others or otherwise, shall be and is the property of
Employer and its affiliates. Employee further acknowledges and understands
that his disclosure of any Trade Secrets will result in irreparable injury
and damage to Employer and its affiliates. As used herein, "Trade Secrets"
means all confidential and proprietary information of Employer and its
affiliates, now owned or hereafter acquired, including, without limitation,
information derived from reports, investigations, experiments, research,
work in progress, drawings, designs, plans, proposals, codes, marketing and
sales programs, client lists, client mailing lists, financial projections,
cost summaries, pricing formula, and all other concepts, ideas, materials,
or information prepared or performed for or by Employer or its affiliates
and information related to the business, products or sales of Employer or
its affiliates, or any of their respective customers, other than
information which is otherwise publicly available.
(b) Covenant Not-to-Divulge Trade Secrets. Employee acknowledges and
agrees that Employer and its affiliates are entitled to prevent the
disclosure of Trade Secrets. As a portion of the consideration for the
employment of Employee and for the compensation being paid to Employee by
Employer, Employee agrees at all times during the Term and thereafter to
hold in strict confidence and not to disclose or allow to be disclosed to
any person, firm or corporation, other than to persons engaged by Employer
and its affiliates to further the business of Employer and its affiliates,
and not to use except in the pursuit of the business of Employer and its
affiliates, the Trade Secrets, without the prior written consent of
Employer, including Trade Secrets developed by Employee.
(c) Return of Materials at Termination. In the event of any termination
or cessation of his employment with Employer for any reason whatsoever,
Employee will promptly deliver to Employer all documents, data and other
information pertaining to Trade Secrets. Employee shall not retain any
documents or other information, or any reproduction or excerpt thereof,
containing or pertaining to any Trade Secrets.
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<PAGE> 3
(d) Competition During Employment. Employee agrees that during the Term,
neither he, nor any of his affiliates, will directly or indirectly: (i)
compete with Employer or its affiliates in the portable or handheld
computer power, docking, and connectivity business, which is defined as
product lines or businesses that are competitive with products that are
manufactured, marketed or sold by Employer and its affiliates during the
Term or under development during the Term (the "Business"); or (ii) act as
an officer, director, employee, consultant, shareholder, lender, or agent
of any entity which is in competition with Employer; provided, however,
that this Section 5(d) shall not prohibit Employee or any of his affiliates
from purchasing or holding an aggregate equity interest of up to 1% in any
publicly-traded company which is in competition with Employer. Furthermore,
Employee agrees that during the Term, he will undertake no planning for the
organization of any business activity competitive with the Business and
Employee will not combine or conspire with any other employees of Employer
and its affiliates for the purpose of the organization of any such
competitive business activity.
(e) Competition Following Employment. Employee agrees that for a period
of one-year after the termination or cessation of his employment for
Employer for any reason whatsoever, neither he, nor any of his affiliates,
will directly or indirectly: (i) compete with Employer or its affiliates in
the Business; (ii) act as an officer, director, employee, consultant,
shareholder, tender, or agent of any entity which is in competition with
Employer; or (iii) undertake or plan for the organization of any business
activity in competition with Employer and Employee will not combine or
conspire with any other employees of Employer or its affiliates for the
purpose of the organization of any such competitive business activity;
provided, however, that this Section 5(e) shall not prohibit Employee or
any of his affiliates from purchasing or holding an aggregate equity
interest of up to 1% in any publicly-traded company which is in competition
with Employer.
6. Termination. This Agreement and the employment relationship created
hereby shall terminate upon the occurrence of any of the following events (each,
a "Termination Event"):
(a) The expiration of the Term;
(b) The death of Employee;
(c) The excessive absence (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of termination for "just
cause" (as hereinafter defined);
(e) Written notice to Employee from Employer of termination for any
reason other than (a), (b), (c), and (d) above in this subsection; or
(f) Termination by Employee for any reason.
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<PAGE> 4
In the event of the termination of Employee's employment pursuant to
(a), (b), (c), (d) or (f), then Employee shall be entitled to only the
compensation earned by Employee as of, and payable for the period prior to, the
date of such Termination Event. In the event of the termination of Employee's
employment pursuant to (e) above, the Employee shall (i) continue to receive the
salary, provided in Exhibit A for a period of seven (7) months following the
date of termination. Notwithstanding anything to the contrary in this Agreement,
the provisions of Section 5 above shall survive any termination, for whatever
reason, of Employee's employment under this Agreement.
For purposes of this Section 6 the following terms of the following
meanings:
"excessive absence" of Employee shall mean his inability, for whatever
reason, to perform his duties under this Agreement for a continuous period
of 60 days or for 120 days out of a continuous period of 240 days.
"just cause" shall mean (a) conviction of a felony or commission of
any act of fraud, moral turpitude or dishonesty, (b) an intentional,
material violation of a statutory or fiduciary duty not corrected within
ten days after notice from Employer, (c) any material breach by Employee of
any of the terms or conditions of, or the failure to perform any material
covenant contained in, this Agreement and Employee does not cure such
breach or failure within ten days following notice from Employer; provided,
however, that Employee will not be entitled to cure any breach or failure
under this subclause (c) more than one time in any consecutive three (3)
month period, or (d) the violation by Employee of reasonable instructions
or policies established by Employer with respect to the operation of its
business and affairs or Employee's failure to carry out the reasonable
instructions of the Chief Executive Officer, or Board of Directors of
Employer and following notice thereof from Employer to Employee, Employee
does not cure any such violation or failure within ten days following
notice from Employer; provided, however, that Employee will not be entitled
to cure any breach or failure under this subclause (d) more than one time
in any consecutive three (3) month period.
7. Remedies. Employee recognizes and acknowledges that in the event of any
default in, or breach of any of, the terms, conditions or provisions of this
Agreement (either actual or threatened) by Employee, Employer's and its
affiliates remedies at law shall be inadequate. Accordingly, Employee agrees
that in such event, Employer and its affiliates shall have the right of specific
performance and/or injunctive relief in addition to any and all other remedies
and rights at law, in equity or provided herein, and such rights and remedies
shall be cumulative.
8. Acknowledgments. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 above by Employer
and its affiliates will not interfere with Employee's ability to pursue a proper
livelihood. Employee recognizes and agrees that the enforcement of this
Agreement is necessary to ensure the preservation and continuity of the business
and good will of Employer and its affiliates.
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<PAGE> 5
9. Notices. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
shall be deemed to have been duly given if given in writing and personally
delivered or sent by facsimile transmission, courier service, overnight delivery
service or by mail, registered or certified, postage prepaid with return receipt
requested, as follows:
If to Employer: Mobility Electronics, Inc.
7955 E. Redfield Road
Scottsdale, AZ 85260
Attn: Charles R. Mollo
Fax: (602) 596-0349
with a copy to: Richard F. Dahlson, Esq.
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Fax: (214) 953-5822
If to Employee: Richard W. Winterich
Mobility Electronics, Inc.
15990 Greenway-Hayden Loop, Suite 500
Scottsdale, AZ 85260
Fax: (602)609-8768
Notices delivered personally or by facsimile transmission, courier service or
overnight delivery shall be deemed communicated as of actual receipt; mailed
notices shall be deemed communicated as of three days after the date of mailing.
10. Entire Agreement. This Agreement contains the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written between the parties hereto
with respect to the subject matter hereof. No modification or amendment of any
of the terms, conditions or provisions herein may be made otherwise than by
written agreement signed by the parties hereto.
11. Governing Law and Venue. THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ARIZONA, WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES.
12. Parties Bound. This Agreement and the rights and obligations hereunder
shall be binding upon and inure to the benefit of Employer and Employee, and
their respective heirs, personal representatives, successors and assigns.
Employer shall have the right to assign this Agreement to any affiliate or to
its successors or assigns. The terms "successors" and "assigns" shall include
any
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<PAGE> 6
person, corporation, partnership or other entity that buys all or substantially
all of Employer's assets or all of its stock, or with which Employer merges or
consolidates. The rights, duties or benefits to Employee hereunder are personal
to him, and no such right or benefit may be assigned by him. The parties hereto
acknowledge and agree that Employer's affiliates are third-party beneficiaries
of the covenants and agreements of Employee set forth in Section 5 above.
13. Estate. If Employee dies prior to the payment of all sums owed, or to
be owed, to Employee pursuant to Section 4 above, then such sums, as they become
due, shall be paid to Employee's estate.
14. Enforceability. If, for any reason, any provision contained in this
Agreement should be held invalid in part by a court of competent jurisdiction,
then it is the intent of each of the parties hereto that the balance of this
Agreement be enforced to the fullest extent permitted by applicable law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any covenant is too broad to be enforced as written, it is the intent of each
of the parties that the court should reform such covenant to such narrower scope
as it determines enforceable.
15. Waiver of Breach. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party.
16. Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
17. Costs. 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, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
18. Other Obligations. Employee represents and warrants that he is not
subject to any agreement which would be violated or breached as a direct or
indirect result of Employee executing this Agreement or Employee becoming an
employee of Employer.
19. Affiliate. An "affiliate" of any party hereto shall mean any person
controlling, controlled by or under common control with such party.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
--------------------------
Charles R. Mollo,
Chief Executive Officer
/s/ RICHARD W. WINTERICH
-------------------------
Richard W. Winterich
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EXHIBIT A
1. Annual Salary: Annual Salary will be at the rate of $185,000 per year,
subject to increase at the discretion of the Board of Directors of
Employer. The Annual Salary shall be payable bi-weekly.
2. Bonuses: Employee shall be entitled to receive an annual calender year
bonus target of 25% of Employee's Annual Salary, with additional upside
thereafter, pursuant to Employer's annual bonus plan (pro rated for partial
years).
3. Benefits: Employee shall be entitled to receive such group benefits as
Employer may provide to its other employees at comparable salaries and
responsibilities to those of Employee, which shall specifically include
three weeks of paid vacation per calendar year (pro rated for partial
years).
4. Stock Options:
- Employee will be granted an option to purchase 100,000 shares of
Common Stock under Employer's 1996 Long Term Incentive Plan (the
"Plan"), which options shall: (i) be granted at the lower of
$5.75/share or the price of other options issued pursuant to the plan
before June 30, 1999. (ii) provide for equal annual vesting of 33% per
year for three years; (iii) provide for full vesting in the event of a
Change In Control; and (iv) contain such other terms and conditions as
are contained in Employer's standard form stock option agreement under
the Plan.
- Employee will be granted an additional option to purchase an
additional 30,000 shares of Common Stock (to be vested over the three
year term of this agreement) under the Plan and, on other terms and
conditions described above, subject to Mobility's consummation of an
IPO, sale, or merger prior to March 31, 2001.
- A "Change In Control" shall be deemed to have occurred for purposes
hereof (i) when a change of stock ownership of Employer of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any successor item of a similar
nature has occurred; or (ii) upon the acquisition of beneficial
ownership, directly or indirectly, by any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Exchange Act) of securities of
Employer representing 50% or more of the combined voting power of
Employer's then outstanding securities; provided that a Change In
Control will not be deemed to have occurred for purposes hereof with
respect to any person meeting the requirements of clauses (i) and (ii)
of Rule 13d-1 (b)(1) promulgated under the Exchange Act.
5. Stock Purchase
- Employee will be permitted to purchase, within sixty days of the
execution of this agreement, 30,000 shares of Common Stock at a price
per share of $5.75.
<PAGE> 1
EXHIBIT 10.8
MOBILITY ELECTRONICS, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement") dated as of April
12, 1999 is entered into between Mobility Electronics, Inc., a Delaware
corporation (the "Company"), Richard W. Winterich, 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
attached hereto 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 30,000 shares of the Company's Common Stock, par value $.01 per
share. The Option is granted as of the date first above written (the "Date of
Grant").
2. CHARACTER OF OPTION. The Option is 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 tenth anniversary of the Date of
Grant or, in the event of the Optionee's termination of employment with the
Company, on such earlier date as may be provided in Section 6(b) of the Plan.
4. VESTING. Subject to the provisions of Section 6(b) of the Plan, this
Option shall vest in full and be exercisable in whole or in part during the one
year period following the earlier of (1) the day following the date upon which
the Company closes its initial public offering of its Common Stock provided such
closing occurs on or before March 31, 2001; (2) a Change In Control of the
Company as defined in Exhibit A to the Employment Agreement by and between
Optionee and the Company dated November 20, 1998; or (3) December 31, 2007. This
option shall be exercisable at a price equal to $4.00 per share if the Option
vests pursuant to 4(1) or 4(2) above and shall be exercisable at a price equal
to 110% of the fair market value of the Common Stock on the date of exercise if
the Option vests pursuant to 4(3) above.
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.
<PAGE> 2
8. TERMINATION. The Option shall terminate on the earlier of (i) the
expiration date set forth in Section 3 above or, (ii) in the event of the
termination of the Optionee's employment, the date provided in Section 6(b) of
the Plan.
9. 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.
10. AMENDMENT. This Agreement may be amended by an instrument in writing
signed by both the Company and the Optionee.
11. CONFIDENTIALITY AND NONCOMPETITION. In consideration of the grant of
Option hereunder, Optionee agrees to the following:
(a) Acknowledgment of Proprietary Interest. Optionee recognizes the
proprietary interest of the Company and its affiliates in any Trade Secrets (as
hereinafter defined) of the Company and its affiliates. Optionee acknowledges
and agrees that any and all Trade Secrets currently known by Optionee or learned
by Optionee during the course of his engagement by the Company or otherwise,
whether developed by Optionee alone or in conjunction with others or otherwise,
shall be and is the property of the Company and its affiliates. Optionee further
acknowledges and understands that his disclosure of any Trade Secrets will
result in irreparable injury and damage to the Company and its affiliates. As
used herein, "Trade Secrets" means all confidential and proprietary information
of the Company and its affiliates, now owned or hereafter acquired, including,
without limitation, information derived from reports, investigations,
experiments, research, work in progress, drawings, designs, plans, proposals,
codes, marketing and sales programs, client lists, client mailing lists,
financial projections, cost summaries, pricing formula, and all other concepts,
ideas, materials, or information prepared or performed for or by the Company or
its affiliates and information related to the business, products or sales of the
Company or its affiliates, or any of their respective customers, other than
information which is otherwise publicly available; provided, however, "Trade
Secrets" does not include any information that is known or readily obtainable by
companies within the computer industry.
(b) Optionee acknowledges and agrees that the Company and its affiliates are
entitled to prevent the disclosure of Trade Secrets. As consideration for the
grant of the options hereunder to Optionee by the Company, Optionee agrees at
all times during his employment with the Company and thereafter to hold in
strict confidence and not to disclose or allow to be disclosed to any person,
firm or corporation, other than to persons engaged by the Company and its
affiliates to further the business of the Company and its affiliates, and not to
use except in the pursuit of the business of the Company and its affiliates, the
Trade Secrets, without the prior written consent of the Company, including Trade
Secrets developed by Optionee.
(c) Return of Materials at Termination. In the event of any termination or
cessation of his employment with the Company for any reason whatsoever, Optionee
will promptly deliver
<PAGE> 3
to the Company all documents, data and other information pertaining to
Trade Secrets. Optionee shall not take any documents or other information,
or any reproduction or excerpt thereof, containing or pertaining to any
Trade Secrets.
(d) Competition During Employment. Optionee agrees that during his
employment with the Company, neither he, nor any of his affiliates, will
directly or indirectly compete with the Company or its affiliates in the
portable or handheld computer power, docking, and connectivity business,
which is defined as product lines or businesses that are competitive with
products that are manufactured, marketed or sold by the Company and its
affiliates during the term of his employment or under development during
the term of his employment (the "Business"); and that he will not act as an
officer, director, employee, consultant, shareholder, lender, or agent of
any entity which is competitive with the Business; provided, however, that
this Section shall not prohibit Optionee or any of his affiliates from
purchasing or holding an aggregate equity interest of up to 1% in any
business in competition with the Business. Furthermore, Optionee agrees
that during his employment with the Company, he will undertake no planning
for the organization of any business activity competitive with the Business
and Optionee will not combine or conspire with any other Optionees of the
Company and its affiliates for the purpose of the organization of any such
competitive business activity.
(e) Competition Following Employment. Optionee agrees that for a
period of one-year after the termination or cessation of his employment for
the Company for any reason whatsoever, neither he, nor any of his
affiliates, will directly or indirectly: (1) compete with the Company or
its affiliates in the Business, and that he will not act as an officer,
director, Optionee, consultant, shareholder, lender, or agent of any entity
which is engaged in the Business; provided, however, that this Section
shall not prohibit Optionee or any of his affiliates from purchasing or
holding an aggregate equity interest of up to 1% in any business in
competition with the Business. Furthermore, Optionee will not combine or
conspire with any other Optionees of the Company and its affiliates for the
purpose of the organization of any such competitive business activity.
12. INVENTIONS. In consideration of the grant of Option hereunder,
Optionee agrees to the following:
(a) Disclosure to Company. Optionee agrees to promptly disclose to the
Company any and all inventions, discoveries, improvements, trade secrets,
formulas, compositions, code, designs, programs, techniques, processes, and
know-how, whether or not reduced to writing or practice, conceived by
Optionee during the period of his or her employment with the Company,
either alone or jointly with others, which relate to or result from the
actual or anticipated business, work, research or investigations of the
Company, or which result, to any extent, from use of the Company's premises
or property (the work being hereinafter collectively referred to as the
"Intellectual Property"). Further, Optionee shall disclose in confidence to
the Company all patent and copyright applications filed by or on behalf of
Optionee during the term of his employment with the Company and, to the
extent such application related to the business of the Company at the date
Optionee's employment terminates, for a period of three (3) years
thereafter.
<PAGE> 4
(b) Intellectual Property as Sole Property of the Company. Optionee
acknowledges and agrees that all the Intellectual Property shall be the
sole property of Optionee or any other entity designated by it, and
Optionee hereby assigns to the Company his or her entire right and interest
in and to all Intellectual Property. Optionee further agrees as to all
Intellectual Property to assist the Company in every way (at the Company's
expense) to obtain and from time to time enforce patents and copyrights on
the Intellectual Property in any and all countries during the term of this
Agreement. To that end, by way of illustration but not limitation, Optionee
will testify in any suit or other proceeding involving any of the
Intellectual Property, execute all documents which the Company reasonably
determines to be necessary or convenient for use in applying for and
obtaining patents and copyrights thereon and enforcing same, and execute
all necessary assignments thereof to the Company or persons designated by
it. Optionee's obligation to assist the Company in obtaining and enforcing
patents and copyrights for the Intellectual Property shall continue beyond
the termination of his employment, but the Company shall compensate
Optionee at a reasonable rate after such termination for the time actually
spent by Optionee at the Company's request on such assistance and the
Company's requests for assistance shall be reasonable in light of
Optionee's then existing business commitments. Optionee hereby irrevocably
appoints the Company, and its duly authorized officers and agents, as
Optionee's agent and attorney-in-fact to act for and on behalf of Optionee
in filing all patent and copyright applications, amendments, renewals, and
all other appropriate documents in any way related to Intellectual
Property. The Company will promptly notify Optionee following any such
filing, provided that the Company will not be obligated to make such
notification if as a result the Company would be in violation of any
agreement or order to which it is subject or bound.
(c) List of Prior Inventions. As a matter of record, Optionee has set
forth on Exhibit "A" attached hereto a complete list separately identifying
each invention, discovery, improvement, trade secret, formula, composition,
code, design, program, technique, process and know-how made or discovered
by Optionee prior to his employment with the Company. Optionee represents
and covenants that such list is complete. As a matter of record, Optionee
has set forth on Exhibit "A" attached hereto a complete list of all
inventions, programs, discoveries, or improvements relating to the
Company's business which have been made by Optionee prior to his employment
with the Company. Optionee represents and covenants that such list is
complete. All such matters set forth in Exhibit "A", if any, which Optionee
made prior to his employment by the Company are excluded from the scope of
this Agreement.
(d) Time of Invention; Presumption. For the purposes of this
Agreement, an invention or other Intellectual Property is deemed to have
been made or conceived during the duration of employment if during such
time, the invention or other Intellectual Property was conceived or first
actually reduced to writing or practice; and Optionee agrees that any
disclosure of an invention, Intellectual Property or any patent or
copyright application made within one (1) year after termination of his
employment shall be presumed to relate to an invention or other
Intellectual Property which was made or conceived during the term of
Optionee's employment unless Optionee provides satisfactory and compelling
evidence to the contrary.
(e) Training and Experience. Nothing herein is intended to prevent or
restrict the use by Optionee of Optionee's education, training and
experience, except insofar as is expressly
<PAGE> 5
provided.
13. 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
--------------------
Charles R. Mollo
Chief Executive Officer
OPTIONEE:
/s/ RICHARD W. WINTERICH
------------------------
Richard W. Winterich
###-##-####
Social Security Number of Optionee
<PAGE> 6
Exhibit A
<PAGE> 1
EXHIBIT 10.9
WINTERICH, RICHARD W.
MOBILITY ELECTRONICS, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement") dated as of
April 12, 1999 is entered into between Mobility Electronics, Inc., a Delaware
corporation (the "Company"), Richard W. Winterich, 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 attached hereto 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 100,000 shares of the Company's Common
Stock, par value $.01 per share, at a price of $4.00 per share. The Option is
granted as of the date first above written (the "Date of Grant").
2. CHARACTER OF OPTION. The Option is 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 fifth anniversary of the
Date of Grant or, in the event of the Optionee's termination of employment with
the Company, on such earlier date as may be provided in Section 6(b) of the
Plan.
4. VESTING. Subject to the provisions of Section 6(b) of the
Plan, the Option may be exercised according to the following schedule,
provided, however that this Option shall vest in full if there is a Change In
Control as defined in the Employment Agreement between Optionee and the Company
dated November 20, 1998.
<TABLE>
<CAPTION>
Percentage
Exercisable Period
----------- ------
<S> <C>
33.33% After one year from the Date of Grant
66.66% After two years from the Date of Grant
100% After three years from the Date of Grant
</TABLE>
The unexercised portion of the Option from one period may be carried
over to a subsequent period or periods, and the right of the Optionee to
exercise the Option as to such unexercised portion shall continue for the
entire term.
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.
<PAGE> 2
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. TERMINATION. The Option shall terminate on the earlier of (i)
the expiration date set forth in Section 3 above or, (ii) in the event of the
termination of the Optionee's employment, the date provided in Section 6(b) of
the Plan.
9. 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.
10. AMENDMENT. This Agreement may be amended by an instrument in
writing signed by both the Company and the Optionee.
11. CONFIDENTIALITY AND NONCOMPETITION. In consideration of the
grant of Option hereunder, Optionee agrees to the following:
(a) Acknowledgment of Proprietary Interest. Optionee
recognizes the proprietary interest of the Company and its affiliates
in any Trade Secrets (as hereinafter defined) of the Company and its
affiliates. Optionee acknowledges and agrees that any and all Trade
Secrets currently known by Optionee or learned by Optionee during the
course of his engagement by the Company or otherwise, whether
developed by Optionee alone or in conjunction with others or
otherwise, shall be and is the property of the Company and its
affiliates. Optionee further acknowledges and understands that his
disclosure of any Trade Secrets will result in irreparable injury and
damage to the Company and its affiliates. As used herein, "Trade
Secrets" means all confidential and proprietary information of the
Company and its affiliates, now owned or hereafter acquired,
including, without limitation, information derived from reports,
investigations, experiments, research, work in progress, drawings,
designs, plans, proposals, codes, marketing and sales programs, client
lists, client mailing lists, financial projections, cost summaries,
pricing formula, and all other concepts, ideas, materials, or
information prepared or performed for or by the Company or its
affiliates and information related to the business, products or sales
of the Company or its affiliates, or any of their respective
customers, other than information which is otherwise publicly
available; provided, however, "Trade Secrets" does not include any
information that is known or readily obtainable by companies within
the computer industry.
(b) Covenant Not-to-Divulge Trade Secrets. Optionee
acknowledges and agrees that the Company and its affiliates are
entitled to prevent the disclosure of Trade Secrets. As consideration
for the grant of the options hereunder to Optionee by the Company,
Optionee agrees at all times during his employment with the Company and
thereafter to hold in strict confidence and not to disclose or allow to
be disclosed to any person, firm or corporation, other than to persons
engaged by the Company and its affiliates to further the business of
the Company and its affiliates, and not to use except in the pursuit of
the business of the Company and its
<PAGE> 3
affiliates, the Trade Secrets, without the prior written consent of the
Company, including Trade Secrets developed by Optionee.
(c) Return of Materials at Termination. In the event of
any termination or cessation of his employment with the Company for
any reason whatsoever, Optionee will promptly deliver to the Company
all documents, data and other information pertaining to Trade Secrets.
Optionee shall not take any documents or other information, or any
reproduction or excerpt thereof, containing or pertaining to any Trade
Secrets.
(d) Competition During Employment. Optionee agrees that
during his employment with the Company, neither he, nor any of his
affiliates, will directly or indirectly compete with the Company or
its affiliates in the portable or handheld computer power, docking,
and connectivity business, which is defined as product lines or
businesses that are competitive with products that are manufactured,
marketed or sold by the Company and its affiliates during the term of
his employment or under development during the term of his employment
(the "Business"); and that he will not act as an officer, director,
employee, consultant, shareholder, lender, or agent of any entity
which is competitive with the Business; provided, however, that this
Section shall not prohibit Optionee or any of his affiliates from
purchasing or holding an aggregate equity interest of up to 1% in any
business in competition with the Business. Furthermore, Optionee
agrees that during his employment with the Company, he will undertake
no planning for the organization of any business activity competitive
with the Business and Optionee will not combine or conspire with any
other Optionee of the Company and its affiliates for the purpose of
the organization of any such competitive business activity.
(e) Competition Following Employment. Optionee agrees
that for a period of one-year after the termination or cessation of
his employment for the Company for any reason whatsoever, neither he,
nor any of his affiliates, will directly or indirectly: (1) compete
with the Company or its affiliates in the Business, and that he will
not act as an officer, director, Optionee, consultant, shareholder,
lender, or agent of any entity which is engaged in the Business;
provided, however, that this Section shall not prohibit Optionee or
any of his affiliates from purchasing or holding an aggregate equity
interest of up to 1% in any business in competition with the Business.
Furthermore, Optionee will not combine or conspire with any other
Optionees of the Company and its affiliates for the purpose of the
organization of any such competitive business activity.
12. INVENTIONS. In consideration of the grant of Option
hereunder, Optionee agrees to the following:
(a) Disclosure to Company. Optionee agrees to promptly
disclose to the Company any and all inventions, discoveries,
improvements, trade secrets, formulas, compositions, coded designs,
programs, techniques, processes, and know-how, whether or not reduced
to writing or practice, conceived by Optionee during the period of his
or her employment with the Company, either alone or jointly with
others, which relate to or result from the actual or anticipated
business, work, research or investigations of the Company, or which
result, to any extent, from use of the Company's premises or property
(the work being hereinafter collectively referred to as the
"Intellectual Property"). Further, Optionee shall disclose in
confidence to the Company all patent and copyright applications filed
by or on behalf of Optionee during the term of his employment with the
Company and, to the extent such application related to the business of
the
<PAGE> 4
Company at the date Optionee's employment terminates, for a period of
three (3) years thereafter.
(b) Intellectual Property as Sole Property of the
Company. Optionee acknowledges and agrees that all the Intellectual
Property shall be the sole property of Optionee or any other entity
designated by it, and Optionee hereby assigns to the Company his or
her entire right and interest in and to all Intellectual Property.
Optionee further agrees as to all Intellectual Property to assist the
Company in every way (at the Company's expenses) to obtain and from
time to time enforce patents and copyrights on the Intellectual
Property in any and all countries during the term of this Agreement.
To that end, by way of illustration but not limitation. Optionee will
testify in any suit or other proceeding involving any of the
Intellectual Property, execute all documents which the Company
reasonably determines to be necessary or convenient for use in
applying for and obtaining patents and copyrights thereon and
enforcing same, and execute all necessary assignments thereof to the
Company or persons designated by it. Optionee's obligation to assist
the Company in obtaining and enforcing patents and copyrights for the
Intellectual Property shall continue beyond the termination of his
employment, but the Company shall compensate Optionee at a reasonable
rate after such termination for the time actually spent by Optionee at
the Company's request as such assistance and the Company's requests
for assistance shall be reasonable in light of Optionee's then
existing business commitments. Optionee hereby irrevocably appoints
the Company, and its duly authorized officers and agents, as
Optionee's agent and attorney-in-fact to act for and on behalf of
Optionee in filing all patent and copyright applications, amendments,
renewals, and all other appropriate documents in any way related to
Intellectual Property. The Company will promptly notify Optionee
following any such filing, provided that the Company will not be
obligated to make such notification if as a result the Company would
be in violation of any agreement or order to which it is subject or
bound.
(c) List of Prior Inventions. As a matter of record,
Optionee has set forth on Exhibit "A" attached hereto a complete list
separately identifying each invention, discovery, improvement, trade
secret, formula, composition, code, design, program, technique,
process and know-how made or discovered by Optionee prior to his
employment with the Company. Optionee represents and covenants that
such list is complete. As a matter of record, Optionee has set forth
on Exhibit "A" attached hereto a complete list of all inventions,
programs, discoveries, or improvements relating to the Company's
business which have been made by Optionee prior to his employment with
the Company. Optionee represents and covenants that such list is
complete. All such matters set forth in Exhibit "A", if any, which
Optionee made prior to his employment by the Company are excluded from
the scope of this Agreement.
(d) Time of Invention; Presumption. For the purposes of
this Agreement, an invention or other Intellectual Property is deemed
to have been made or conceived during the duration of employment if
during such time, the invention or other Intellectual Property was
conceived or first actually reduced to writing or practice; and
Optionee agrees that any disclosure of an invention, Intellectual
Property or any patent or copyright application made within one (1)
year after termination of his employment shall be presumed to relate
to an invention or other Intellectual Property which was made or
conceived during the term of Optionee's employment unless Optionee
provides satisfactory and compelling evidence to the contrary.
<PAGE> 5
(e) Training and Experience. Nothing herein is intended
to prevent or restrict the use by Optionee of Optionee's education,
training and experience, except insofar as is expressly provided.
13. MISCELLANEOUS. This Agreement will be construed and enforced
in accordance with 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
-----------------------------------------
Charles R. Mollo
Chief Executive Officer
OPTIONEE:
/s/ RICHARD. WINTERICH
---------------------------------------------
Richard W. Winterich
[WITHHELD]
---------------------------------------------
Social Security Number of Optionee
<PAGE> 1
EXHIBIT 10.10
FIRST AMENDMENT
TO
INCENTIVE STOCK OPTION AGREEMENT
This First Amendment to Incentive Stock Option Agreement (the
"Amendment"), dated as of August 23, 1999, is entered into by and between
Richard W. Winterich ("Optionee") and Mobility Electronics, Inc. (the
"Company"). Capitalized terms used herein but not defined herein shall have the
respective meanings ascribed to them in the Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, Winterich and the Company are parties to that certain
Incentive Stock Option Agreement, dated as of April 12, 1999, pursuant to which
Optionee was granted options to purchase up to 30,000 shares of the Company's
common stock (the "Agreement"); and
WHEREAS, Winterich and the Company desire to amend the Agreement to
the extent provided herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
A. AMENDMENT TO AGREEMENT. The Agreement is hereby amended as follows:
(i) The first sentence of Section 1 of the Agreement is
hereby amended to read in its entirety as follows:
"Under the terms and conditions of the Company's Amended and
Restated 1996 Long Term Incentive Plan (the "Plan"), a copy
of which is attached hereto 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 50,000 shares of the Company's common stock, par
value $0.01 per share, at a purchase price of $0.01 per
share."
(ii) Section 2 of the Agreement is hereby amended to read in
its entirety as follows:
"2. CHARACTER OF OPTION. The Option is an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"); provided, however, that to the
extent the Option does not qualify as an incentive stock option by
virtue of exceeding the $100,000 limitation in Section 422(d) of the
Code, the Option shall be treated as an option other than an incentive
stock option."
<PAGE> 2
(iii) Section 4 of the Agreement is hereby amended to read in
its entirety as follows:
4. VESTING. Subject to the provisions of Section
6(b) of the Plan, this Option shall vest in full and be
exercisable in whole or in part during its term following the
earlier of: (i) the consummation of an initial public
offering by the Company; (ii) the consolidation or merger of
the Company with or into another business entity pursuant to
which immediately following such consolidation or merger, the
Company's stockholders fail to hold at least a majority of
the voting stock of the surviving entity; (iii) the sale or
other transfer in a single transaction or a series of related
transactions of all or substantially all of the assets of the
Company, except to a subsidiary of the Company; (iv) a
"Change In Control" of the Company (as defined in Exhibit A
to the Employment Agreement between the Company and Optionee,
dated November 20, 1998); (v) the consummation by the Company
of a major strategic transaction (which shall mean an
investment of $10 million or more into the Company by a
strategic partner or investor (excluding any debt facility
provided by a financial institution)); or (vi) December 31,
2007.
B. TERMINATION OF AMENDMENT. Notwithstanding anything contained herein
to the contrary, this Amendment shall be considered null and void and to have
never existed in the event that Optionee ceases to be an employee of the
Company on or prior to the first to occur of the following: (i) December 31,
2000; (ii) the consummation of an initial public offering by the Company; (iii)
the consolidation or merger of the Company with or into another business entity
pursuant to which immediately following such consolidation or merger, the
Company's stockholders fail to hold at least a majority of the voting stock of
the surviving entity; or (iv) the sale or other transfer in a single
transaction or a series of related transactions of all or substantially all of
the assets of the Company, except to a subsidiary of the Company (each, a
"Triggering Event"). Optionee agrees that if Optionee exercises any portion of
this Option prior to the occurrence of a Triggering Event and fails to be
employed by the Company at the time of the first occurrence of a Triggering
Event, then Optionee shall forfeit all shares of Common Stock so purchased (and
the Company shall refund to Optionee the exercise price therefor) (the
"Forfeiture"). The Company shall hold any stock certificates to be issued to
Optionee upon exercise of this Option until the occurrence of a Triggering
Event and, in the case of a Forfeiture, the Company shall cancel such stock
certificates so held by the Company.
C. MISCELLANEOUS.
(1) Except as specifically provided herein, the Agreement
shall remain in full force and effect.
(2) This Amendment 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.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
---------------------------------
Charles R. Mollo,
Chief Executive Officer
/s/ RICHARD W. WINTERICH
---------------------------------
Richard W. Winterich
-3-
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT
TO
INCENTIVE STOCK OPTION AGREEMENT
This First Amendment to Incentive Stock Option Agreement (the "Amendment"),
dated as of August 23, 1999, is entered into by and between Richard W. Winterich
("Optionee") and Mobility Electronics, Inc. (the "Company"). Capitalized terms
used herein but not defined herein shall have the respective meanings ascribed
to them in the Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, Winterich and the Company are parties to that certain Incentive
Stock Option Agreement, dated as of April 12, 1999, pursuant to which Optionee
was granted options to purchase up to 100,000 shares of the Company's common
stock (the "Agreement"); and
WHEREAS, Winterich and the Company desire to amend the Agreement to the
extent provided herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
A. AMENDMENT TO AGREEMENT. The Agreement is hereby amended as follows:
(i) The first sentence of Section 1 of the Agreement is hereby amended
to read in its entirety as follows:
"Under the terms and conditions of the Company's Amended and Restated
1996 Long Term Incentive Plan (the "Plan"), a copy of which is attached
hereto 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 100,000 shares of the Company's common stock, par
value $0.01 per share, at a purchase price of $2.00 per share."
(ii) Section 2 of the Agreement is hereby amended to read in its
entirety as follows:
"2. CHARACTER OF OPTION. The Option is an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"); provided, however, that to the extent
the Option does not qualify as an incentive stock option by virtue of
exceeding the $100,000 limitation in Section 422(d) of the Code, the
Option shall be treated as an option other than an incentive stock
option."
<PAGE> 2
B. TERMINATION OF AMENDMENT. Notwithstanding anything contained herein to
the contrary, this Amendment shall be considered null and void and to have never
existed in the event that Optionee ceases to be an employee of the Company on or
prior to the first to occur of the following: (i) December 31, 2000; (ii) the
consummation of an initial public offering by the Company; (iii) the
consolidation or merger of the Company with or into another business entity
pursuant to which immediately following such consolidation or merger, the
Company's stockholders fail to hold at least a majority of the voting stock of
the surviving entity; or (iv) the sale or other transfer in a single transaction
or a series of related transactions of all or substantially all of the assets of
the Company, except to a subsidiary of the Company.
C. MISCELLANEOUS.
(1) Except as specifically provided herein, the Agreement shall remain
in full force and effect.
(2) This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
-----------------------------------------
Charles R. Mollo, Chief Executive Officer
/s/ RICHARD W. WINTERICH
-----------------------------------------
Richard W. Winterich
-2-
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as of
the 1st day of December, 1999, by and between Mobility Electronics, Inc., a
Delaware corporation ("Employer"), and Charles R. Mollo ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee shall, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Employer hereby employs Employee and Employee hereby accepts
employment with Employer upon the terms and conditions hereinafter set forth.
2. Duties. Subject to the power of the Board of Directors of Employer (the
"Board") to elect and remove officers, Employee shall serve Employer as Chief
Executive Officer and President of Employer, and shall perform, faithfully and
diligently, the services and functions relating to such office or otherwise
reasonably incident to such office as may be designated from time to time by the
Board. As such, Employee shall report directly to the Board. Employee shall be
based in Scottsdale, Arizona, but shall have duties and responsibilities at
and/or with respect to each location at which Employer or any of its
subsidiaries conducts the Business (as hereinafter defined) and shall travel as
reasonably required by his duties under this Agreement. Employee shall devote
his full time, attention, energies and business efforts to his duties hereunder
and to the promotion of the business and interests of Employer and its
subsidiaries as is customary for an executive vice president of a company of
like-size in a service business; provided, however, that Employee may
participate in other business ventures as long a such participation does not
interfere with Employee's duties hereunder (including those contained in this
sentence).
3. Term. The term of this Agreement shall commence as of the date hereof
and shall continue, unless earlier terminated pursuant to Section 7 below, for a
period of two (2) years thereafter (the "Initial Term"); provided, however, that
the term of this Agreement shall thereafter be renewed on a year-to-year basis
thereafter (each, a "Renewal Term"), unless either party gives
Employment Agreement - Charles R. Mollo Page 1
<PAGE> 2
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
end of the then current term. The Initial Term and any Renewal Term(s) are
sometimes collectively referred to herein as the "Term".
4. Compensation. As compensation for his services rendered under this
Agreement, during the Term Employee shall be entitled to receive the following:
(a) Salary. Employee shall be paid a salary as provided in Exhibit A
(the "Salary").
(b) Bonus. Employee shall also be entitled to receive bonuses as
provided in Exhibit A.
(c) Stock Options. As of the date hereof, Employer shall execute and
deliver to Employee a Stock Option Agreement, the form of which is attached
hereto as Exhibit B-1.
(d) Benefits. Employee shall also be entitled to receive such group
benefits as Employer may provide to its other employees at comparable
salaries and responsibilities to those of Employee. In addition, Employee
shall be entitled to receive the benefits set forth on Exhibit A.
(e) Expenses. Employer shall reimburse Employee for the expenses
identified on Exhibit A and for all reasonable out-of-pocket travel and
other expenses incurred by Employee in rendering services required under
this Agreement upon submission of a detailed statement and reasonable
documentation.
5. Confidentiality.
(a) Acknowledgment of Proprietary Interest. Employee recognizes the
proprietary interest of Employer and its affiliates in any Trade Secrets
(as hereinafter defined) of Employer and its affiliates. Employee
acknowledges and agrees that any and all Trade Secrets currently known by
Employee or learned by Employee during the course of his engagement by
Employer or otherwise, whether developed by Employee alone or in
conjunction with others or otherwise, shall be and are the property of
Employer and its affiliates. Employee further acknowledges and understands
that his disclosure of any Trade Secrets may result in irreparable injury
and damage to Employer and its affiliates. As used herein, "Trade Secrets"
means all confidential and proprietary information of Employer and its
affiliates, now owned or hereafter acquired, including, without limitation,
information derived from reports, investigations, experiments, research,
work in progress, drawing, designs, plans, proposals, codes, marketing and
sales programs, client lists, client mailing lists, financial projections,
cost summaries, pricing formula, and all other concepts, ideas, materials,
or information prepared or performed for or by Employer or its affiliates
and
Employment Agreement - Charles R. Mollo Page 2
<PAGE> 3
information related to the business, products or sales of Employer or its
affiliates, or any of their respective customers, other than information
which is otherwise publicly available.
(b) Covenant Not-to-Divulge Trade Secrets. Employee acknowledges and
agrees that Employer and its affiliates are entitled to prevent the
disclosure of Trade Secrets. As a portion of the consideration for the
employment of Employee and for the compensation being paid to Employee by
Employer, Employee agrees at all times during the Term and for a period of
five (5) years thereafter to hold in strict confidence and not to
intentionally disclose (except for such disclosures as are required by law,
in which case, Employee agrees to give Employer notice thereof prior to
making any such disclosure) or allow to be disclosed to any person, firm or
corporation, other than to persons engaged by Employer and its affiliates
to further the business of Employer and its affiliates, and not to use
except in the pursuit of the business of Employer and its affiliates, the
Trade Secrets, without the prior written consent of Employer, including
Trade Secrets developed by Employee.
(c) Return of Materials at Termination. In the event of any
termination or cessation of his employment with Employer for any reason
whatsoever, Employee will promptly deliver to Employer all documents, data
and other information pertaining to Trade Secrets. Employee shall not take
any documents or other information, of whatever type and in whatever form,
or any reproduction or excerpt thereof, containing or pertaining to any
Trade Secrets.
(d) Competition During and After Employment. Employee agrees that
during the Term and for a period of one year thereafter, neither Employee,
nor any of his affiliates, will directly or indirectly act as an investor,
principal, member, partner, officer, director, employee, consultant,
shareholder, lender, or agent of any entity which is engaged in any
business of the same nature as, or in competition with, the business
conducted by Employer and its subsidiaries during the Term (the "Business")
within the World; provided, however, that: (i) this Section 5(d) shall not
prohibit Employee or any of his affiliates from purchasing or holding an
aggregate equity interest of not more than 1% in any business in
competition with the Business being conducted by Employer and its
subsidiaries; (ii) this Section 5(d) shall not apply if a termination
occurs pursuant to subpart (f) of the first paragraph of Section 7 below;
or (iii) this Section 5(d) shall not apply if a termination of Employee's
employment occurs and the conditions of Section 8(a) below have been
satisfied.
6. Prohibition on Disparaging Remarks. Employee shall, from the date of
this Agreement forward, refrain from making disparaging, negative or other
similar remarks concerning Employer or any of its affiliates to any third party.
Similarly, Employer and its affiliates shall from the date of this Agreement
forward, refrain from making disparaging, negative or other similar remarks
concerning Employee to any third party.
Employment Agreement - Charles R. Mollo Page 3
<PAGE> 4
7. Termination. This Agreement and the employment relationship created
hereby shall terminate upon the occurrence of any of the following events (each,
a "Termination Event"):
(a) The expiration of the Term as set forth in Section 3 above;
(b) The death of Employee;
(c) The Disability (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of termination for Just
Cause (as hereinafter defined);
(e) Written notice to Employee from Employer of termination for any
reason other than Just Cause;
(f) Written notice to Employer from Employee of termination for any
reason other than Constructive Termination (as hereinafter defined); or
(g) Written notice to Employer from Employee of termination for
Constructive Termination.
In the event of the termination of Employee's employment pursuant to (a),
(b), (c), (d) or (f) above, then Employee shall be entitled to only the
compensation earned by Employee as of, and payable for the period prior to, the
date of such Termination Event. In the event of the termination of Employee's
employment pursuant to (e) or (g) above, then Employee shall be entitled to
continue to receive the Salary for a period of (6) months following the date of
termination. Notwithstanding anything to the contrary in this Agreement, the
provisions of Sections 5 and 6 above shall survive any termination, for whatever
reason, of Employee's employment under this Agreement.
For purposes of this Section 7 the following terms of the following
meanings:
"Constructive Termination" shall mean: (a) a material reduction in
Employee's duties and responsibilities without Employee's consent; (b) if
Employee is terminated as the Chief Executive Officer of Employer; (c) any
breach by Employer of any of the material terms of, or the failure to
perform any material covenant contained in this Agreement and following
written notice thereof from Employee to Employer, Employer does not cure
such breach or failure within fifteen (15) days thereafter; provided,
however, that Employer will not be entitled to cure any such breach or
failure more than one time in any consecutive three month period; (d) a
required relocation by Employee from the Phoenix, Arizona metroplex; or (e)
a reduction in Employee's Salary without Employee's prior written consent.
Employment Agreement - Charles R. Mollo Page 4
<PAGE> 5
"Disability" of Employee shall mean his inability, because of mental
or physical illness or incapacity, to perform his duties under this
Agreement for a continuous period of 90 consecutive days or for any 120
days out of a 360-day period. In the event of any disagreement between
Employer and Employee regarding the existence or non-existence of any such
disability, upon written request from either party to the other, Employer
and Employee or his legal guardian or duly authorized attorney-in-fact (if
he is not legally competent) shall each designate one Arizona licensed
physician and the two physicians so designated shall designate a third. All
three physicians so appointed shall personally examine Employee, and the
decision of a majority of such panel of physicians shall determine whether
such disability exists. Employee hereby authorizes the disclosure and
release to Employer of such determination and all supporting medical
records, and both parties hereby agree to be bound by such determination.
"Just Cause" shall mean: (a) the commission by Employee of any act
involving moral turpitude or the commission by Employee of any act or the
suffering by Employee of any occurrence or state of facts, which renders
Employee incapable of performing his duties under this Agreement (other
than Disability), or adversely affects or could be expected to adversely
affect Employer's business reputation; (b) Employee's being convicted of a
felony; (c) any breach by Employee of any of the material terms of, or the
failure to perform any material covenant contained in, this Agreement and
following written notice thereof from Employer to Employee, Employee does
not cure such breach or failure within fifteen (15) days thereafter;
provided, however, that Employee will not be entitled to cure any breach or
failure under this subclause (c) more than one time in any consecutive six
month period; (d) the violation by Employee of reasonable and appropriate
instructions or policies established by Employer which have been
communicated to Employee with respect to the operation of their businesses
and affairs or Employee's failure to carry out the reasonable instructions
of the Board and following written notice thereof from Employer to
Employee, Employee does not cure any such violation or failure within
fifteen (15) days thereafter; provided, however, that Employee will not be
entitled to cure any violation or failure under this subclause (d) more
than one time in any consecutive six month period; or (e) the commission by
Employee of any act or the existence of any state of facts which would
legally justify an employer in terminating a contract of employment.
8. Change in Control; Change in Chief Executive Officer.
(a) Termination Payment. Notwithstanding anything to the contrary
contained in Section 7 above, if Employee's employment with Employer is
terminated by: (i) Employer by reason of subpart (e) of the first paragraph
of Section 7 above; or (ii) Employee by reason of subpart (h) of the first
paragraph of Section 7 above, and, in either case, such termination
occurred within two (2) years following a Change In Control (as defined in
subparagraph (b) below), then, in either event, Employee shall be entitled
to continue to receive a lump-sum payment equal to the Employee's then
current Salary for the remainder of the then applicable Term.
Employment Agreement - Charles R. Mollo Page 5
<PAGE> 6
(b) Change In Control. A "Change In Control" will be deemed to have
occurred for purposes hereof: (i) upon the consolidation or merger of
Employer with or into another corporation or business entity pursuant to
which immediately following such merger or consolidation, Employer's
stockholders fail to hold at least a majority of the voting stock of the
surviving entity or its ultimate parent corporation; (ii) upon the sale or
other transfer in a single transaction or a series of related transactions
of all or substantially all of the assets of Employer, except to a
subsidiary of Employer; or (iii) upon the acquisition of beneficial
ownership, directly or indirectly, by any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended) of securities of Employer representing more than fifty percent
(50%) of the combined voting power of Employer's then outstanding voting
securities.
9. Remedies. Employee recognizes and acknowledges that in the event of any
default in, or breach of any of, the terms, conditions or provisions of this
Agreement (either actual or threatened) by Employee, Employer's and its
affiliates remedies at law shall be inadequate. Accordingly, Employee agrees
that in such event, Employer and its affiliates shall have the right of specific
performance and/or injunctive relief in addition to any and all other remedies
and rights at law, in equity or provided herein, and such rights and remedies
shall be cumulative.
10. Acknowledgments. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 and 6 above by
Employer and its affiliates will not interfere with Employee's ability to pursue
a proper livelihood. Employee recognizes and agrees that the enforcement of this
Agreement is necessary to ensure the preservation and continuity of the business
and good will of Employer and its affiliates.
11. Notices. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
shall be deemed to have been duly given if given in writing and personally
delivered or sent by facsimile transmission, courier service, overnight delivery
service or by mail, registered or certified, postage prepaid with return receipt
requested, as follows:
If to Employer: Mobility Electronics, Inc.
7955 East Redfield Road
Scottsdale, Arizona 85260
Attn: President
Fax: 602/596-0349
If to Employee: Charles R. Mollo
5528 Eubank Boulevard, N.E.
Albuquerque, New Mexico 87111
Employment Agreement - Charles R. Mollo Page 6
<PAGE> 7
Notices delivered personally or by facsimile transmission, courier service or
overnight delivery shall be deemed communicated as of actual receipt; mailed
notices shall be deemed communicated as of three days after the date of mailing.
12. Entire Agreement. This Agreement, including the Exhibits attached
hereto, contains the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
oral or written between the parties hereto with respect hereto. No modification
or amendment of any of the terms, conditions or provisions herein may be made
otherwise than by written agreement signed by the parties hereto.
13. Governing Law and Venue. THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES.
ANY ACTION BROUGHT BY EITHER PARTY HERETO INVOLVING ENFORCEMENT, TERMINATION,
INTERPRETATION, OR MODIFICATION HEREOF, OR OTHERWISE RELATED TO THIS AGREEMENTS
IN ANY WAY SHALL BE BROUGHT IN A COURT LOCATED IN PHOENIX, ARIZONA, AND NEITHER
PARTY HERETO SHALL BE HEARD TO ASSERT THE DEFENSE OF INCONVENIENT FORUM IN ANY
SUCH ACTION.
14. Parties Bound. This Agreement and the rights and obligations hereunder
shall be binding upon and inure to the benefit of Employer and Employee, and
their respective heirs, personal representatives, successors and assigns.
Employer shall have the right to assign this Agreement to any affiliate or to
its successors or assigns. The terms "successors" and "assigns" shall include
any person, corporation, partnership or other entity that buys all or
substantially all of Employer's assets or all of its stock, or with which
Employer merges or consolidates. The rights, duties or benefits to Employee
hereunder are personal to him, and no such right, duty or benefit may be
assigned by him. The parties hereto acknowledge and agree that Employer's
affiliates are third-party beneficiaries of the covenants and agreements of
Employee set forth in Sections 5 and 6 above.
15. Arbitration. Any dispute or claim arising under or with respect to this
Agreement shall be settled by arbitration in Phoenix, Arizona, pursuant to the
rules and guidelines of the American Arbitration Association - Commercial
Division. The decision of the arbitrators shall be final and binding upon
Employer and Employee, and any decision or award rendered by the arbitrators may
be entered as a judgment or order in any court having jurisdiction.
16. Estate. If Employee dies prior to the payment of all sums owed, or to
be owed, to Employee pursuant to Section 4 above, then such sums, as they become
due, shall be paid to Employee's estate.
Employment Agreement - Charles R. Mollo Page 7
<PAGE> 8
17. Enforceability. If, for any reason, any provision contained in this
Agreement should be held invalid in part by a court of competent jurisdiction,
then it is the intent of each of the parties hereto that the balance of this
Agreement be enforced to the fullest extent permitted by applicable law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any covenant is too broad to be enforced as written, it is the intent of each
of the parties that the court should reform such covenant to such narrower scope
as it determines enforceable.
18. Waiver of Breach. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party.
19. Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
20. Costs. If any action at law or in equity, or by reason of Section 14
above, is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which he or it may be
entitled.
21. Other Obligations. Employee represents and warrants that he is not
subject to any agreement which would be violated or breached as a direct or
indirect result of Employee executing this Agreement or Employee becoming an
employee of Employer.
22. Affiliate; Subsidiary. An "affiliate" of any party hereto shall mean
any person controlling, controlled by or under common control with such party. A
"subsidiary" of Employer is any partnership, corporation, limited liability
company or other entity in which Employer owns an equity interest. For purposes
of this Agreement, the term "control", when used with respect to any specified
person or entity means the power to direct or cause the direction of the
management and policies of such person or entity, directly or indirectly,
whether through the ownership of voting securities of ten percent (10%) or more,
by contract, or otherwise, and the term "controlled" has the meaning correlative
to the foregoing.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ RICHARD W. WINTERICH
------------------------------------
Title: CFO
---------------------------------
/s/ CHARLES R. MOLLO
---------------------------------------
Charles R. Mollo
Employment Agreement - Charles R. Mollo Page 8
<PAGE> 9
EXHIBIT A
A. Base Salary: Employee shall receive an annual Salary of $200,000, payable
bi-weekly in arrears (provided, however, that such Annual
Salary shall automatically be increased by $25,000 per annum
upon the consummation of an initial public offering by
Employer), which annual Salary shall be subject to increase
from time to time as may be determined by the Board; but
which increase must be made as of the first anniversary of
the date of this Agreement in the amount of at least seven
percent (7%) if Employer has positive net income for fiscal
year 2000.
B. Bonus
Compensation: Employee shall be entitled to receive a cash bonus of up to
fifty percent (50%) of Employee's then current base salary
for each fiscal year of Employer during the Term
(i.e., ended December 31 of each year) as to be determined
under a discretionary bonus plan of Employer to be developed
by the Board for Employer's executive officers.
C. Additional
Benefits: Employee shall have four (4) weeks paid vacation for each
12-month period during the Term.
D. Additional
Expenses: Employer shall pay for an apartment in Scottsdale, Arizona
for Employee and a rental car in Phoenix, Arizona.
<PAGE> 1
EXHIBIT 10.13
MOLLO, CHARLES R.
MOBILITY ELECTRONICS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (the "Agreement") dated as of
December 1, 1999 is entered into between Mobility Electronics, Inc., a Delaware
corporation (the "Company"), and Charles R. Mollo, 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 attached hereto 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 200,000 shares of the Company's Common Stock, par value $.01
per share, at a price of $2.00 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 4,762 shares per
month for 41 months, commencing on January 1, 2000, and 4,758 shares on the 42nd
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:
(i) upon a Change In Control (as defined in the Employment Agreement, of even
date herewith, by and between the Company and Optionee); or (ii) if the Common
Stock is then trading on a national securities exchange or the Nasdaq National
Market and the closing price of the Common Stock for ninety consecutive trading
dates on such exchange or market exceeds $8.00 per share (as adjusted for stock
splits, stock dividends, reorganizations and the like occurring after the date
hereof). 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.
1
<PAGE> 2
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.
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/ RICHARD W. WINTERICH
------------------------------------
Title: CFO
---------------------------------
OPTIONEE:
/s/ CHARLES R. MOLLO
---------------------------------------
Charles R. Mollo
---------------------------------------
Social Security Number of Optionee
2
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into
as of the 1st day of December, 1999, by and between Mobility Electronics, Inc.,
a Delaware corporation ("Employer"), and Jeffrey S. Doss ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee shall, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Employer hereby employs Employee and Employee
hereby accepts employment with Employer upon the terms and conditions
hereinafter set forth.
2. Duties. Subject to the power of the Board of Directors of
Employer (the "Board") to elect and remove officers, Employee shall serve
Employer as an Executive Vice President of Employer, and shall perform,
faithfully and diligently, the services and functions relating to such office or
otherwise reasonably incident to such office as may be designated from time to
time by the Board or the Chief Executive Officer of Employer. As such, Employee
shall report directly to the Chief Executive Officer of Employer. Employee shall
be based in Scottsdale, Arizona, but shall have duties and responsibilities at
and/or with respect to each location at which Employer or any of its
subsidiaries conducts the Business (as hereinafter defined) and shall travel as
reasonably required by his duties under this Agreement. Employee shall devote
his full time, attention, energies and business efforts to his duties hereunder
and to the promotion of the business and interests of Employer and its
subsidiaries as is customary for an executive vice president of a company of
like-size in a service business; provided, however, that Employee may
participate in other business ventures as long a such participation does not
interfere with Employee's duties hereunder (including those contained in this
sentence).
3. Term. The term of this Agreement shall commence as of the date
hereof and shall continue, unless earlier terminated pursuant to Section 7
below, for a period of two (2) years thereafter (the "Initial Term"); provided,
however, that the term of this Agreement shall thereafter
Employment Agreement- Jeffrey S. Doss Page 1
<PAGE> 2
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 end of the then current term. The Initial Term and any
Renewal Term(s) are sometimes collectively referred to herein as the "Term".
4. Compensation. As compensation for his services rendered under
this Agreement, during the Term Employee shall be entitled to receive the
following:
(a) Salary. Employee shall be paid a salary as provided
in Exhibit A (the "Salary").
(b) Bonus. Employee shall also be entitled to receive
bonuses as provided in Exhibit A.
(c) Stock Options. As of the date hereof, Employer shall
execute and deliver to Employee a Stock Option Agreement, the form of
which is attached hereto as Exhibit B-1. In addition, Employer and
Employee agree to amend that certain Option Agreement, dated as of
August 23, 1996, by and between Employer and Employee as provided in
Exhibit B-2 attached hereto.
(d) Purchase of Stock. On the date hereof, Employer shall
sell to Employee, and Employee shall purchase from Employer 50,000
shares of Series C Preferred Stock, par value $0.01 per share (the
"Series C Preferred Stock"), at a purchase price of $6.00 per share,
and for no additional consideration, Employer shall issue to Employee a
warrant to purchase 100,000 shares of the common stock, par value $0.01
per share, of the Company, at an exercise price of $0.01 per share (the
"Warrant"). In consideration therefore, on the date hereof, Employee
shall: execute and deliver to Employer: (i) a promissory note, in the
form attached hereto as Exhibit C-1; (ii) a Pledge Agreement, in the
form attached hereto as Exhibit C-2; and (iii) five (5) stock powers,
executed in blank, and in the form attached hereto as Exhibit C-3; and
(iv) one warrant assignment, executed in blank, and in the form
attached hereto as Exhibit C-4.
(e) Benefits. Employee shall also be entitled to receive
such group benefits as Employer may provide to its other employees at
comparable salaries and responsibilities to those of Employee. In
addition, Employee shall be entitled to receive the benefits set forth
on Exhibit A.
(f) Expenses. Employer shall reimburse Employee for all
reasonable out-of-pocket travel and other expenses incurred by Employee
in rendering services required under this Agreement upon submission of
a detailed statement and reasonable documentation.
Employment Agreement- Jeffrey S. Doss Page 2
<PAGE> 3
5. Confidentiality.
(a) Acknowledgment of Proprietary Interest. Employee
recognizes the proprietary interest of Employer and its affiliates in
any Trade Secrets (as hereinafter defined) of Employer and its
affiliates. Employee acknowledges and agrees that any and all Trade
Secrets currently known by Employee or learned by Employee during the
course of his engagement by Employer or otherwise, whether developed by
Employee alone or in conjunction with others or otherwise, shall be and
are the property of Employer and its affiliates. Employee further
acknowledges and understands that his disclosure of any Trade Secrets
may result in irreparable injury and damage to Employer and its
affiliates. As used herein, "Trade Secrets" means all confidential and
proprietary information of Employer and its affiliates, now owned or
hereafter acquired, including, without limitation, information derived
from reports, investigations, experiments, research, work in progress,
drawing, designs, plans, proposals, codes, marketing and sales
programs, client lists, client mailing lists, financial projections,
cost summaries, pricing formula, and all other concepts, ideas,
materials, or information prepared or performed for or by Employer or
its affiliates and information related to the business, products or
sales of Employer or its affiliates, or any of their respective
customers, other than information which is otherwise publicly
available.
(b) Covenant Not-to-Divulge Trade Secrets. Employee
acknowledges and agrees that Employer and its affiliates are entitled
to prevent the disclosure of Trade Secrets. As a portion of the
consideration for the employment of Employee and for the compensation
being paid to Employee by Employer, Employee agrees at all times during
the Term and for a period of five (5) years thereafter to hold in
strict confidence and not to intentionally disclose (except for such
disclosures as are required by law, in which case, Employee agrees to
give Employer notice thereof prior to making any such disclosure) or
allow to be disclosed to any person, firm or corporation, other than to
persons engaged by Employer and its affiliates to further the business
of Employer and its affiliates, and not to use except in the pursuit of
the business of Employer and its affiliates, the Trade Secrets, without
the prior written consent of Employer, including Trade Secrets
developed by Employee.
(c) Return of Materials at Termination. In the event of
any termination or cessation of his employment with Employer for any
reason whatsoever, Employee will promptly deliver to Employer all
documents, data and other information pertaining to Trade Secrets.
Employee shall not take any documents or other information, of whatever
type and in whatever form, or any reproduction or excerpt thereof,
containing or pertaining to any Trade Secrets.
(d) Competition During and After Employment. Employee
agrees that during the Term and for a period of one year thereafter,
neither Employee, nor any of his affiliates, will directly or
indirectly act as an investor, principal, member, partner, officer,
director, employee, consultant, shareholder, lender, or agent of any
entity which is engaged in any
Employment Agreement - Jeffrey S. Doss Page 3
<PAGE> 4
business of the same nature as, or in competition with, the business
conducted by Employer and its subsidiaries during the Term (the
"Business") within the World; provided, however, that this Section 5(d)
shall not prohibit Employee or any of his affiliates from purchasing or
holding an aggregate equity interest of not more than 1% in any
business in competition with the Business being conducted by Employer
and its subsidiaries. Notwithstanding anything in this Agreement to the
contrary, Employer may, at its option, elect to extend the term of this
paragraph 5(d) for a period of one extra year after the termination of
this Agreement (i.e., for a total of two (2) years following such
termination), by written notice to Employee at least ninety (90) days
prior to the expiration of the original one-year period following such
termination, in which event Employee shall be entitled to receive,
within ten (10) days following Employer's election, an amount equal to
Employee's annual Salary at the time of such termination.
6. Prohibition on Disparaging Remarks. Employee shall,
from the date of this Agreement forward, refrain from making disparaging,
negative or other similar remarks concerning Employer or any of its affiliates
to any third party. Similarly, Employer and its affiliates shall from the date
of this Agreement forward, refrain from making disparaging, negative or other
similar remarks concerning Employee to any third party.
7. Termination. This Agreement and the employment
relationship created hereby shall terminate upon the occurrence of any of the
following events (each, a "Termination Event"):
(a) The expiration of the Term as set forth in Section 3
above;
(b) The death of Employee;
(c) The Disability (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of
termination for Just Cause (as hereinafter defined);
(e) Written notice to Employee from Employer of
termination for any reason other than Just Cause;
(f) Written notice to Employer from Employee of
termination for any reason other than Constructive Termination (as
hereinafter defined); or
(g) Written notice to Employer from Employee of
termination for Constructive Termination.
In the event of the termination of Employee's employment pursuant to
(a), (b), (c), (d) or (f) above, then Employee shall be entitled to only the
compensation earned by Employee as of, and
Employment Agreement - Jeffrey S. Doss Page 4
<PAGE> 5
payable for the period prior to, the date of such Termination Event. In the
event of the termination of Employee's employment pursuant to (e) or (g) above,
then Employee shall be entitled to continue to receive the Salary for the
remainder of the then applicable Term; provided however, that if such
termination occurs more than one year following the date of this Agreement, then
Employee shall be entitled to receive only the compensation earned by Employee
as of, and payable for the period prior to, the date of such Termination Event,
plus a lump-sum amount equal to three (3) months of Employee's then current
Salary. Notwithstanding anything to the contrary in this Agreement, the
provisions of Sections 5 and 6 above shall survive any termination, for whatever
reason, of Employee's employment under this Agreement.
For purposes of this Section 7 the following terms of the following
meanings:
"Constructive Termination" shall mean: (a) a material
reduction in Employee's duties and responsibilities without Employee's
consent; (b) any breach by Employer of any of the material terms of, or
the failure to perform any material covenant contained in this
Agreement and following written notice thereof from Employee to
Employer, Employer does not cure such breach or failure within fifteen
(15) days thereafter; provided, however, that Employer will not be
entitled to cure any such breach or failure more than one time in any
consecutive three month period; (c) a required relocation by Employee
from the Phoenix, Arizona metroplex; (d) if Employee no longer reports
directly to the Chief Executive Officer of Employer; or (e) a reduction
in Employee's Salary without Employee's prior written consent.
"Disability" of Employee shall mean his inability, because of
mental or physical illness or incapacity, to perform his duties under
this Agreement for a continuous period of 90 consecutive days or for
any 120 days out of a 360-day period. In the event of any disagreement
between Employer and Employee regarding the existence or non-existence
of any such disability, upon written request from either party to the
other, Employer and Employee or his legal guardian or duly authorized
attorney-in-fact (if he is not legally competent) shall each designate
one Arizona licensed physician and the two physicians so designated
shall designate a third. All three physicians so appointed shall
personally examine Employee, and the decision of a majority of such
panel of physicians shall determine whether such disability exists.
Employee hereby authorizes the disclosure and release to Employer of
such determination and all supporting medical records, and both parties
hereby agree to be bound by such determination.
"Just Cause" shall mean: (a) the commission by Employee of any
act involving moral turpitude or the commission by Employee of any act
or the suffering by Employee of any occurrence or state of facts, which
renders Employee incapable of performing his duties under this
Agreement (other than Disability), or adversely affects or could be
expected to adversely affect Employer's business reputation; (b)
Employee's being convicted of a felony; (c) any breach by Employee of
any of the material terms of, or the failure to perform any
Employment Agreement - Jeffrey S. Doss Page 5
<PAGE> 6
material covenant contained in, this Agreement and following written
notice thereof from Employer to Employee, Employee does not cure such
breach or failure within fifteen (15) days thereafter; provided,
however, that Employee will not be entitled to cure any breach or
failure under this subclause (c) more than one time in any consecutive
six month period; (d) the violation by Employee of reasonable and
appropriate instructions or policies established by Employer which have
been communicated to Employee with respect to the operation of their
businesses and affairs or Employee's failure to carry out the
reasonable instructions of the President of Employer or the Board and
following written notice thereof from Employer to Employee, Employee
does not cure any such violation or failure within fifteen (15) days
thereafter; provided, however, that Employee will not be entitled to
cure any violation or failure under this subclause (d) more than one
time in any consecutive six month period; or (e) the commission by
Employee of any act or the existence of any state of facts which would
legally justify an employer in terminating a contract of employment.
8. Change in Control; Change in Chief Executive Officer.
(a) Termination Payment. Notwithstanding anything to the
contrary contained in Section 7 above, if Employee's employment with
Employer is terminated by: (i) Employer by reason of subpart (e) of the
first paragraph of Section 7 above; or (ii) Employee by reason of
subpart (g) of the first paragraph of Section 7 above, and, in either
case, such termination occurred within two (2) years following a Change
In Control (as defined in subparagraph (b) below), then, in either
event, Employee shall be entitled to continue to receive the Salary for
the remainder of the then applicable Term plus one (1) year.
(b) Change In Control. A "Change In Control" will be
deemed to have occurred for purposes hereof: (i) upon the consolidation
or merger of Employer with or into another corporation or business
entity pursuant to which immediately following such merger or
consolidation, Employer's stockholders fail to hold at least a majority
of the voting stock of the surviving entity or its ultimate parent
corporation; (ii) upon the sale or other transfer in a single
transaction or a series of related transactions of all or substantially
all of the assets of Employer, except to a subsidiary of Employer; or
(iii) upon the acquisition of beneficial ownership, directly or
indirectly, by any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended) of
securities of Employer representing more than fifty percent (50%) of
the combined voting power of Employer's then outstanding voting
securities.
(c) Change in Chief Executive Officer. Employer shall
consult Employee with respect to any change in the current Chief
Executive Officer of Employer, and shall seek Employer's approval of
any new Chief Executive Officer (the "New CEO"), which approval shall
not be unreasonably withheld. If Employee does not approve of the New
CEO, Employee shall have the right to terminate this Agreement and his
employment with Employer (the "CEO Termination Event") within thirty
(30) days after the start date of the
Employment Agreement - Jeffrey S. Doss Page 6
<PAGE> 7
New CEO, by delivering a written resignation to Employer. In the event
of the occurrence of a CEO Termination Event, Employee shall be
entitled to receive only the compensation earned by Employee as of, and
payable for the period prior to, the date of such written resignation,
plus a lump-sum equal to three (3) months of Employee's then current
Salary.
9. Remedies. Employee recognizes and acknowledges that in the
event of any default in, or breach of any of, the terms, conditions or
provisions of this Agreement (either actual or threatened) by Employee,
Employer's and its affiliates remedies at law shall be inadequate. Accordingly,
Employee agrees that in such event, Employer and its affiliates shall have the
right of specific performance and/or injunctive relief in addition to any and
all other remedies and rights at law, in equity or provided herein, and such
rights and remedies shall be cumulative.
10. Acknowledgments. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 and 6 above by
Employer and its affiliates will not interfere with Employee's ability to pursue
a proper livelihood. Employee recognizes and agrees that the enforcement of this
Agreement is necessary to ensure the preservation and continuity of the business
and good will of Employer and its affiliates.
11. Notices. Any notices, consents, demands, requests, approvals
and other communications to be given under this Agreement by either party to the
other shall be deemed to have been duly given if given in writing and personally
delivered or sent by facsimile transmission, courier service, overnight delivery
service or by mail, registered or certified, postage prepaid with return receipt
requested, as follows:
If to Employer: Mobility Electronics, Inc.
7955 East Redfield Road
Scottsdale, Arizona 85260
Attn: President
Fax: 602/596-0349
If to Employee: Jeffrey S. Doss
7955 East Redfield Road
Scottsdale, Arizona 85260
Notices delivered personally or by facsimile transmission, courier service or
overnight delivery shall be deemed communicated as of actual receipt; mailed
notices shall be deemed communicated as of three days after the date of mailing.
12. Entire Agreement. This Agreement, including the Exhibits
attached hereto, contains the entire agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral or written between the parties hereto with respect
Employment Agreement - Jeffrey S. Doss Page 7
<PAGE> 8
hereto. No modification or amendment of any of the terms, conditions or
provisions herein may be made otherwise than by written agreement signed by the
parties hereto.
13. Governing Law and Venue. THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS CHOICE OF LAW
PRINCIPLES. ANY ACTION BROUGHT BY EITHER PARTY HERETO INVOLVING ENFORCEMENT,
TERMINATION, INTERPRETATION, OR MODIFICATION HEREOF, OR OTHERWISE RELATED TO
THIS AGREEMENTS IN ANY WAY SHALL BE BROUGHT IN A COURT LOCATED IN PHOENIX,
ARIZONA, AND NEITHER PARTY HERETO SHALL BE HEARD TO ASSERT THE DEFENSE OF
INCONVENIENT FORUM IN ANY SUCH ACTION.
14. Parties Bound. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of Employer and
Employee, and their respective heirs, personal representatives, successors and
assigns. Employer shall have the right to assign this Agreement to any affiliate
or to its successors or assigns. The terms "successors" and "assigns" shall
include any person, corporation, partnership or other entity that buys all or
substantially all of Employer's assets or all of its stock, or with which
Employer merges or consolidates. The rights, duties or benefits to Employee
hereunder are personal to him, and no such right, duty or benefit may be
assigned by him. The parties hereto acknowledge and agree that Employer's
affiliates are third-party beneficiaries of the covenants and agreements of
Employee set forth in Sections 5 and 6 above.
15. Arbitration. Any dispute or claim arising under or with
respect to this Agreement shall be settled by arbitration in Phoenix, Arizona,
pursuant to the rules and guidelines of the American Arbitration Association -
Commercial Division. The decision of the arbitrators shall be final and binding
upon Employer and Employee, and any decision or award rendered by the
arbitrators may be entered as a judgment or order in any court having
jurisdiction.
16. Estate. If Employee dies prior to the payment of all sums
owed, or to be owed, to Employee pursuant to Section 4 above, then such sums, as
they become due, shall be paid to Employee's estate.
17. Enforceability. If, for any reason, any provision contained in
this Agreement should be held invalid in part by a court of competent
jurisdiction, then it is the intent of each of the parties hereto that the
balance of this Agreement be enforced to the fullest extent permitted by
applicable law. Accordingly, should a court of competent jurisdiction determine
that the scope of any covenant is too broad to be enforced as written, it is the
intent of each of the parties that the court should reform such covenant to such
narrower scope as it determines enforceable.
18. Waiver of Breach. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any party.
Employment Agreement - Jeffrey S. Doss Page 8
<PAGE> 9
19. Captions. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
20. Costs. If any action at law or in equity, or by reason of
Section 14 above, is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements in addition to any other relief to which he or
it may be entitled.
21. Other Obligations. Employee represents and warrants that he is
not subject to any agreement which would be violated or breached as a direct or
indirect result of Employee executing this Agreement or Employee becoming an
employee of Employer.
22. Affiliate; Subsidiary. An "affiliate" of any party hereto
shall mean any person controlling, controlled by or under common control with
such party. A "subsidiary" of Employer is any partnership, corporation, limited
liability company or other entity in which Employer owns an equity interest. For
purposes of this Agreement, the term "control", when used with respect to any
specified person or entity means the power to direct or cause the direction of
the management and policies of such person or entity, directly or indirectly,
whether through the ownership of voting securities of ten percent (10%) or more,
by contract, or otherwise, and the term "controlled" has the meaning correlative
to the foregoing.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
Employment Agreement - Jeffrey S. Doss Page 9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
---------------------------------
Charles R. Mollo, President
/s/ JEFFREY S. DOSS
---------------------------------
Jeffrey S. Doss
Page 10
<PAGE> 11
EXHIBIT A
A. Base Salary: Employee shall receive an annual Salary of $180,000, payable
bi-weekly in arrears, which annual Salary shall be subject to
increase from time to time as may be determined by the Board;
but which increase must be made on each anniversary of the
date of this Agreement in the amount of at least seven percent
(7%).
B. Bonus
Compensation: Employee shall be entitled to receive a cash bonus for each
fiscal year of Employer during the Term (i.e., ended December
31 of each year) of: (i) either: (1) fifteen percent (15%) of
Employee's Salary at the end of such fiscal year based upon
Employer attaining at least ninety percent (90%) of its
budgeted gross profit margin for such fiscal year (as such
budgeted margin is approved by the Board of Directors of
Employer) (the "Budgeted Margin"); or (2) twenty-five percent
(25%) of Employee's Salary at the end of such fiscal year
based upon Employer attaining at least one hundred percent
(100%) of the Budgeted Margin for such fiscal year; plus (ii)
four-tenths of one percent (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) and for which Employee has had
primary and direct responsibility.
C. Additional
Benefits: Employee shall have four (4) weeks paid vacation for each
12-month period during the Term.
<PAGE> 1
EXHIBIT 10.15
DOSS, JEFFREY S.
MOBILITY ELECTRONICS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (the "Agreement") dated as
of December 1, 1999 is entered into between Mobility Electronics, Inc., a
Delaware corporation (the "Company"), and Jeffrey S. Doss, 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 attached hereto 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 150,000 shares of the Company's Common
Stock, par value $.01 per share, at a price of $2.00 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 4,167
shares per month for 35 months, commencing on January 1, 2000, and 4,155 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: (i) upon a Change In Control (as defined in the Employment Agreement, of
even date herewith, by and between the Company and Optionee); or (ii) if the
Common Stock is then trading on a national securities exchange or the Nasdaq
National Market and the closing price of the Common Stock for ninety
consecutive trading dates on such exchange or market exceeds $10.00 per share
(as adjusted for stock splits, stock dividends, reorganizations and the like
occurring after the date hereof). In addition, notwithstanding the above, upon
the occurrence of a CEO Termination Event, this Option shall become exercisable
for an additional six (6) months amount of shares (e.g., if the event occurred
in month 20, additional shares equal to 4,155 multiplied by 6), in addition to
the then exercisable portion of this Option. 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.
1
<PAGE> 2
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.
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
-----------------------------------------
Charles R. Mollo
Chief Executive Officer
OPTIONEE:
/s/ JEFFREY S. DOSS
---------------------------------------------
Jeffrey S. Doss
[WITHHELD]
---------------------------------------------
Social Security Number of Optionee
2
<PAGE> 1
EXHIBIT 10.16
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made as of the 1st day of
December, 1999, by and between Jeffrey S. Doss ("Debtor"), and Mobility
Electronics, Inc., a Delaware corporation ("Secured Party").
RECITALS
WHEREAS, concurrently with the execution and delivery of this
Agreement, Debtor has executed and delivered to Secured Party a Promissory Note
(the "Note") in the original principal amount of $300,000.00, bearing interest
and payable as to principal and interest as therein set forth; and
WHEREAS, the Note evidences the purchase price payable to Secured Party
by Debtor for 50,000 shares of Series C Preferred Stock, par value $0.01 per
share, of Secured Party (the "Preferred Shares"), and a warrant (the "Warrant")
to purchase up to 100,000 shares of the common stock, par value $0.01 per share,
of Secured Party (the "Common Stock"); and
WHEREAS, Debtor has agreed, on the terms set out herein, to secure the
payment and performance of the Note by granting a security interest in the
Pledged Securities (as hereinafter defined) to the Secured Party;
NOW, THEREFORE, the parties hereto hereby agree as follows:
AGREEMENT
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meaning indicated:
(a) "Pledged Securities" means the Preferred Shares, the
Warrant and the shares of Common Stock underlying the Preferred
Shares and the Warrant, and any and all substitutes, replacements,
accessions, attachments and other additions thereto, and any and
all proceeds from the sale thereof.
(b) "Secured Indebtedness" means all sums payable under
the Note and any substitutions, extensions, renewals or
re-amortizations of the Note.
2. GRANT OF SECURITY INTEREST IN THE PLEDGED SECURITIES. To secure the
full and punctual payment of the Secured Indebtedness, and upon and subject to
the terms, provisions and conditions of this Agreement, Debtor does hereby grant
Secured Party and its successors and assigns, a security interest (the "Security
Interest") in the Pledged Securities.
<PAGE> 2
3. DELIVERY OF SECURITIES TO SECURED PARTY. Simultaneously with the
execution of this Agreement: (i) the stock certificate representing the
Preferred Shares and the Warrant and all other stock certificates and
instruments in registered form which may constitute or evidence at any time or
from time to time a part of the Pledged Securities shall be delivered to the
Secured Party and shall be endorsed in blank for transfer or be accompanied by
proper instruments of assignment and transfer in blank upon delivery; and (ii)
Debtor shall execute and deliver to Secured Party five stock powers, executed in
blank, and one warrant assignment, executed in blank, each in a form acceptable
to Secured Party. Until the happening of an event of Default hereunder, all
certificates and instruments representing the Pledged Securities shall remain
registered in the name of Debtor. So long as the Secured Indebtedness, or any
part thereof, remains outstanding and unpaid, the certificate and instruments
representing the Pledged Securities, shall be held by Secured Party, and Debtor
shall not have the right to procure the release of any of the Pledged Securities
from the lien hereby created except upon and in compliance with the terms and
conditions herein set forth.
4. COVENANTS OF DEBTOR. Debtor covenants and agrees that Debtor shall
promptly pay and discharge the Secured Indebtedness and any and all other debts,
obligations or liabilities, including expenses and reasonable attorneys' fees,
incurred or paid by Secured Party in exercising or protecting its interests,
rights and remedies hereunder as and when the same shall become due and payable,
either by their own terms or by the exercise by Secured Party of any right or
option which they may ever have to accelerate the maturity thereof.
5. VOTING OF PLEDGED SECURITIES. Until the occurrence of an event of
Default, the Pledged Securities shall be treated as shares of Debtor and Debtor
shall be entitled to vote at any meeting of the stockholders of Secured Party.
Until the occurrence of an event of Default, no cash dividends shall be payable
to Secured Party on or with respect to the Pledged Securities. Debtor hereby
grants to Secured Party, upon the occurrence of an event of Default hereunder,
the right to vote the Pledged Securities during the continuance of such Default
whether or not Secured Party seek any other remedies available to it under this
Agreement or any applicable law or in equity.
6. DEFAULT. The term "Default" means an "Event of Default" under the
Note, all of the terms, covenants, conditions and provisions of which are
incorporated in this Agreement by reference the same as if set forth verbatim,
and such terms, covenants, conditions, and provisions shall continue in full
force and effect under this Agreement until the Secured Indebtedness is paid in
and performed in full.
7. REMEDIES UPON DEFAULT.
(a) If any event of Default set forth in Paragraph 6 above
shall occur, Secured Party may seek any remedies available to them
under any applicable law.
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<PAGE> 3
(b) Except as otherwise provided herein or in the Note, Debtor
hereby waives notice of Default, presentment for payment, demand,
notice of dishonor and protest of the Note.
(c) In addition, full power and authority are hereby given to
Secured Party to sell, assign and deliver the whole or any part of the
Pledged Securities at any broker's board, or at public or private sale,
at the option of Secured Party, either for cash or on credit or for
future delivery without assumption of any credit risk, and without
either demand or advertisement of any kind, both of which are hereby
waived, and no delay on the part of Secured Party in exercising any
power of sale or any other rights or option hereunder, and no demand,
which may be given to or made upon the undersigned by Secured Party to
a power of sale or other right or option hereunder, shall constitute a
waiver thereof, or limit or impair the right of Secured Party to take
any action or to exercise any power of sale or any other rights
hereunder, without demand, or prejudice the rights of Secured Party as
against the undersigned in any respect. At any sale of the Pledged
Securities in accordance with the preceding sentence, Debtor may itself
purchase the whole or any part of the Pledged Securities sold. In event
of any sale or other disposition of any of the Pledged Securities,
after deducting all costs or expenses of every kind for care,
safekeeping, collection, sale, delivery or otherwise, Secured Party
shall, after applying the residue of the proceeds of the sale, or other
disposition thereof, as hereinabove authorized, return any excess to
Debtor. Secured Party shall notify Debtor in writing of their intent to
exercise its right to sell the Pledged Securities in accordance with
this Section 7(c) at least five (5) days prior to any such sale.
Because of the Securities Act of 1933, as amended (the
"Securities Act"), or any other laws or regulations, there may be legal
restrictions or limitations affecting Secured Party in any attempts to
dispose of certain portions of the Pledged Securities in the
enforcement of its rights and remedies hereunder. For these reasons,
Secured Party is hereby authorized by Debtor, but not obligated, in the
event any Default hereunder, to sell, bid upon, and purchase all or any
part of the Pledge Securities at private sale, subject to investment
letter or in any other commercially reasonable manner which will not
require the Pledged Securities, or any part thereof, to be registered
in accordance with the Securities Act, or the rules and regulations
promulgated thereunder, or any other law or regulation. Debtor
acknowledges Secured Party may in its discretion approach a restricted
number of potential purchasers and that a sale under such circumstances
may yield a lower price of the Pledged Securities or any part or parts
thereon than would otherwise be obtainable if same were registered and
sold in the open market.
8. FURTHER ASSURANCES. Debtor agrees to execute such stock powers and
assignments, endorse such instruments, or execute such additional pledge
agreements or other documents as may be reasonably requested by Secured Party in
order effectively to grant to
-3-
<PAGE> 4
Secured Party the Security Interest in (and pledge and assignment of) the
Pledged Securities and to enforce and exercise Secured Party's rights regarding
same.
9. ASSIGNABILITY. The rights, powers and interests held by Secured
Party hereunder, together with the Pledged Securities, may be transferred and
assigned by Secured Party in whole or in part. This Agreement may not be
assigned, in whole or in part, by Debtor.
10. DELIVERY OF PLEDGED SECURITIES. When the Secured Indebtedness has
been paid in full or otherwise satisfied, Secured Party shall deliver the
Pledged Securities to Debtor concurrently with its receipt of such payment or
satisfaction and this Agreement shall terminate.
11. WAIVER OF DEFAULT. The acceptance by Secured Party at any time and
from time to time of partial payment of the aggregate amount of the Secured
Indebtedness then matured shall not be deemed to be a waiver of any Default then
existing. No waiver by Secured Party of any Default shall be deemed to be a
waiver of any subsequent Default, nor shall any such waiver by Secured Party be
deemed to be a continuing waiver. No delay or omission by Secured Party in
exercising any right or power hereunder, except for the failure by Secured Party
to give notice as provided herein or in the Note or under any other writings
executed by Debtor as security for or in connection with the Note or the Secured
Indebtedness, shall impair such right or power or be construed as a waiver
thereof or any acquiescence therein, nor shall any single or partial exercise of
any such right or power preclude other or further exercise of any other right or
power of Secured Party hereunder.
12. LAWS APPLICABLE. This Agreement and the rights and obligations of
the parties hereto shall be governed, construed and enforced in accordance with
the laws of the state of Delaware.
13. NOTICES. Any notice, request, instruction or other document to be
given hereunder or to any party shall be delivered to the address stated below
that party's signature hereto, and shall be deemed to have been given and
received (i) when actually received by the other party, if delivered in person
or by facsimile or (ii) if mailed, on the earlier of the date actually received
or (whether ever received or not) three Business Days (as hereinafter defined)
after a letter containing such notice, certified or registered, with postage
prepaid, addressed to the other party, is deposited in the United States mail.
The address of Secured Party is 7955 East Redfield Road, Scottsdale, Arizona
85260, Attention: President. The address of Debtor is 7955 East Redfield Road,
Scottsdale, Arizona 85260. "Business Day" means every day which is not a
Saturday, Sunday or legal holiday. Either party may change his address for the
purposes of this section by giving notice to that other party.
-4-
<PAGE> 5
14. COVENANT OF ASSISTANCE. Debtor agrees to execute all such further
documents and take all such further action as may reasonably be requested by
Secured Party in order to better confirm the Security Interest herein granted in
the Pledged Securities.
15. AMENDMENT. None of the terms or provisions of this Agreement may be
waived, modified or amended, except in writing signed by both parties hereto.
16. BINDING EFFECT. This Agreement shall be binding on Debtor and
Debtor's successors and assigns and shall inure to the benefit of Secured Party
and its successors and assigns.
EXECUTED as of the day and year first above written.
/s/ JEFFREY S. DOSS
---------------------------------
Jeffrey S. Doss
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
------------------------------
Charles R. Mollo, President
<PAGE> 1
EXHIBIT 10.17
PROMISSORY NOTE
$300,000.00 December 1, 1999
FOR VALUE RECEIVED, the undersigned, Jeffrey S. Doss ("Maker"), promises to
pay to the order of Mobility Electronics, Inc., a Delaware corporation
("Payee"), at 7955 East Redfield Road, Scottsdale, Arizona 85260 (or such other
address as Payee may advise Maker in writing), the principal sum of THREE
HUNDRED THOUSAND AND 00/100 DOLLARS ($300,000.00), in lawful currency of the
United States of America, together with interest accrued thereon (calculated on
the basis of a 365-day year) at a rate of 6% per annum from the date hereof
until this Note is paid in full.
1. Payments. The entire principal balance of, and accrued interest on,
this Note is due and payable in full on December 1, 2001; provided, however,
that the following payments must be made prior to such date: (i) Payee shall
make an interest and principal payment (accrued but unpaid interest first)
within five (5) days after receiving any bonus from Maker, which payment shall
be in an amount equal to the after-tax amount of such bonus; and (ii) upon the
sale of any Pledged Securities (as defined in that certain Pledge Agreement, of
even date herewith, by and between Payee and Maker (the "Pledge Agreement")),
Maker shall make an interest and principal payment (accrued but unpaid interest
first) within five (5) days after such sale, which payment shall be in an amount
equal to the after-tax amount of the proceeds from such sale.
2. Optional Prepayment. Maker may at its sole option prepay all or any
part of the principal of this Note, or interest thereon, before maturity without
penalty or premium. All such prepayments shall first be applied to accrued
interest under this Note, and the remaining balance of any such prepayments, if
any, shall be applied to principal of this Note.
3. Security. This Note is secured by a security interest in the Pledged
Securities under the Pledge Agreement. Payee shall be entitled to all benefits
of the remedies and security set forth in the Pledge Agreement.
4. Events of Default and Remedies. At the option of Payee the entire
principal balance of, together with all accrued and unpaid interest on, this
Note shall at once become due and payable, without further notice or demand,
upon the occurrence at any time of any of the following events of default
("Events of Default"):
(i) Failure of Maker to make any payment of principal or
interest when due hereunder, and such failure continues for a period of 2
business days after the receipt by Maker of written notice from Payee of the
occurrence of such failure; or
(ii) Failure of Maker to perform any covenant, agreement or
condition contained herein or in the Pledge Agreement, except the failure of
Maker to make any payment of principal
<PAGE> 2
or interest when due hereunder, and such failure continues for a period of 10
days after the receipt by Maker of written notice from Payee of the occurrence
of such failure; or
(iii) Maker shall (a) become insolvent, (b) voluntarily seek,
consent to, acquiesce in the benefit or benefits of any Debtor Relief Law (as
hereinafter defined) or (c) become party to (or be made the subject of) any
proceeding provided by any Debtor Relief Law, other than as a creditor or
claimant, that could suspend or otherwise adversely affect the rights of Payee
granted hereunder (unless in the event such proceeding is involuntary, the
petition instituting the same is dismissed within 90 days of the filing of
same). As used herein, the term "Debtor Relief Law" means the Bankruptcy Code of
the United States of America and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization or similar debtor relief laws from time to time in
effect affecting the rights of creditors generally.
In the event any one or more of the Events of Default specified above
shall have happened, the holder of this Note may (a) enforce its rights, if any,
under this Note and or under the Pledge Agreement and/or (b) proceed to protect
and enforce its rights either by suit in equity and/or by action at law, or by
other appropriate proceedings, whether for the specific performance of any
covenant or agreement contained in this Note or in the Pledge Agreement or in
aid of the exercise of any power or right granted by this Note or the Pledge
Agreement, or to enforce any other legal and equitable right of the holder of
this Note or in the Pledge Agreement.
5. Waiver. Except as expressly provided herein, Maker, and each surety,
endorser, guarantor and other party ever liable for the payment of any sum of
money payable on this Note, jointly and severally waive demand, presentment,
protest, notice of non-payment, notice of intention to accelerate, notice of
protest and any and all lack of due diligence or delay in collection or the
filing of suit hereon which may occur.
6. Cumulative Rights. No delay on the part of the holder of this Note
in the exercise of any power or right under this Note shall operate as a waiver
thereof, nor shall a single or partial exercise of any other power or right.
Enforcement by the holder of this Note of any security for the payment hereof
shall not constitute any election by it of remedies so as to preclude the
exercise of any other remedy available to it.
7. Notices. Any notice or demand given hereunder by the holder hereof
shall be deemed to have been given and received (i) when actually received by
Maker, if delivered in person or by facsimile transmission, or (ii) if mailed,
on the earlier of the date actually received or (whether ever received or not)
three Business Days (as hereinafter defined) after a letter containing such
notice, certified or registered, with postage prepaid, addressed to Maker, is
deposited in the United States mail. The address of Maker is 7955 East Redfield
Road, Scottsdale, Arizona 85260, or such other address as Maker shall advise the
holder hereof by certified or registered letter by this same procedure.
"Business Day" means every day which is not a Saturday, Sunday or legal holiday.
2
<PAGE> 3
8. Successors and Assigns. This Note and all covenants, promises and
agreements contained herein shall be binding upon and inure to the benefit of
the respective legal representatives, personal representatives, devisees, heirs,
successors and assigns of Payee and Maker.
9. GOVERNING-LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. IN CASE ANY ONE OR MORE OF
THE PROVISIONS CONTAINED IN THIS NOTE SHALL FOR ANY REASON BE HELD TO BE
INVALID, ILLEGAL OR UNENFORCEABLE IN ANY RESPECT, SUCH INVALIDITY, ILLEGALITY OR
UNENFORCEABILITY SHALL NOT AFFECT ANY OTHER PROVISION HEREOF.
10. Usury Savings Clause. Any provision in this Note or in any other
document executed in connection herewith, or in any other agreement or
commitment, whether written or oral, express or implied, to the contrary
notwithstanding, Payee shall not in any event be entitled to receive or collect,
nor shall or may amounts received hereunder be credited, so that Payee shall be
paid, as interest, a sum greater than the maximum rate of interest permitted by
applicable law. If any construction of this Note, or any and all other papers,
agreements or commitments, indicates a different right given to Payee to ask
for, demand or receive any larger sum as interest, such is a mistake in
calculation or wording, which this clause shall override and control; it being
the intention of the parties that this Note and all other instruments relating
to this Note shall in all things comply with applicable law, and proper
adjustment shall automatically be made accordingly. In the event Payee ever
receives, collects or applies as interest, any sum in excess of the maximum rate
of interest permitted by applicable law, such excess amount shall be applied to
the reduction of the unpaid principal balance of this Note in the inverse order
of maturity, and if this Note is paid in full, any remaining excess shall be
paid to Maker. In determining whether or not the interest paid or payable, under
any specific contingency, exceeds the maximum rate of interest permitted by
applicable law, Maker and Payee shall, the maximum extent permitted under
applicable law (i) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) "spread" the total amount of interest throughout the
entire term of this Note so that the interest rate is uniform throughout the
entire term hereof.
11. Attorneys' Fees and Costs. In the event an Event of Default shall
occur, and in the event that thereafter this Note is placed in the hands of an
attorney for collection, or in the event this Note is collected in whole or in
part through legal proceedings of any nature, then and in any such case Maker
promises to pay all costs of collection, including, but not limited to,
reasonable attorneys' fees incurred by the holder hereof on account of such
collection, whether or not suit is filed.
12. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part hereof.
3
<PAGE> 4
EXECUTED as of the day and year first above written.
/s/ JEFFREY S. DOSS
--------------------------------
Jeffrey S. Doss
4
<PAGE> 1
EXHIBIT 10.18
FIRST AMENDMENT TO OPTION AGREEMENT
This First Amendment to Option Agreement (this "Amendment"), dated as
of December 1, 1999, is by and between Jeffrey S. Doss ("Optionee"), and
Mobility Electronics, Inc., a Delaware corporation (f/k/a "Electronics
Accessory Specialists International, Inc.") (the "Company").
W I T N E S S E T H :
WHEREAS, the Company and Optionee are parties to that certain Option
Agreement, dated as of August 23, 1996 (the "Option Agreement"); and
WHEREAS, the Company and Optionee desire to amend the Option Agreement
to the extent provided below;
NOW, THEREFORE, the Option Agreement is hereby amended as follows:
A. AMENDMENTS TO OPTION AGREEMENT. The Option Agreement is hereby
amended as follows:
1. The first paragraph of Section 3 of the Option Agreement is
hereby amended to read in its entirety as follows:
"The Option will expire on the earlier of: (i) March 31,
2003; or (ii) 180 days after the Termination Date (as such term is
defined in that certain Employment Agreement, of even date herewith,
by and between the Company and Optionee); provided, however, that in
no event shall this Option expire prior to September 22, 2000.
B. MISCELLANEOUS.
1. Except as specifically provided herein, the Plan shall
remain in full force and effect.
2. This Amendment 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> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
------------------------------
Charles R. Mollo,
Chief Executive Officer
/s/ JEFFREY S. DOSS
-------------------------------
Jeffrey S. Doss
2
<PAGE> 1
EXHIBIT 10.19
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into as
of the 21st day of May, 1999, by and between Mobility Electronics, Inc., a
Delaware corporation (the "Company"), and Robert Dilworth ("Consultant").
W I T N E S S E T H:
WHEREAS, the Company desires to retain Consultant as provided herein,
and Consultant desires to be so retained; and
WHEREAS, Consultant shall, as a consultant to the Company, have access
to confidential information with respect to the Company;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. DUTIES. Consultant is hereby retained to serve as a consultant to
the Company to perform such services and render such advice to the Company as
the Chief Executive Officer of the Company may from time to time reasonably
request (collectively, the "Duties"); provided, however, that in no month shall
such services exceed an aggregate of sixteen (16) hours, without the consent of
Consultant.
2. TERM. The term of this Agreement shall commence on the date hereof
and shall be for a period of two (2) years (the "Term"); provided, however, that
this Agreement may be terminated by either party hereto at any time upon at
least thirty (30) days prior written notice to the other party.
3. COMPENSATION. As compensation for rendering the Duties, the Company
shall grant Consultant options to purchase 70,000 shares of the Company's common
stock, par value $.01 per share, on the terms and conditions to be set forth in
that certain Nonqualified Stock Option Agreement of the Company, a copy of which
is attached hereto as Exhibit A. Additionally, during the Term, the Company
shall reimburse Consultant for all reasonable and necessary out-of-pocket travel
and other expenses incurred by Consultant in performing the Duties, such
reimbursement to be on a monthly basis, within thirty (30) days after submission
of a detailed monthly statement and reasonable supporting documentation. The
compensation set forth in this Section 3 will be the sole compensation payable
to Consultant for performing the Duties, and no additional compensation or fee
will be payable by the Company to Consultant by reason of any benefit gained by
the Company directly or indirectly through Consultant's performing the Duties,
nor shall the Company be liable
-1-
<PAGE> 2
in any way for any additional compensation or fee for performing the Duties
unless the Company shall have expressly agreed thereto in writing.
4. INDEPENDENT CONTRACTOR STATUS. The Company and Consultant agree that
Consultant is an independent contractor under this Agreement and shall in no way
be considered to be an agent or employee of the Company and, accordingly,
Consultant shall not be entitled to any benefits, coverages or privileges made
available to employees of the Company, including without limitation, social
security, unemployment, medical or pension payments. Consultant shall only
consult and render advice, and shall not undertake to commit the Company to any
course of action in relation to third persons, except as requested in writing by
the Company. The Company shall not deduct any social security or income taxes
from Consultant's payments set forth in Section 3.
5. CONFIDENTIALITY.
(a) ACKNOWLEDGMENT OF PROPRIETARY INTEREST. Consultant recognizes the
proprietary interest of the Company in any Confidential and Proprietary
Information (as hereinafter defined) of the Company. Consultant acknowledges and
agrees that any and all Confidential and Proprietary Information communicated
to, learned of, developed or otherwise acquired by the Consultant during the
course of his engagement by the Company after the date hereof, whether developed
by Consultant alone or in conjunction with others or otherwise, shall be and is
the property of the Company. Consultant further acknowledges and understands
that his disclosure of any Confidential and Proprietary Information will result
in irreparable injury and damage to the Company. As used herein, "Confidential
and Proprietary Information" means, but is not limited to, information derived
from reports, investigations, experiments, research, work in progress, drawings,
designs, plans, proposals, codes, marketing and sales programs, client lists,
client mailing lists, financial projections, cost summaries, pricing formula,
contracts analyses, financial information, projections, maps, confidential
filings with any state or federal agency, and all other concepts, ideas,
materials or information prepared or performed for, by or on behalf of the
Company by its employees, officers, directors, agents, representatives or
consultants (including, without limitation, acquisition strategies, acquisition
candidates, acquisition contacts and proposed terms of acquisitions).
(b) COVENANT NOT-TO-DIVULGE CONFIDENTIAL AND PROPRIETARY INFORMATION.
Consultant acknowledges and agrees that the Company is entitled to prevent the
disclosure of Confidential and Proprietary Information. As a portion of the
consideration for the retainment of Consultant and for the compensation being
paid to Consultant by the Company, Consultant agrees at all times during the
term of this Agreement and thereafter to hold in strictest confidence and not to
disclose to any person, firm or corporation, other than to persons engaged by
the Company to further the business of the Company, and not to use except in the
pursuit of the business of the Company, Confidential and Proprietary
Information, without the prior written consent of the Company, including
Confidential and Proprietary Information developed by Consultant during the
course of his engagement hereunder; provided, however, that notwithstanding the
foregoing, Consultant shall not
-2-
<PAGE> 3
be obligated to keep secret and not to disclose Confidential and Proprietary
Information generally known to the public through no wrongful act of Consultant.
(c) RETURN OF MATERIALS. In the event of any termination of this
Agreement for any reason whatsoever, or at any time upon the request of the
Company, Consultant will promptly deliver to the Company all documents, data and
other information pertaining to Confidential and Proprietary Information.
Consultant shall not take any documents or other information, or any
reproduction or excerpt thereof, containing or pertaining to any Confidential
and Proprietary Information, unless as otherwise authorized in writing by the
President of the Company.
6. REMEDIES. Consultant recognizes and acknowledges that in the event
of any default in, or breach of any of, the terms, conditions or provisions of
this Agreement (either actual or threatened) by Consultant, the Company's
remedies at law shall be inadequate. Accordingly, Consultant agrees that in such
event, the Company shall have the right of specific performance and/or
injunctive relief in addition to any and all other remedies and rights at law or
in equity, and such rights and remedies shall be cumulative.
7. NOTICES. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other shall be deemed to have been duly given in writing and personally
delivered or sent by facsimile or mail, registered or certified, postage prepaid
with return receipt requested, to such party's address as last provided to the
other party. Notices delivered personally shall be deemed communicated as of
actual receipt; mailed notices shall be deemed communicated as of three days
after mailing.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties hereto with respect to the subject matter contained herein and
supersedes all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. No modification or
amendment of any of the terms, conditions or provisions herein may be made
otherwise than by written agreement signed by the parties hereto.
9. GOVERNING LAW. This agreement and the rights and obligations of the
parties hereto shall be governed, construed and enforced in accordance with the
laws of the State of Delaware (except the choice of law rules).
10. PARTIES BOUND. This Agreement and the rights and obligations of the
parties hereto shall be binding upon and inure to the benefit of the Company and
Consultant and their respective heirs, personal representatives, successors and
assigns. No person or entity shall be deemed a third party beneficiary of this
Agreement. Consultant may not assign any of his rights, obligations or duties
hereunder without the prior written consent of the Company.
-3-
<PAGE> 4
11. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, 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 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.
12. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a wavier of any
subsequent breach by any party.
13. COSTS. If it is necessary to enforce or interpret the terms of this
Agreement by action at law or in equity, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which he or it may be entitled.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
MOBILITY ELECTRONICS, INC.
By: /s/ CHARLES R. MOLLO
---------------------------------
Charles R. Mollo,
Chief Executive Officer
/s/ ROBERT DILWORTH
-------------------------------------
Robert Dilworth
-4-
<PAGE> 1
EXHIBIT 10.20
MOBILITY ELECTRONICS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (the "Agreement"), dated as
of May 21, 1999, is entered into by and between Mobility Electronics, Inc., a
Delaware corporation (the "Company"), and Robert Dilworth, a consultant 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") and
pursuant to the resolutions of the Board of Directors of the Company, dated as
of May 21, 1999, the Company grants to the Optionee an option (the "Option") to
purchase from the Company all or any part of a total of 70,000 shares of the
Company's Common Stock, par value $.01 per share, at a price of $4.00 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 fourth anniversary of the
Date of Grant.
4. VESTING. Subject to the provisions of Section 6(b) of the
Plan, the Option may be exercised on the following schedule: (i) 2,800 shares
shall be immediately exercisable; and (ii) 2,800 additional shares shall be
exercisable upon the 21st day of each month, commencing on June 21, 1999;
provided, however, that: (a) this Option shall vest in full upon (1) the
consolidation or merger of the Company with or into another corporation or
business entity pursuant to which immediately following such merger or
consolidation, the Company's stockholders fail to hold at least a majority of
the voting stock of the surviving entity, (2) the sale or other transfer in an
single transaction or a series of related transactions of all or substantially
all of the assets of the Company, except to a subsidiary of the Company or (3)
the consummation by the Company of a Public Offering (which shall mean a public
offering of securities of the Company pursuant to a registration statement filed
under the Securities Act of 1933, as amended (other than on Form S-4 or Form
S-8, or their successor forms)) or (b) upon termination of that certain
Consulting Agreement, of even date herewith, by and between the Company and
Optionee, this Option shall cease to vest, and the unvested portion of this
Option shall be deemed to be terminated and of no further force or effect.
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.
<PAGE> 2
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.
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
-------------------------------------
Charles R. Mollo,
Chief Executive Officer
/s/ ROBERT DILWORTH
-------------------------------------
Robert Dilworth
-------------------------------------
Social Security Number of Optionee
<PAGE> 1
EXHIBIT 10.23
AMENDMENT NO. 3 TO
LETTER OF CREDIT, LOAN AND SECURITY AGREEMENT
AND PROMISSORY NOTE
THIS AMENDMENT NO. 3 TO LETTER OF CREDIT, LOAN AND SECURITY AGREEMENT AND
PROMISSORY NOTE (this "Amendment) is made as of this 31st day of October, 1999,
between MOBILITY ELECTRONICS, INC., formerly known as Electronics Accessory
Specialists International, Inc., a Delaware corporation, (the "Borrower"), and
BANK OF AMERICA, N.A., successor to NationsBank N.A., a national banking
association (the "Bank").
RECITALS
WHEREAS, on May 6, 1998, the Bank and the Borrower executed and
delivered a Letter of Credit, Loan and Security Agreement (the "Loan Agreement",
all capitalized terms used and not specifically defined herein to have the
meaning given to such terms in the Loan Agreement), as previously amended by
Amendment No. 1 and by Amendment No. 2 (hereinafter defined), pursuant to which
the Bank agreed to make direct advances of the Loan to the Borrower and to issue
Standby and Commercial Letters of Credit for the account of the Borrower, in the
aggregate amount outstanding at any one time not to exceed United States One
Million Five Hundred Thousand Dollars ($1,500,000), to provide the Borrower with
working capital financing in connection with the export of portable computer
accessories; and
WHEREAS, the Export-Import Bank of the United States ("EXIMBANK")
guaranteed a portion of the Borrower's Obligations under the Financing
Documents, pursuant to the EXIMBANK Guaranty; and
WHEREAS, on May 6, 1999, the Bank and the Borrower executed and
delivered Amendment No. 1 to Letter of Credit, Loan and Security Agreement and
Promissory Note ("Amendment No. 1") for the purpose of extending the Termination
Date and the maturity date for the Borrower's Obligations from May 6, 1999, to
August 6, 1999;
WHEREAS, in August of 1999, the Bank and the Borrower executed and
delivered Amendment No. 2 to Letter of Credit, Loan and Security Agreement and
Promissory Note ("Amendment No. 2") for the purpose of (a) extending the
Termination Date and the maturity date for the Borrower's Obligations to October
30, 1999, and (b) decreasing the Bank's Commitment from $1,500,000 to $750,000;
and
WHEREAS, the Borrower has again requested the Bank to extend the
Termination Date and the maturity date for the Borrower's obligations to March
31, 2000;
<PAGE> 2
WHEREAS, the Bank is willing to accommodate the Borrower's request to
further extend the Termination Date and the maturity date of the Borrower's
Obligations subject to the terms and conditions of this Amendment.
AGREEMENTS
NOW, THEREFORE, in consideration of the actual agreements herein and
other good and valuable consideration, the Borrower and the Bank hereby agree as
follows:
1. Extension of Termination Date. The Loan Agreement is hereby amended
to provide that the Termination Date is extended until March 31, 2000, whereupon
the Bank will no longer make advances of the Loan to the Borrower or issue
Standby or Commercial Letters of Credit for the benefit of the Borrower. The
existing provisions of the Loan Agreement provide that, with certain exceptions,
any Letters of Credit issued thereunder shall have an Expiry Date no later than
the Termination Date, and the related Applications and Agreements of Letters of
Credit require the Borrower to repay on demand any Letter of Credit Obligations
arising with respect to Letters of Credit. With respect to any Letter of Credit
having an expiry date after the Termination Date, the Loan Agreement requires
that the related Letter of Credit Obligations shall be prepaid on the day
immediately preceding the Termination Date.
2. Extension of Maturity Date. The Promissory Note is hereby amended to
provide that the maturity date is extended until March 31, 2000, whereupon all
of the Loan Obligations shall become immediately due and payable.
3. Interest Rate Applicable to Loan. The Promissory Note is hereby
amended to provide for the increase in the interest rate applicable to the Loan
from the Prime Rate plus 1 1/2% to the Primate Rate plus 2 1/2%. For purposes of
accomplishing this objective, clause (a) of the Promissory Note is hereby
deleted in its entirety and replaced with the following clause (a):
"(a) interest on the unpaid principal balance at an annual
rate, which is equal to the fluctuating prime rate of interest
established and declared by the Bank from time to time (the "Prime
Rate") plus two and one-half percent per annum (2 1/2%), shall be due
and payable on the first calendar day of each and every month after the
date hereof until the principal sum is paid in full; and"
4. Financial Covenant Revisions. (a) Sections 9.1 and 9.2 of the Loan
Agreement are hereby deleted in their entirety and replaced with the following
Sections 9.1 and 9.2:
"9.1 Current Ratio. The Borrowers shall maintain a ratio of
Current Assets to Current Liabilities of not less than 0.9 to 1.0."
"9.2 Tangible Net Worth. The Borrower shall maintain a
Tangible Net Worth of not less than (i) ($1,800,000) at October 31,
1999, (ii) ($2,600,000) at November 30, 1999, and (iii) ($3,400,000) at
December 31, 1999, and at all times thereafter."
<PAGE> 3
(b) In addition, the following financial covenant is hereby
added to the Loan Agreement as new Section 9.4:
"9.4 Capital Expenditures. The Borrower will not make any
capital expenditures exceeding, in the aggregate during any one fiscal
year, the total sum of $900,000."
5. Financial Reporting. Section 8.1(c) of the Loan Agreement is hereby
revised to require that (a) the Borrowing Base Certificates be provided twice
per month by the 15th and 30th of each month and (b) the reports on the
Borrower's Receivables and Inventory and export purchase orders be provided no
later than the 15th day of each calendar month.
6. Conditions Precedent. It is a condition precedent to the
effectiveness of this Amendment that (a) the Bank receive EXIMBANK's consent to
the extension of the Termination Date and the maturity date for the Borrower's
Obligations in respect of the EXIMBANK Guaranty, and (b) the Borrower execute
and deliver to the Bank the EXIMBANK Borrower Agreement in the form attached
hereto as EXHIBIT A, as required by EXIMBANK.
7. EXIMBANK COUNTY LIMITATION SCHEDULE. For purposes of facilitating
the Borrower's compliance with Section 5.3 of the Loan Agreement containing
Collateral Value requirements, a copy of EXIMBANK's current Country Limitation
Schedule is attached to this amendment as EXHIBIT B. This Schedule is revised,
amended and updated periodically, and the Bank will endeavor to provide the
Borrower with copies of any supplements and modifications to the Country
Limitation Schedule which are provided to it by EXIMBANK.
8. No Other Amendments. Except as specifically contemplated herein, the
Loan Agreement, the Promissory Note and all of the other Financing Documents
shall remain in full force and effect in accordance with their respective terms.
9. Bank's Rights Reaffirmed. The Bank shall continue to have all rights
and remedies set forth in the Loan Agreement, the Promissory Note and all of the
other Financing Documents, including but not limited to the right to accelerate
the Termination Date and the right to accelerate the Borrower's Obligations as
set forth in Section 11.2 of the Loan Agreement, and the right to demand
repayment of the Borrower's Obligations in accordance with the terms of the
Promissory Note.
<PAGE> 4
10. Payment of Fees.
(a) It is a condition precedent to the effectiveness hereof
that the Borrower shall have paid to the Bank the EXIMBANK Facility Fee in the
amount of $4,687.50 relating to the extension of the Termination Date and the
maturity date of the Promissory Note pursuant to this Amendment.
(b) The Borrower must also pay all costs (including legal
fees) incurred by the Bank in connection with the preparation of this Amendment.
11. Effectiveness. Assuming satisfaction of the conditions precedent
described in Section 3, this Amendment shall be deemed to be retroactively
effective as of October 30, 1999, regardless of the date on which it is executed
and delivered by the parties hereto.
12. Representations and Warranties. The Borrower hereby reaffirms all
representations and warranties made by them in the Loan Agreement and in the
other Financing Documents.
13. Governing Law. This Amendment shall be construed in accordance with
and governed by the laws of the State of New Mexico.
14. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be considered an original for all purposes;
provided, however, that all such counterparts shall together constitute one and
the same instrument.
15. No Novation. The parties hereto covenant and agree that the
execution of this Amendment is not intended to and shall not cause or result in
a novation with respect to the Borrower's Obligations or the Financing Documents
and that the existing Borrower's Obligations, as evidenced by the Financing
Documents are continuing, without interruption, and have not been discharged by
a new agreement.
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to be
executed, sealed and delivered by their duly authorized officers.
WITNESS/ATTEST: MOBILITY ELECTRONICS, INC.
/s/ LYNDA H. FRANCIS By:/s/ RICHARD W. WINTERICH (SEAL)
- -------------------------------- ------------------------
Lynda H. Francis (SEAL) Name: Richard W. Winterich
Title: Chief Financial Officer
BANK OF AMERICA, N.A.
/s/ LYNDA H. FRANCIS By: /s/ KURT A. HUISMAN (SEAL)
- -------------------------------- ------------------------
Lynda H. Francis (SEAL) Name: Kurt A. Huisman
Title: Vice President
<PAGE> 5
Exhibit A
EXPORT-IMPORT BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER AGREEMENT
THIS BORROWER AGREEMENT (this "Agreement") is made and entered into by
the entity identified as the Borrower on the signature page hereof (the
"Borrower") and is acknowledged by the institution identified as the Lender on
the signature page hereof (the "Lender").
RECITALS
A. The Lender shall make a loan (the "Loan") to the Borrower for the
purpose of providing the borrower with pre-export working capital to finance the
manufacture, production or purchase and subsequent export sale of the Items (as
hereinafter defined).
B. The Loan shall be in a principal amount (the "Loan Amount") not to
exceed at any time outstanding the amount specified in Section (5)(A) of the
Loan Authorization Agreement between the Lender and the Export-Import Bank of
the United States ("Eximbank") which is attached hereto as Annex A1 or Annex A2
and incorporated herein as a part of this Agreement. If the Loan is being made
pursuant to the Lender's Delegated Authority from Eximbank, all references
herein to the Loan Authorization Agreement shall be deemed to be to the Loan
Authorization Notice provided to Eximbank and the Borrower by the Lender.
C. The Loan shall be evidenced by a valid and enforceable promissory
note payable by the Borrower to the order of the Lender (the "Note") and shall
be made pursuant to a written agreement related solely thereto between the
Borrower and the Lender (the "Loan Agreement").
D. A condition precedent to the making of the Loan by the Lender is
that Eximbank guarantee the payment of ninety percent (90%) of the Loan Amount
and all interest accrued thereon, subject to the terms and conditions of a
master guarantee agreement (the "Master Guarantee Agreement") between Eximbank
and the Lender.
E. In consideration for and as a condition precedent to the Lender's
making the Loan and Eximbank's entering into the Master Guarantee Agreement, the
Borrower shall execute this Agreement for the benefit of the Lender and
Eximbank.
NOW, THEREFORE, the Borrower hereby agrees as follows:
<PAGE> 6
ARTICLE I
DEFINITIONS
"Accounts Receivable" shall mean those trade accounts from the sale of
the Items due and payable to the Borrower in the United States and any notes,
drafts, letters of credit or insurance proceeds supporting payment thereof.
"Availability Date" shall mean the last date on which the Lender may
make a Disbursement as set forth in Section (10) of the Loan Authorization
Agreement or, if such date is not a Business Day, the next Business Day
thereafter.
"Borrowing Base" shall mean the Collateral Value as discounted by the
applicable Disbursement Rate(s).
"Borrowing Base Certificate" shall mean the certificate in form
provided by the Lender and executed by the Borrower setting forth the Borrowing
Base supporting one or more Disbursements.
"Business Day" shall mean any day on which the Federal Reserve Bank of
New York is open for business.
"Buyer" shall mean an entity which has entered into one or more Export
Orders with the Borrower.
"Closing Date" shall mean the date on which the Loan Documents are
executed by the Borrower.
"Collateral" shall mean the property of the Borrower in which the
Borrower has granted to the Lender a valid and enforceable security interest as
security for the payment of all principal and interest due under the Loan, and
which is identified in Section (6) of the Loan Authorization Agreement,
including all proceeds (cash and non-cash) thereof.
"Collateral Value" shall mean at any given time the value of all
Collateral against which Disbursements may be made as set forth in Section
(5)(C) of the Loan Authorization Agreement, valued according to GAAP.
"Country Limitation Schedule" shall mean the most recent schedule
published by Eximbank and provided to the borrower by the lender which sets
forth on a country by country basis whether and under what conditions Eximbank
will provide coverage for the financing of export transactions to countries
listed therein.
"Debarment Regulations" shall have the meaning set forth in Section
2.16.
"Disbursed Amount" shall mean the aggregate outstanding amount of the
Disbursements.
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<PAGE> 7
"Disbursement" shall mean an advance of the Loan from the Lender to the
Borrower under the Loan Agreement.
"Disbursement Rate" shall mean the rate specified in Section (5)(C) of
the Loan Authorization Agreement for each category of Collateral.
"Dollars" or "$" shall mean the lawful money of the United States of
America.
"Export Order" shall mean a written export order or contract for the
purchase by the Buyer from the Borrower of any of the Items.
"GAAP" shall mean the generally accepted accounting principles issued
by the American Institute of Certified Public Accountants.
"Guarantor" shall mean each person or entity, if any, identified in
Section (3) of the Loan Authorization Agreement who shall guarantee (jointly and
severally if more than one) the Borrower's obligation to repay all amounts
outstanding under the Note.
"Inventory" shall mean the raw materials, work-in-process and finished
goods purchased or manufactured by the Borrower for resale and located in the
United States.
"Items" shall mean the finished goods or services which are intended
for export, as specified in Section (4)(A) of the Loan Authorization Agreement.
"Letter of Credit" shall mean an irrevocable letter of credit subject
to UCP 500, payable in the United States or at the issuing bank and issued for
the benefit of the Borrower on behalf of a Buyer in connection with the purchase
of the Items.
"Loan Documents" shall mean the Note, the Loan Agreement, this
Agreement and any other instrument, agreement or document previously,
simultaneously or hereafter executed by the Borrower or any Guarantors
evidencing, securing, guaranteeing or in connection with the Loan.
"Principals" shall have the meaning set forth in Section 2.16.
"Revolving Loan" shall mean a Loan under which amounts disbursed and
repaid may be disbursed on a continuous basis during the term of the Loan.
"Transaction Specific Loan" shall mean a Loan under which amounts
disbursed and repaid may not be disbursed again.
"U.S." or "United States" shall mean the United States of America and
its territorial possessions.
"U.S. Content" shall mean with respect to any Item all the labor,
materials and services
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<PAGE> 8
which are of U.S. origin or manufacture, and which are incorporated into an Item
in the United States.
ARTICLE II
OBLIGATIONS OF THE BORROWER
Until payment in full of the Loan, the Borrower agrees to the
following:
Section 2.1 Use of Disbursements. The Borrower shall use Disbursements
only for the purpose of enabling the Borrower to finance the cost of
manufacturing, producing, purchasing or selling the Items. The Borrower may not
use Disbursements for the purpose of: (a) servicing any of the Borrower's
pre-existing or future indebtedness unrelated to the Loan; (b) acquiring fixed
assets or capital goods for use in the Borrower's business; (c) acquiring,
equipping or renting commercial space outside of the United States; (d) paying
the salaries of non-U.S. citizens or non-U.S. permanent residents who are
located in offices outside the United States; or (e) serving as a retainage or
warranty bond.
In addition, Disbursements may not be used to finance the manufacture,
purchase or sale or any of the following:
(a) Items to be sold to a Buyer located in a country in which Eximbank
is legally prohibited from doing business as designated in the Country
Limitation Schedule;
(b) that a part of the cost of the Items which is not U.S. Content
unless such part is not greater than fifty percent (50%) of the cost of the
Items and is incorporated into the Items in the United States;
(c) defense articles or defense services; or
(d) without Eximbank's prior written consent, any Items to be used in
the construction, alteration, operation or maintenance of nuclear power,
enrichment, reprocessing, research or heavy water production facilities.
Section 2.2 Borrowing Base Certificates and Export Orders. In order to
receive a Disbursement under the Loan, the Borrower shall deliver to the Lender
a Borrowing Base Certificate current within the past five (5) Business Days and
a copy of the Export Order(s) (or, for Revolving Loans, if permitted by the
Lender, a written summary of the Export Orders) against which the Borrower is
requesting a Disbursement. If the Lender permits summaries of Export Orders, the
Borrower shall also deliver promptly to the Lender copies of any Export Orders
requested by the Lender. Additionally, the Borrower shall deliver to the Lender
at least once every thirty (30) calendar days a Borrowing Base Certificate
current within the past five (5) Business Days, which requirement may be
satisfied by submission of a Borrowing Base Certificate when requesting a
Disbursement.
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<PAGE> 9
Section 2.3 Exclusions from the Borrowing Base. In determining the
amount of a requested Disbursement, the Borrower shall exclude from the
Borrowing Base the following:
(a) an Inventory which is not located in the United States;
(b) any demonstration Inventory or Inventory sold on consignment;
(c) any Inventory consisting of proprietary software;
(d) any Inventory which is damaged, obsolete, returned, defective,
recalled or unfit for further processing;
(e) any Inventory which has been previously exported from the United
States;
(f) any Inventory which constitutes defense articles or defense
services or any Accounts Receivable generated by sales of such Inventory;
(g) any Inventory which is to be incorporated into Items destined for
shipment to, and any Account Receivable in the name of a Buyer located in, a
country in which Eximbank is legally prohibited from doing business as
designated in the Country Limitation Schedule;
(h) any Inventory which is to be incorporated into Items destined for
shipment to, and any Account Receivable in the name of a Buyer located in, a
country in which Eximbank coverage is not available for commercial reasons as
designated in the Country Limitation Schedule, unless and only to the extent
that such Items are to be sold to such country on terms of a Letter of Credit
confirmed by a bank acceptable to Eximbank;
(i) any Inventory which is to be incorporated into Items whose sale
would result in an ineligible Account Receivable;
(j) any Account Receivable with a term in excess of net one hundred
eighty (180) days;
(k) any Account Receivable which is more than sixty (60) calendar days
pas the original due date, unless it is insured through Eximbank export credit
insurance for comprehensive commercial and political risk, or through Eximbank
approved private insurers for comparable coverage, in which case ninety (90)
calendar days shall apply;
(l) any intra-company Account Receivable or any Account Receivable from
a subsidiary of the Borrower, form a person or entity with a controlling
interest in the Borrower or from an entity which shares common controlling
ownership with the Borrower;
(m) any Account Receivable evidenced by a Letter of Credit, until the
date of shipment of the Items covered by the subject Letter of Credit;
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<PAGE> 10
(n) any Account Receivable which the Lender or Eximbank, in its
reasonable judgment, deems uncollectible for any reason;
(o) any Account Receivable payable in a currency other than Dollars,
except as may be approved in writing by Eximbank;
(p) any Account Receivable from a military Buyer, except as may be
approved in writing by Eximbank; and
(q) any Account Receivable due and collectible outside the United
States, except as may be approved in writing by Eximbank.
Section 2.4 Schedules, Reports and Other Statements. The Borrower shall
submit to the Lender in writing each month (a) an Inventory schedule for the
preceding month and (b) an Accounts Receivable aging report for the preceding
month detailing the terms of the amounts due from each Buyer. The Borrower shall
also furnish to the Lender promptly upon request such information, reports,
contracts, invoices and other data concerning the Collateral as the Lender may
from time to time specify.
Section 2.5 Additional Security or Payment. The Borrower shall at all
times ensure that the Borrowing Base exceeds the Disbursed Amount. If informed
by the Lender or if the Borrower otherwise has actual knowledge that the
Borrowing Base is at any time less than the Disbursed Amount, the borrower
shall, within five (5) Business Days, either (a) furnish additional security to
the Lender, in form and amount satisfactory to the Lender and Eximbank, or (b)
apply to the Lender an amount equal to the difference between the Disbursed
Amount and the Borrowing Base.
Section 2.6 Continued Security Interest. The Borrower shall notify the
Lender in writing within five (5) Business Days if (a) the Borrower changes in
name or identity in any manner, (b) the Borrower changes the location of its
principal place of business, (c) the nature of any of the Collateral is changed
or any of the Collateral is transferred to another location or (d) any of the
books or records related to the Collateral are transferred to another location.
The Borrower shall execute such additional financing statements or other
documents as the Lender may reasonably request in order to maintain its
perfected security interest in the Collateral.
Section 2.7 Inspection of Collateral. The Borrower shall permit the
representatives of the Lender and Eximbank to make at any time during normal
business hours reasonable inspections of the Collateral and of the Borrower's
facilities, activities, and books and records, and shall cause its offers and
employees to give full cooperation and assistance in connection therewith.
Section 2.8 Notice of Debtor's Relief, Dissolution and Litigation. The
Borrower shall notify the Lender in writing within five (5) Business Days of the
occurrence of any of the following:
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<PAGE> 11
(a) a proceeding in bankruptcy or an action for debtor's relief is
filed by, against, or on behalf of the Borrower;
(b) the Borrower fails to obtain the dismissal or termination within
thirty (30) calendar days of the commencement of any proceeding or action
referred to in (a) above;
(c) the Borrower begins any procedure for its dissolution or
liquidation, or a procedure therefore has been commenced against it; or
(d) any material litigation is filed against the Borrower.
Section 2.9 Merger or Consolidation. The Borrower shall maintain
insurance coverage in the manner and to the extent customary in businesses of
similar character.
Section 2.10 Merger or Consolidation. Without the prior written consent
of Eximbank and the Lender, the Borrower shall not (a) merge or consolidate with
any other entity, (b) sell, lease, transfer or otherwise dispose of any
substantial part of its assets, or any part of its assets which are essential to
the conduct of its business or operations, (c) make any material change in its
organizational structure or identity, or (d) enter into any agreement to do any
of the foregoing.
Section 2.11 Reborrowings and Repayment Terms. (a) If the Loan is a
Revolving Loan, provided that the Borrower is not in default under any of the
Loan Documents, the Borrower may borrow, repay and reborrow amounts under the
Loan until the close of business on the Availability Date. Unless the Revolving
Loan is renewed or extended by the Lender, the Borrower shall pay in full the
outstanding Loan Amount and all accrued and unpaid interest thereon no later
than the first Business Day after the Availability Date.
(b) If the Loan is a Transaction Specific Loan, the Borrower shall,
within two (2) Business Days of the receipt thereof, pay to the Lender (for
application against the outstanding Loan Amount and accrued and unpaid interest
thereon) all checks, drafts, cash and other remittances it may receive in
payment or on account of the Accounts Receivable or any other Collateral, in
precisely the form received (except for the endorsement of the Borrower where
necessary). Pending such deposit, the Borrower shall not commingle any such
items of payment with any of its other funds or property, but will hold them
separate and apart.
Section 2.12 Cross Default. The Borrower shall be deemed in default
under the Loan if the Borrower fails to pay when due any amount payable to the
Lender under any loan to the Borrower not guaranteed by Eximbank.
Section 2.13 Financial Statements. The Borrower shall provide quarterly
financial statements to the Lender no later than forty-five (45) days after the
end of each quarter. This is in addition to any other financial statements that
may be required by the Lender under the Loan Agreement.
-7-
<PAGE> 12
Section 2.14 Taxes, Judgments and Liens. The Borrower shall remain
current on all of its federal, state and local tax obligations. In addition, the
Borrower shall notify the Lender in the event (i) any judgment is rendered
against the Borrower or (ii) any lien is filed against any of the assets of the
Borrower.
Section 2.15 Munitions List. If any of the Items are articles,
services, or related technical data that are listed on the United States
Munitions List (part 121 of title 22 of the Code of Federal Regulations), the
Borrower shall send a written notice promptly to the Lender describing the
Item(s) and the corresponding invoice amount.
Section 2.16 Suspension and Debarment, etc. On the date of this
Agreement neither the Borrower nor its Principals (as defined below) are (A)
debarred, suspended, proposed for debarment with a final determination still
pending, declared ineligible or voluntarily excluded (as such terms are defined
under any of the Debarment Regulations referred to below) from participating in
procurement or nonprocurement transactions with any United Sates federal
government department or agency pursuant to any of the Debarment Regulations (as
defined below) or (B) indicted, convicted or had a civil judgment rendered
against the Borrower or any of its Principals for any of the offenses listed in
any of the Debarment Regulations. Unless authorized by Eximbank, the Borrower
will not knowingly enter into any transactions in connection with the Items with
any person who is debarred, suspended, declared ineligible or voluntarily
excluded from participation in procurement or nonprocurement transactions with
any United States federal government department or agency pursuant to any of the
Debarment Regulations. The Borrower will provide immediate written notice to the
Lender if at all time it learns that the certifications et forth in this Section
2.16 was erroneous when made or has become erroneous by reason of changed
circumstances. For the purposes hereof, (1) "Principals" shall mean any officer,
director, owner, partner, key employee, or other person with primary management
or supervisory responsibilities with respect to the Borrower; or any other
person (whether or not an employee) who has critical influence on or substantive
control over the transaction covered by this Agreement and (2) the Debarment
Regulations shall mean (x) the Governmentwide Debarment and suspension
(Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988),
(y) Subpart 9.4 (Debarment, Suspension, and Ineligibility) of the Federal
Acquisition Regulations, 48 C.F.R., 9.400-9.409 and (z) the revised
Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 60 Fed. Reg. 33037 (June 26, 1995).
Section 2.17 Special Conditions. The Borrower shall comply with all
Special Conditions, if any, referenced in Section (11) of the Loan Authorization
Agreement or the Loan Authorization Notice.
ARTICLE III
RIGHTS AND REMEDIES
Section 3.1 Indemnification. Upon Eximbank's payment of a claim to the
Lender in connection with the Loan pursuant to the Master Guarantee Agreement,
Eximbank shall assume all rights and remedies of the Lender under the Loan
Documents and may enforce any such rights or
-8-
<PAGE> 13
remedies against the Borrower, the Collateral and any Guarantors. Additionally,
the Borrower shall hold Eximbank and the Lender harmless from and indemnify them
against any and all liabilities, damages, claims, costs and losses incurred or
suffered by either of them resulting from (a) any materially incorrect
certification or statement knowingly made by the Borrower or its agent to
Eximbank or the Lender in connection with the Loan, this Agreement or any of the
other Loan Documents or (b) any material breach by the Borrower of the terms and
conditions of this Agreement or any of the other Loan Documents. The Borrower
also acknowledges that any statement, certification or representation made by
the Borrower in connection with the Loan is subject to the penalties provided in
Article 18 U.S.C. Section 1001.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York, United States of
America.
Section 4.2 Notification. All notifications required by this Agreement
shall be given in the manner provided in the Loan Agreement.
Section 4.3 Partial Invalidity. If at any time any of the provisions of
this Agreement becomes illegal, invalid or unenforceable in any respect under
the law of any jurisdiction, neither the legality, the validity nor the
enforceability of the remaining provisions hereof shall in any way be affected
or impaired.
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be duly
executed as of the 31st day of October, 1999.
MOBILITY ELECTRONICS, INC.
(Name of Borrower)
By: /s/ RICHARD W. WINTERTICH
--------------------------------------
Name: Richard W. Winterich
Title: Chief Financial Officer
ACKNOWLEDGED:
BANK OF AMERICA, N.A.
(Name of Lender)
By: /s/ KURT A. HUISMAN
--------------------------------------
Name: Kurt A. Huisman
Title: Vice President
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<PAGE> 14
Guaranteed Loan No.
----------------
ANNEXES:
A1 - Loan Authorization Agreement or
A2 - Loan Authorization Notice
(Revised April 1, 1996)
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<PAGE> 1
EXHIBIT 10.24
[BANK OF AMERICA LOGO]
AMENDED AND RESTATED
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY)
================================================================================
This Agreement ("Agent") dated to be effective November 2, 1999, is between BANK
OF AMERICA, N.A. ("Bank of America"), successor-in-interest to NationsBank, N.A.
(Bank of America and its predecessors shall be referred to herein as the "Bank")
and Mobility Electronics, Inc., a Delaware corporation formerly known as
Electronics Accessory Specialists International, Inc. (the "Borrower").
RECITALS
A. Borrower executed (1) a Promissory Note dated January 13, 1998, in the
original principal amount of $3,167,000 in favor of Bank, which not was
subsequently replaced by that certain Promissory Note dated July 21, 1998 in the
amount of $4,500,000 which note was subsequently modified by that certain Change
In Terms Agreement dated July 21, 1999 in the amount of $4,500,000 ("Original
Facility I Note"); and (2) a Promissory Note dated May 6, 1998, in the original
principal amount of $1,500,000 ("EximBank Loan") in favor of Bank (the "EximBank
Note"). The EximBank Note is subject to the Export-Import Bank of the United
States Working Capital Guarantee Program (the "EximBank Guaranty"). Borrower
also executed a Loan Agreement dated January 13, 1998, from the Borrower to
Bank, the "Loan Agreement").
B. At the request of Borrower, Bank issued, on behalf of Borrower, a $150,000
Letter of Credit (the "$150,000 LC") and a $75,000 Letter of Credit (the
"$75,000 LC"). The $150,000 LC and the $75,000 LC are hereinafter collectively
referred to as the "LC's".
C. Pursuant to the terms of this Agreement, (1) the outstanding principal
balance of Facility I Note shall be reduced to $2,852,054 ("Facility I") and the
Original Facility I Note shall be replaced by a Promissory Note in the face
amount of $3,000,000 (the "Facility I Note"); (2) a new $1,500,000 term facility
will be created ("Facility II") and evidenced by a Promissory Note in the
principal amount of $1,500,000 (the "Facility II Note"); (3) two (2) separate
term facilities in the amounts of $150,000 ("Facility III") and $75,000
("Facility IV") respectively shall be created and shall be evidenced by a
Promissory Note in the face amount of $150,000 (the "Facility III Note") and a
Promissory Note in the face amount of $75,000 (the "Facility IV Note").
D. Borrower also executed an Arizona Uniform Commercial Code Financing State on
Form UCC-1 dated May 6, 1998, filed in the office of the Secretary of State of
the State of Arizona on July 16, 1998, as Filing No. 01024866 and subsequently
amended on September 15, 1998. Borrower also executed an Arizona Uniform
Commercial Code Financing Statement on Form UCC-1 dated January 14, 1997, filed
in the office of the Secretary of State of the State of Arizona on January 14,
1997, as Filing No. 951753 and subsequently amended on November 9, 1998.
Borrower also executed a New Mexico Uniform Commercial Code Financing Statement
on Form UCC-1 dated December 16, 1996, filed in the office of the Secretary of
State of the State of New Mexico on January 13, 1997, as Filing No. 970113056
and subsequently amended on November 6, 1998.
E. Charles Mollo, Jeffrey Doss, Cameron Wilson and Janice Breeze (collectively,
the "Guarantors") executed those certain Continuing Guaranties dated April 6,
1999, in favor of Bank (collectively, the "Guaranties").
F. All of the documents, certificates or agreements executed in connection with
the respective loans evidenced by the Original Facility 1 Note, the EximBank
Note and the LC's, including, without limitation, those listed above and those
which evidence, guaranty, secure or modify such loans, as any or all of them may
have been
<PAGE> 2
amended or modified to date, shall hereinafter be collectively referred to as
the "Existing Loan Documents". This Amended and Restated Business Loan Agreement
(the "Agreement"), all other documents executed in connection with this
Agreement, and the Existing Loan Documents, as modified hereby, are herein
collectively referred to as the "Loan Documents".
G. The Original Facility I Note matured on August 31, 1999.
H. On August 7, 1999, Borrower and Bank executed that certain Export-Import Bank
of the United Sates Working Capital Guaranty Program Borrower Agreement and
other documents (the "Exim Bank Documents") pursuant to which Export-Import Bank
issued a ninety percent (90%) guaranty pursuant to the terms thereof (the "Exim
Bank Guaranty").
I. As of November 2, 1999, Borrower was indebted to Bank under the Existing Loan
Documents in the principal amount of: $4,291,053.69, plus accrued interest of
$37,825.93 with respect to the Original Facility I Note (the "Present Debt").
J. Borrower has requested that Bank modify the Loans as set forth below. Bank,
although under no obligation to do so, is willing to so modify the Loans,
subject to the terms and conditions set forth below.
K. Guarantors believe that the modifications would be in the best interest of
guarantors and Guarantors are willing to consent and agree to reaffirm and
continue the Guaranties with respect to the Loan and the Existing Loan
Documents, as the Loan and the Existing Loan Documents are hereby amended and
restated.
1. DEFINITIONS
In addition to the terms which are defined elsewhere in this Agreement, the
following terms have the meanings indicated for the purposes of this Agreement.
1.1 "FACILITY I BORROWING BASE" means the sum of:
(a) 80% of the balance due on Facility I Acceptable Receivables;
(b) 60% of the value of Acceptable Finished Goods Inventory;
(c) 45% of Acceptable Raw Materials Inventory through October 30, 1999;
(d) 35% of Acceptable Raw Materials Inventory from October 31, 1999 through
November 29, 1999;
(e) 25% of Acceptable Raw Materials Inventory from November 30, 1999
through December 30, 1999; and
(f) 15% of Acceptable Raw Materials Inventory from December 31, 1999
through the Maturity Date.
Provided, however, that in the event, at any time prior to the Facility I
Maturity Date, the aggregate amount of Facility I Acceptable Receivables plus
Acceptable Finished Goods Inventory, when margined as set forth in 1.1(a) and
(b) above, is equal to or greater than all outstanding advances on Facility I,
all advances against Acceptable Raw Materials Inventory as set forth in Sections
1.1(c) through (f), shall be reduced to zero percent (0%) through the Maturity
Date.
In determining the value of Acceptable Finished Goods Inventory and/or
Acceptable Raw Materials Inventory to be included in the Facility I Borrowing
Base, Bank will use the lowest of (i) Borrower's cost, (ii) Borrower's estimated
market value, or (iii) Bank's independent determination of the resale value of
such inventory in such quantities and on such terms as Bank deems appropriate.
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1.2 "FACILITY I ACCEPTABLE RECEIVABLE" means an account receivable which
satisfies the following requirements:
(a) The account has resulted from the sale of goods or the performance of
services by Borrower in the ordinary course of Borrower's business.
(b) There are no conditions which must be satisfied before Borrower is
entitled to receive payment of the account. Accounts arising from COD
sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to payment and
has not asserted any counterclaims or offsets against Borrower. To the
extent any credit balances exist in favor of the debtor, such credit
balances shall be deducted from the account balance.
(d) The account represents a genuine obligation of the debtor for goods
sold to, and accepted by, the debtor, or for services performed for and
accepted by the debtor.
(e) Borrower has sent an invoice to the debtor in the amount of the
account.
(f) The account is owned by Borrower free of any title defects or any liens
of interest of others except the security interest in favor of Bank.
(g) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or subsidiary of Borrower, or an
entity which has common officers or directors with Borrower.
(ii) the U.S. government or any agency or department of the U.S.
government unless Bank agrees in writing to accept the obligation and
Borrower complies with the procedures in the Federal Assignment of
Claims Act of 1940 with respect to this obligation.
(iii) any state, county, city, town or municipality.
(iv) any person or entity located in a foreign country unless the
account is supported by a letter of credit or the EximBank Guaranty
issued by a bank acceptable to Bank.
(v) any person or entity to whom Borrower is obligated for goods
purchased by Borrower or for services performed for Borrower
("Contra-Accounts"). However, to the extent that such Contra-Accounts
exist with Group West Inc., only those amounts that exceed the
threshold specified below shall be deemed excluded (i.e.,
unacceptable): (A) $300,000 through 12/30/99; (B) $150,000 from
12/31/99 through the Maturity Date;
(h) The account is not in default. An account will be considered in default
if the account is not paid within the 90 day period starting on its
invoice date;
(i) The account is not the obligation of a debtor who is in default (as
defined above) on 25% or more of the accounts upon which such debtor is
obligated.
(j) The account does not arise from the sale of goods which remain in
Borrower's possession or under Borrower's control.
(k) The account is not evidenced by a promissory note or chattel paper.
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(l) The account is otherwise acceptable to Bank which acceptance shall not
be unreasonably withheld.
In addition to the foregoing limitations, the dollar amount of accounts included
as Facility I Acceptable Receivables which are the obligations of a single
debtor shall not exceed the concentration limit established for that debtor. To
the extent the total of such accounts exceeds a debtor's concentration limit,
the amount of any such excess shall be excluded. The concentration limit for
each debtor, other than the account debtors set forth below, shall be equal to
10% of the total amount of Borrower's Facility I Acceptable Receivables at that
time.
It is provided, however, that if the debtor obligated upon an account is one of
the debtors listed below, the concentration limit applicable to each such debtor
will be increased to the percentage set forth below:
<TABLE>
<CAPTION>
Debtor Concentration Limit
------ -------------------
<S> <C>
IBM 25%
Toshiba 25%
Port 20%
Targas 20%
</TABLE>
1.3 "ACCEPTABLE FINISHED GOODS INVENTORY" means inventory that satisfies the
following requirements:
(a) The inventory is owned by Borrower free of any title defects or any
liens or interests of others except the security interest in favor of
Bank.
(b) The inventory is located at Borrower's place of business in Arizona.
(c) The inventory is held for sale or use in the ordinary course of
Borrower's business and is of good and merchantable quality. Inventory
which is obsolete, unsalable, damaged, defective, discontinued or
slow-moving or which has been returned by the buyer, or any inventory
reserved for such occurrences, is not acceptable. Display items,
work-in-process supply and packing and shipping materials are not
acceptable.
(d) The inventory is not placed on consignment.
(e) The inventory is in transit.
(f) The inventory is used for samples, or is otherwise used or returned to
Borrower.
(g) The inventory is otherwise acceptable to Bank which acceptance shall
not be unreasonably withheld.
1.4 "ACCEPTABLE RAW MATERIAL INVENTORY" means inventory materials owned by, and
in the possession of Borrower which are free and clear of any liens or
encumbrances (other than the liens created in favor of Bank) and which are used
by Borrower solely in fabrication/manufacture/production of its Acceptable
Finished Goods Inventory.
1.5 "FACILITY I" shall have the meaning set forth in the Recitals.
1.6 "FACILITY I NOTE" shall have the meaning set forth in the Recitals.
1.7 "FACILITY I CREDIT LIMIT" means the amount of Three Million Dollars
($3,000,000).
1.8 "FACILITY II" shall have the meaning set forth in the Recitals.
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1.9 "FACILITY II NOTE" shall have the meaning set forth in the Recitals.
1.10 "FACILITY III" shall have the meaning set forth in the Recitals.
1.11 "FACILITY III NOTE" shall have the meaning set forth in the Recitals.
1.12 "FACILITY IV" shall have the meaning set forth in the Recitals.
1.13 "FACILITY IV NOTE" shall have the meaning set forth in the Recitals.
1.14 "$150,000 CD" shall mean that certain certificate of deposit maintained
with Bank in the amount of $150,000 bearing certificate number 91000014891201.
1.15 "$75,000 CD" shall mean that certain certificate of deposit maintained with
Bank in the amount of $75,000 bearing certificate number 91000014956243.
2. AMOUNT AND TERMS
2.1 FACILITY I LINE OF CREDIT AMOUNT.
(a) During the Facility I Availability Period described below, Bank will
provide a line of credit to Borrower. The amount of the line of credit
(the "Facility I Commitment") is equal to the lesser of (i) the
Facility I Credit Limit or (ii) the Facility I Borrowing Base.
(b) This is a revolving line of credit for advances. During the Facility I
Availability Period, Borrower may repay principal amounts and reborrow
them.
(c) The total of all Facility I advances outstanding at any one time may
not exceed Three Million Dollars ($3,000,000).
(d) Borrower agrees not to permit the outstanding principal balance of the
Facility I to exceed the Facility I Commitment. If Borrower exceeds
this limit, Borrower will immediately pay the excess to Bank upon
Bank's demand. Bank may apply payments received from Borrower under
this Paragraph to the obligations of Borrower to Bank under Facility I
in the order and the manner as Bank, in its discretion, may determine.
2.1.1 AVAILABILITY PERIOD. The Facility I line of credit is available
between the date of this Agreement and March 31, 2000 (the "Facility I
Expiration Date") unless Borrower is in default (the "Facility I Availability
Period).
2.1.2 CONDITIONS TO EACH EXTENSION OF CREDIT. Before each advance under
the Facility I line of credit, including the first, Borrower will deliver the
following to Bank if requested by Bank:
(a) a borrowing certificate (containing information that is not older than
16 days), in form and detail satisfactory to Bank (substantially in the
form of Exhibit A attached hereto), setting forth the Facility I
Acceptable Receivables, Acceptable Finished Goods Inventory and/or
Acceptable Raw Materials Inventory on which the requested extensions of
credit is to be based;
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(b) copies of the invoices or the record of invoices from Borrower's sales
journal for such Facility I Acceptable Receivables and a listing of the
names and addresses of the debtors obligated thereunder, if
specifically requested by the Bank; and
(c) copies of the delivery receipts, purchase orders, shipping
instructions, bills of lading and other documentation pertaining to
such Facility I Acceptable Receivables, if specifically requested by
Bank.
2.1.3 INTEREST RATE. the interest rate is Bank's Prime Rate plus 2.50
percentage points.
The Prime Rate is the rate of interest publicly announced from time to time by
Bank in San Francisco, California, as its Prime Rate. The Prime Rate is set by
Bank on various factors, including its costs and desired return, general
economic conditions and other factors, and is used as a reference point for
processing some loans. Bank may price loans to its customers at, above, or below
the Prime Rate. Any change in the Prime Rate shall take effect at the opening of
business on the date specified in the public announcement of a change in the
Prime Rate.
2.1.4 REPAYMENT TERMS.
(a) Borrower will pay accrued interest on December 1, 1999, and then on the
same date of each month thereafter until payment in full of any
principal outstanding under this line of credit.
(b) Borrower will repay in full all principal and any accrued and unpaid
interest or other charges outstanding under this Facility I line of
credit no later than the Facility I Expiration Date.
(c) Borrower may prepay the Facility I line of credit in full or in part at
any time without premium or penalty provided Borrower is not in
default.
2.2 FACILITY II AMOUNT.
(a) During the Facility II Availability Period described below, Bank will
provide a term loan to Borrower. The amount of Facility II (the
"Facility II Commitment") is equal to $1,500,000.
(b) This is a non-revolving term loan. Any amount repaid, even if repaid
before the Facility II Expiration Date permanently reduces the
principal balance of Facility II and may not be reborrowed.
2.2.1 AVAILABILITY PERIOD. The Facility II term loan is available
between the date of this Agreement and March 31, 2000 (the "Facility II
Expiration Date") unless Borrower is in default.
2.2.2 INTEREST RATE. The interest rate is Bank's Prime Rate plus 3.50
percentage points.
2.2.3 REPAYMENT TERMS.
(a) Borrower will pay (i) principal in the amount of $500,000 upon the
execution of this Agreement; and (ii) principal in four (4) successive
monthly installments of Eighty Three Thousand Three Hundred Thirty
Three Dollars and Thirty Three Cents ($83,333.33) plus interest
commencing December 1, 1999 and on the first day of each month
thereafter through March 1, 2000. On the Facility II Expiration Date,
Borrower will repay the remaining principal balance plus any interest
then due. Each installment, when paid, will be applied first to the
payment of interest accrued. The amount of interest due, and the
portion of each installment which is applied to interest, will change
from time to time if there are changes in the Prime Rate. The balance,
if any, of each installment will be applied to the repayment of
principal. If the accrued interest owing exceeds the amount of any
installment, Borrower will pay the excess in addition to the
installment. The excess accrued interest will be paid on the due date
of the installment.
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(b) Borrower may prepay the Facility II in full or in part at any time
without premium or penalty provided Borrower is not in default. This
payment shall be applied to the most remote payment of principal
document under the Loan Documents, including any balloon payment, and
shall not negate any regularly scheduled installments due under the
Loan.
(c) Borrower agrees to make an additional payment to Bank in an amount
equal to 60% of any excess availability under the Facility I Note
simultaneously with any advance hereunder to Borrower (an "Excess
Payment"). The Excess Payment shall be applied by Bank to the
outstanding principal balance of the Facility II Note in the inverse
order of maturity.
2.3 FACILITY III AMOUNT.
(a) During the Facility III Availability Period described below, Bank will
provide a term loan to Borrower. The amount of the term loan (the
"Facility III Commitment") is equal to $150,000.
(b) This is a non-revolving line of credit for advances with a within line
facility for the existing $150,000 LC. Any amount of credit extended,
even if repaid before the expiration date of the line of credit,
permanently reduces the remaining available term loan.
2.3.1 AVAILABILITY PERIOD. The Facility III term loan is available
between the date of this Agreement and June 1, 2000 (the "Facility III
Expiration Date") unless Borrower is in default.
2.3.2 INTEREST RATE. The interest rate is Bank's Prime Rate plus 2.50
percentage points.
2.3.3 REPAYMENT TERMS.
(a) Borrower will pay interest on the first day of the first day of the
first calendar month after the beneficiary of the $150,000 LC draws
upon the $150,000 LC, and then on the same date of each month
thereafter until payment in full of any principal outstanding under
this Facility III term facility.
(b) Borrower will repay in full all principal and any accrued and unpaid
interest or other charges outstanding under this Facility III term
facility no later than the Facility III Expiration Date.
(c) Borrower may prepay the Facility III term facility in full or in part
at any time without premium or penalty provided Borrower is not in
default hereunder.
(d) Bank shall have the unilateral right, without notice, at any time after
the beneficiary of the $150,000 LC draws upon the $150,000 LC, to
liquidate the $150,000 CD and apply the proceeds thereof to the
Facility III Note.
2.4 FACILITY IV AMOUNT.
(a) During the Facility IV Availability Period described below, Bank will
provide a term facility to Borrower. the amount of the term facility
(the "Facility IV Commitment") is equal to $75,000.
(b) This is a non-revolving line of credit for advances with a within line
facility for the existing $75,000 LC. Any amount of credit extended,
even if repaid before the expiration date of the line of credit,
permanently reduces the remaining available term facility.
2.4.1 AVAILABILITY PERIOD. The Facility IV term facility is available
between the date of this Agreement and September 15, 2000 (the "Facility IV
Expiration Date") unless Borrower is in default.
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<PAGE> 8
2.4.2 INTEREST RATE. The interest rate is Bank's Prime Rate plus 2.50
percentage points.
2.4.3 REPAYMENT TERMS.
(a) Borrower will pay interest on the first day of the first calendar month
after the beneficiary of the $75,000 LC draws upon the $75,000 LC, and
then on the same date of each month thereafter until payment in full of
any principal outstanding under this Facility IV term facility.
(b) Borrower will repay in full all principal and any accrued and unpaid
interest or other charges outstanding under this Facility IV term
facility no later than the Facility IV Expiration Date.
(c) Borrower may prepay the Facility IV term facility in full or in part at
any time without premium or penalty provided Borrower is not in default
hereunder.
(d) Bank shall have the unilateral right, without notice, at any time after
the beneficiary of the $75,000 LC draws upon the $75,000 LC to
liquidate the $75,000 LC and apply the proceeds thereof to the Facility
IV Note.
3. FEES, EXPENSES AND DEPOSITS
3.1 WAIVER FEES. If Bank, at its discretion, agrees to waive or amend any terms
of this Agreement, then Borrower will pay Bank a Five Thousand Dollar ($5,000)
fee for each waiver or amendment. Nothing in this paragraph shall imply that
Bank is obligated to agree to any waiver or amendment requested by Borrower.
Bank may impose additional requirements as a condition to any waiver or
amendment.
3.2 EXPENSES.
(a) Borrower agrees to immediately repay Bank for expenses that include,
but are not limited to, filing, recording and search fees, appraisal
fees, and documentation fees.
(b) Borrower agrees to reimburse Bank for any expenses it incurs in the
preparation of this Agreement and any agreement or instrument required
by this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated coss of Bank's in-house
counsel.
(c) Borrower agrees to reimburse Bank for the cost of periodic audits and
appraisals of the personal property collateral securing this Agreement
at such intervals as Bank may reasonably require. The audits and
appraisals may be performed by employees of Bank or by independent
appraisers. The Bank shall not perform an audit more often than once
every three (3) consecutive calendar months.
4. COLLATERAL
4.1 PERSONAL PROPERTY. Borrower's obligating to Bank under this Agreement will
be secured by personal property Borrower now owns or will own in the future as
listed below. The collateral is further defined in security agreements and the
UCC's executed by Borrower.
In addition, all personal property collateral securing this Agreement shall also
secure all other present and future obligations of Borrower to Bank (excluding
any consumer credit covered by the federal Truth in Lending law, unless Borrower
has otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of Borrower to Bank shall also secure this
Agreement.
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5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to Bank, or by another means acceptable to
Bank.
5.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by Bank and each payment by
Borrower will be:
(a) made at Bank's branch (or other location) selected by Bank from time to
time;
(b) made for the account of Bank's branch selected by Bank from time to
time;
(c) made in immediately available funds, or such other type of funds
selected by Bank; and
(d) evidenced by records kept by Bank.
5.3 TELEPHONE AUTHORIZATIONS.
(a) Bank may honor telephone instructions for advances or repayments given
by any one of the individuals authorized to sign loan agreements on
behalf of Borrower, or any other individual designated in writing by
any one of such authorized signers.
(b) Advances will be deposited in and repayments withdrawn from Borrower's
account number 4271911610 or such other of Borrower's accounts with
Bank as designated in writing by Borrower.
(c) Borrower will provide written confirmation to Bank of any telephone
instructions within two (2) days. If there is a discrepancy and Bank
has already acted on the telephone instructions, the telephone
instructions will prevail over the written confirmation.
(d) Borrower indemnifies and excuses Bank (including its officers,
employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephonic instructions it
reasonably believes are made by any individual unauthorized by Borrower
to give such instructions. This indemnity and excuse will survive this
Agreement's termination.
5.4 DIRECT DEBIT.
(a) Borrower agrees that interest and principal payments and any fees will
be deducted automatically on the due date from Borrower's account
number 4271911610, or such other of Borrower's accounts with Bank as
designated in writing by Borrower (the "Designated Account").
(b) Bank will debit the Designated Account on the dates the payments become
due. If a due date does not fall on a Banking Day, as defined below,
Bank will debit the Designated Account on the first Banking Day
following the due date.
(c) Borrower will maintain sufficient funds in the Designated Account on
the dates Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date Bank enters any debit
authorized by this Agreement, the debit will be reversed.
5.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which Bank is open for business in
Arizona. all payments and disbursements which would be due on a day which is not
a banking day will be due on the next banking day. All payments received on a
day which is not a banking day will be applied to the credit on the next banking
day.
5.6 TAXES. Borrower will not deduct any taxes from any payments it makes to
Bank. If any government authority imposes any taxes on any payments made by
Borrower, Borrower will pay the taxes and will also pay to
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<PAGE> 10
Bank, at the time interest is paid, any additional amount which Bank specifies
as necessary to preserve the after-tax yield Bank would have received if such
taxes had not been imposed. Upon request by Bank, Borrower will confirm that it
has paid the taxes by giving Bank official tax receipts (or notarized copies)
within thirty (30) days after the due date. However, Borrower will not pay
Bank's net income taxes, franchise taxes or any other tax imposed on the Bank as
a result of its net income.
5.7 ADDITIONAL COSTS.
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to Bank's assets and commitments for
credit.
5.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
5.9 INTEREST ON LATE PAYMENTS. At Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at a rate per annum which is five percentage points
higher than the rate of interest otherwise provided under this Agreement. This
may result in compounding of interest.
5.10 OVERDRAFTS. At Bank's sole option in each instance, Bank may do one of the
following:
(a) Make advances under this Agreement to prevent or cover an overdraft on
any account of Borrower with Bank. Each such advance will accrue
interest from the date of the advance or the date on which the account
is overdrawn, whichever occurs first, at the interest rate described in
this Agreement.
(b) Reduce the amount of credit otherwise available under this Agreement by
the amount of any overdraft on any account of Borrower with Bank.
This Paragraph shall not be deemed to authorize Borrower to create overdrafts on
any of Borrower's accounts with Bank.
5.11 PAYMENTS IN KIND. The proceeds of collections of Borrower's accounts
receivable, when received by Bank in kind, shall be credited to interest,
principal, and other sums owed to Bank under this Agreement in the order and
proportion determined by Bank in its sole discretion. All such credits will be
conditioned upon collection and any returned items may, at Bank's option, be
charged to Borrower.
5.12 PROCEEDS OF RECEIVABLES. The proceeds of collections of Borrower's accounts
receivable shall be delivered to Bank and shall be deposited into account number
004271136699 (the "Collection Account"). Withdrawals from the Collection Account
by Borrower shall not be permitted. On a daily basis, Bank shall debit the
Collection Account for the entire balance then on deposit and shall apply such
amount to the outstanding principal balance of the Facility I line of credit.
The excess balance, if any, in the Collection Account shall be credited to
Facility II, Facility III, and Facility IV (in that order). Any checks deposited
to the Collection Account which are returned unpaid will be charged to
Borrowers' account number 4271911610.
5.13 BUDGET/ADVANCES FOR EXPENSES. Borrower shall develop and deliver to Bank on
the 15th and 30th day of each calendar month, a semi-monthly budget ("Budget")
showing anticipated income and expenses for the immediately succeeding 15/16 day
period (as applicable) following the date of such Budget. If a deviation of 10%
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<PAGE> 11
from the Budget subsequently occurs, Borrower shall provide to Bank, not later
than the date of the delivery of the next scheduled Budget, a written
identification and explanation of the deviation and the measures that will have
been or will be implemented to rectify such deviation in the future. Bank shall,
so long as sufficient availability exists under the Facility I borrowing Base,
permit an advance to Borrower for the payment of up to 75% of the reasonable
expenses described in the Budget for the applicable 15/16 day period. For
purposes of this section 5.13, "reasonable expenses" shall mean those customary
and ordinary expenses incurred by Borrower in maintaining its business.
Notwithstanding what may otherwise be provided herein, upon the occurrence of an
Event of Default, or an event which, with the giving of notice of the passage of
time or both, would constitute an Event of Default, the Bank shall not be
required to allow any advance to Borrower pursuant to this section 5.13
notwithstanding any availability under the Facility I Borrowing Base.
6. CONDITIONS
Bank must receive the following items, in form and content acceptable to Bank,
before it is required to extend any credit to Borrower under this Agreement:
6.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
Borrower (and each Guarantor) of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
6.2 GOVERNING DOCUMENTS. A copy of Borrower's articles of incorporation.
6.3 SECURITY AGREEMENTS. Signed original security agreements, patent
assignments, certificate of deposit, pledge agreement, financing statements and
fixture filings (together with collateral in which Bank requires a possessory
security interest), which Bank requires.
6.4 EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor of
Bank are valid, enforceable, and prior to all others' rights and interests,
except those Bank consents to in writing.
6.5 EVIDENCE OF INSURANCE. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
6.6 GUARANTIES. Restated Continuing Guaranties signed by each Guarantor.
6.7 LEGAL OPINION. A written opinion from Borrower's legal counsel, covering
such matters as Bank may require including without limitation acknowledged that
(a) the Borrower is validly existing and in good standing in the State of
Delaware; (b) Borrower has all the requisite authority to execute the Loan
Documents; and (c) the terms of the Loan Documents do not violate any other
material contract to which Borrower is a party. The legal counsel and the terms
of the opinion must be acceptable to Bank.
6.8 GOOD STANDING. Certificates of Good Standing for Borrower from its state of
incorporation and from any other states in which Borrower is required to qualify
to conduct its business.
6.9 PAYMENT OF FEES. Payment of all accrued and unpaid commitment fees, attorney
fees, and costs incurred by Bank arising from the drafting, negotiations, and
closing of the Loan Documents and all expenses incurred by Bank as required by
the Paragraph entitled "Reimbursement Costs."
6.10 REPRESENTATIONS OF CORPORATE OFFICERS. A completed original of Bank's form
of Representations and Warranties of Corporate Officers executed by the
principal officers of Borrower.
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6.11 OTHER REQUIRED DOCUMENTATION. Executed Promissory Notes for Facility I,
Facility II, Facility III, and Facility IV executed by Borrower and payable to
Bank.
6.12 $500,000 PRINCIPAL REDUCTION. A principal reduction under the Facility II
Note shall be delivered which will cause the outstanding principal balance to be
not greater than $1,000,000.
6.13 EXIM BANK DOCUMENTS. The Exim Bank Note, Exim Bank Guaranty and related
documents shall be amended and/or restated in a manner acceptable to Bank in its
sole and exclusive discretion.
6.14 BUDGET. Borrower shall have delivered to Bank its first Budget.
6.15 $75,000 CD. Purchase from, and delivery of, the original $75,000 CD to
Bank.
6.16 $20,000 COMMITMENT FEE. Payment to Bank of the $20,000 Commitment Fee.
6.17 LANDLORD'S LIEN WAIVER. For Borrower's Scottsdale office.
6.18 OTHER ITEMS. Any other items that Bank may reasonably require including
without limitation, a modification of any existing subordination and/or
intercreditor agreements.
6.19 PERSONAL FINANCIAL STATEMENTS. Personal Financial Statements as of December
31, 1998 for Jeffery Doss and Cameron Wilson.
6.20 TAX RETURNS. Tax Returns for Jeffery Doss and Cameron Wilson for 1998.
6.21 $2,000,000 CAPITAL INFUSION. Evidence satisfactory to Bank, in its sole and
absolute discretion, that the Borrower has obtained, contemporaneously with the
execution of this Agreement, a capital investment in Borrower, in the form of
equity (not debt) in an amount of not less than $2,000,000 cash.
7. REPRESENTATION AND WARRANTIES
When Borrower signs this Agreement, and upon each advance hereunder, and until
Bank is repaid in full, Borrower makes the following representations and
warranties:
7.1 ORGANIZATION OF BORROWER. Borrower is a corporation duly formed and existing
under the laws of the State of Delaware.
7.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
herein, are within the Borrower's powers, have been duly authorized, and do not
conflict with any of its organizational papers.
7.3 ENFORCEABLE AGREEMENT. This Agreement, and each other agreement or document
executed and delivered to Bank in connection with this Agreement, is a legal,
valid and binding agreement of Borrower, enforceable against Borrower in
accordance with its terms, and any instrument or agreement required herein, when
executed and delivered, will be similarly legal, valid, binding and enforceable.
7.4 GOOD STANDING. In each state in which Borrower does business, it is properly
licensed, in good standing, and, where required, in compliance with fictitious
name statutes.
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7.5 NO CONFLICTS. This Agreement does not conflict with any law, material
agreement, or material obligation by which Borrower is bound.
7.6 FINANCIAL INFORMATION. All financial and other information that was or will
be supplied to Bank by Borrowers or Guarantors is:
(a) sufficiently complete to give Bank accurate knowledge of Borrower's and
any guarantor's financial condition.
(b) in a form and content required by Bank.
(c) in compliance with all government regulations that apply.
(d) in compliance with generally accepted accounting principals
consistently applied.
Since the date of the financial statements specified above, there have been no
material adverse changes in the assets or the financial condition of Borrower.
7.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against Borrower, which, if lost, would impair Borrower's financial
condition or ability to repay the Loan.
7.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
7.9 PERMITS, FRANCHISES. Borrower possesses all permits, memberships,
franchises, contracts, and licenses required and all trademark rights, trade
name rights, patent rights, and fictitious name rights necessary to enable it to
conduct the business in which it is not engaged without conflict with the rights
of others.
7.10 OTHER OBLIGATIONS. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.11 INCOME TAX RETURNS. Borrower has no knowledge or any pending assessments or
adjustments of its income tax for any year.
7.12 NO EVENT OF DEFAULT. There is no event of default which is, or with notice
or lapse of time or both would be, a default under this Agreement or any of the
Existing Loan Documents.
7.13 MERCHANTABLE INVENTORY. All inventory which is included in the Facility I
Borrowing Base is of good and merchantable quality and free from known defects.
7.14 ERISA PLANS.
(a) Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and
is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability
with respect to any Plan under Title IV of ERISA.
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<PAGE> 14
(b) No reportable event has occurred under Section 4043(b) of ERISA for
which the PBGC requires thirty (30) days' notice.
(c) No action by Borrower to terminate or withdraw from any Plan has been
taken and not notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section
4042 of ERISA, and no event has occurred or condition exists which
might constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as
amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension
Benefit Guaranty Corporation under Title IV of ERISA.
7.15 LOCATION OF BORROWER. Borrower's place of business (or, if Borrower has
more than one place of business, its chief executive office) is located at 7955
E. Redfield Road, Scottsdale, AZ 85260.
7.16 GOVERNMENTAL CONSENT. Borrower is in compliance with all applicable
regulatory requirements and neither the nature of the Borrower, nor any of its
respective businesses or properties, nor any relationship between the Borrower
and any other person, nor any circumstance in connection with the making of the
Loans or delivery of the Notes is such as to require any authorization, consent,
approval, exemption or other action by or notice to or filing with any
governmental authority that has not previously been made or taken and to which
all applicable waiting periods have expired.
7.17 YEAR 2000. On the basis of a comprehensive review and assessment of
Borrower's systems and equipment and inquiry made of Borrower's material
suppliers, vendors and customers Borrower's management is of the view that the
"Year 2000 problem" (that is, the inability of computers, as well as embedded
microchips in non-computing devices, to perform properly date-sensitive
functions with respect to certain dates prior to and after December 31, 1999),
including costs of remediation, will not result in a material adverse change in
the operations, business properties, condition (financial or otherwise) or
prospects of Borrower. Borrower has developed feasible contingency plans to
adequately ensure uninterrupted and unimpaired business operation in the event
of failure of its own or a third party's systems or equipment due to the Year
2000 problem, including those of vendors, customers, and suppliers, as well as a
general failure of or interruption in its communications and delivery
infrastructure.
8. COVENANTS
Borrower agrees, so long as credit is available under this Agreement and until
Bank is repaid in full.
8.1 ABUSE OF PROCEEDS. To use the proceeds of the credit only for working
capital and shall not be transferred to third parties except in the ordinary
course of Borrower's business.
8.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by Bank from time to
time.
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(a) Within ninety (90) days of Borrower's fiscal year end, Borrower's
annual financial statements. These financial statements must be audited
with an unqualified opinion by a Certified Public Accountant ("CPA")
acceptable to Bank. The statements shall be prepared on a consolidating
basis.
(b) Within ninety (90) days of filing, copies of Borrower's federal income
tax return, and, if requested by Bank, copies of any extensions of the
filing date.
(c) Within thirty (30) days of the period's end, Borrower's monthly
financial statements. These statements may be Borrower prepared. The
statements shall be prepared on a consolidating basis.
(d) On or before the 15th and the 30th day of each calendar month,
Borrower's Facility I Borrowing Base certificate setting forth the
respective amounts of Facility I Acceptable Receivables. Acceptable
Finished Goods Inventory and Acceptable Raw Materials Inventory as of
the last day of each calendar month and the 15th day of each calendar
month as applicable, together with copies of the invoices or the record
of invoices from Borrower's sale journal for such Acceptable
Receivables and copies of the delivery receipts, purchase orders,
shipping instructions, bills of lading and other documentation
pertaining to such Facility I Acceptable Receivables, if specifically
requested by Bank.
(e) Within fifteen (15) days of each month end, statements showing an aging
and reconciliation of Borrower's receivables as of the last day of each
month.
(f) Within fifteen (15) days of each month end, statements showing an aging
and reconciliation of Borrower's accounts payable as of the last day of
each month.
(g) Within fifteen (15) days of each month end, if Bank requires Borrower
to deliver the proceeds of accounts receivable to Bank upon collection
by Borrower, a schedule of the amounts so collected and delivered to
Bank as of the last day of each month.
(h) Within fifteen (15) days of each month end, an inventory listing, which
must include a description of Borrower's inventory, its location and
cost, and such other information as Bank may require, as of the last
day of each month.
(i) Within fifteen (15) days of each calendar quarter end, a listing of the
names and addresses of all debtors obligated upon Borrower's accounts
receivable as of the last day of each month.
(j) Promptly upon Bank's request, such other statements, lists of property
and accounts, budgets, forecasts or reports as to Borrower and as to
each guarantor or Borrower's obligations to Bank may request.
(k) Within 90 days of Borrower's fiscal year end, current financial
statements from each Guarantor.
(l) Within thirty (30) days of filing, copies of each Guarantor's federal
income tax return, and, if requested by Bank, copies of any extensions
of the filing date.
Each of the financial statements described in this Section 8.2 shall be
accompanied by a compliance certificate in a form acceptable to Bank which
includes a certified statement by an officer of Borrower that all Borrower is in
compliance with all covenants set forth herein and in the other Loan Documents.
8.3 CURRENT RATIO. To maintain on a consolidated basis a ratio of current assets
to current liabilities of at least 0.90:1.0 (the "Current Ratio"). The Current
Ratio will be tested on a monthly basis.
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8.4 TANGIBLE NET WORTH. To maintain on a consolidated basis Tangible Net Worth
equal to at least the amounts indicated on each date specified below:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
09/30/99 ($2,100,000)
10/31/99 ($1,800,000)
11/30/99 ($2,600,000)
12/31/99* ($3,400.000)
</TABLE>
*and on the last day of each calendar month thereafter.
"Tangible Net Worth" means the gross book value of Borrower's assets (excluding
goodwill, patents, trademarks, trade names, organization expense, treasury
stock, unamortized debt discount and expense, deferred research and development
costs, deferred marketing expenses, and other like intangibles and monies due
from affiliates, officers, directors or shareholders of Borrower) less total
liabilities, including but not limited to accrued and deferred income taxes, and
any reserves against assets. Tangible Net Worth will be tested on a monthly
basis.
8.5 OTHER DEBTS. Not to have outstanding or incur any direct or contingent debts
[or lease obligations](other than those to Bank), or become liable for the debts
of others without Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts in existence on the date of this Agreement disclosed in writing
to Bank.
8.6 OTHER LIENS. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property Borrower now or later owns, except:
(a) Security agreements in favor of Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
Bank.
8.7 CAPITAL EXPENDITURES. Not to spend or incur obligations (including the total
amount of any capital leases) for more than Nine Hundred Thousand Dollars
($900,000) in any single fiscal year to acquire fixed or capital assets.
8.8 DIVIDENDS. Not to declare or pay any dividends on any of its shares.
8.9 COMPENSATION. To limit the total salaries, bonuses, withdrawals or
compensation of its principal officers to the total of such payments during the
fiscal year 1998.
8.10 LOANS OF OFFICERS. Not to make any loans, advances or other extensions of
credit to any of Borrower's executives, officers, directors or shareholders (or
any relatives of any of the foregoing.)
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8.11 NOTICES TO BANK. To promptly notify Bank in writing of:
(a) any lawsuit over Two Hundred Fifty Thousand Dollars ($250,000) against
Borrower.
(b) any substantial dispute between Borrower and any governmental
authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in Borrower's or any guarantor's financial
condition or operations.
(e) any change in Borrower's name, legal structure, place of business, or
chief executive office if Borrower has more than one place of business.
(f) any actual or potential material contingent liabilities.
8.12 BOOKS AND RECORDS. To maintain adequate books and records.
8.13 AUDITS. Upon reasonable notice to Borrower, Borrower shall allow Bank and
its agents to inspect Borrower's properties and examine, audit, and make copies
of books and records at any reasonable time. If any of Borrower's properties,
books or records are in the possession of a third party, Borrower authorizes
that third party to permit Bank or its agents to have access to perform
inspections or audits and to respond to Bank's requests for information
concerning such properties, books and records.
8.14 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over Borrower's business.
8.15 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges and
franchises Borrower now has.
8.16 MAINTENANCE OF BUSINESS AND PROPERTIES. To maintain its business activities
in the development of computer docking ports and to make any repairs, renewals,
or replacements to keep Borrower's properties in good working condition.
8.17 PERFECTION OF LIENS. To help Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
8.18 COOPERATION. To take any action requested by Bank to carry out the intent
of this Agreement.
8.19 INSURANCE.
(a) Insurance Covering Collateral: To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be for the full replacement cost
of the collateral and include a replacement cost endorsement. The
insurance must be issued by an insurance company acceptable to the Bank
and must include a lender's loss payable endorsement in favor of Bank
in a form acceptable to Bank.
(b) General Business Insurance. To maintain insurance satisfactory to Bank
as to amount, nature and carrier covering property damage (including
loss of use and occupancy) to any of Borrower's properties, public
liability insurance including coverage for contractual liability,
product liability and workers' compensation, and any other insurance
which is usual for Borrower's business.
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(c) Evidence of Insurance. To deliver to Bank, upon the request to Bank, a
copy of each insurance policy, or, if permitted by Bank, a certificate
of insurance listing all insurance in force.
8.20 ADDITIONAL NEGATIVE COVENANTS. Not to, without Bank's written consent:
(a) engage in any business activities substantially different from
Borrower's present business.
(b) liquidate of dissolve Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate or
other combination.
(d) lease, or dispose of all or a substantial part of Borrower's business
or Borrower's assets except in the ordinary course of Borrower's
business.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair market value
or enter into any sale and leaseback agreement covering any of its
fixed or capital assets.
(g) change its current management which consent shall not be reasonably
withheld.
8.21 ERISA PLANS. To give prompt written notice to Bank of:
(a) the occurrence of any reportable event under Section 4043(b) of ERISA
for which the PBGC requires thirty (30) days' notice.
(b) any action by Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041(b) of
ERISA.
(c) any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4041 of ERISA.
8.22 CONSIGNMENTS. Prior to placement of any inventory on consignment with any
person ("Consignee"):
(a) to provide Bank with all consignment agreements and other documents to
be used in connection with such consignment, all of which must be
acceptable to Bank;
(b) to file appropriate financing statements with respect to the consigned
inventory showing Consignee as debtor, Borrower as secured party, and
Bank as assignee of secured party;
(c) to file appropriate financing statements with respect to the consigned
inventory showing Borrower as debtor and Bank as secured party;
(d) after all financing statements referred to above have been filed, to
conduct a search of all filings made against Consignee in all
jurisdictions in which the consigned inventory is to be located, and
delivered to Bank copies of the results of all such searches; and
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(e) to notify, in writing, all creditors of Consignee which are or may be
holders of security interests in the inventory to be consigned, that
Borrower expects to deliver certain inventory to Consignee, all of
which inventory shall be described in such notice by item or type.
8.23 HAZARDOUS WASTE INDEMNIFICATION. Borrower will indemnify and hold Bank
harmless from any loss or liability directly or indirectly arising out of the
use, generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a hazardous substance by Borrower. This
indemnity will apply whether the hazardous substance is on, under or about
Borrower's property or operations or property leased to Borrower. The indemnity
includes but is not limited to attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). The indemnity
extends to Bank, its parent, subsidiaries and all of their directors, officers,
employees, agents, successors, attorneys, and assigns. For these purposes, the
terms "hazardous" or "toxic" means any substance which is or becomes designated
as "hazardous" or "toxic" under any federal, state, or local law. This indemnity
will survive repayment of Borrower's obligations to Bank.
8.24 COMPLIANCE. Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of its
business; and comply with the provisions of all documents pursuant to which
Borrower is organized and/or which govern Borrower's continued existence and
with the requirements of all laws, rules, regulations and orders of any
governmental authority applicable to Borrower, and or its respective business.
8.25 INSURANCE. Maintain and keep in force insurance of the types and in amounts
customarily carried in lines of business similar to that of Borrower, including
but not limited to fire, extended coverage, public liability, property damage
and workers' compensation, carried with companies and in amounts satisfactory to
Bank, and deliver to Bank from time to time at Bank's request schedules setting
forth all insurance then in effect.
8.26 FACILITIES. Keep all properties useful or necessary to Borrower's business
in good repair and condition, and from time to time make necessary repairs,
renewals and replacements thereto so that such properties shall be fully and
efficiently preserved and maintained.
8.27 TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation Federal and state income taxes and state and local
property taxes and assessments; provided, that Borrower may in good faith
contest such taxes or other liabilities to which a bona fide dispute may arise
so long as (a) a lien has not attached to any asset of Borrower resulting from
non-payment of such taxes or other liabilities; and (b) Borrower has made
provision, to Bank's satisfaction, for eventual payment thereof in the event
Borrower is obligated to make such payment.
8.28 SECURITY. At all times maintain in favor of Bank perfected security
interests in all assets in which, under the provisions of this Agreement, Bank
has or is to obtain a security interest, of such priority as is designated
herein, take such actions (including without limitation the filing of financing
statements and fixture filings) as Bank deems necessary and appropriate to
protect Bank's security interests; and provide to Bank such assurances as Bank
may require as to Borrower's compliance herewith.
8.29 LICENSES, PERMITS AND BONDS; MANAGEMENT. Borrower shall maintain in full
force and effect all rights, licenses, and bonding commitments necessary to
carry on its business. Borrower shall maintain its corporate existence and shall
maintain executive personnel and management at a level of experience and ability
equivalent to present personnel and management.
8.30 FURTHER DOCUMENTS OR ACTS. Borrower, at its expense, shall execute and
deliver, or cause to be executed and delivered, to Bank such other writings,
including current and updated certified copies of corporate
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<PAGE> 20
borrowing resolutions, and shall do or cause to be done such other acts as Bank
may reasonably require in connection with the Loans.
8.31 INSPECTION OF PROPERTY. The Borrower shall permit any person designated by
Bank in writing, at Borrower's expense, to visit and inspect any of the
properties of the Borrower, to examine the corporate books and financial records
of the Borrower and make copies thereof or extracts therefrom and to discuss the
affairs, finances and accounts of any of such corporations with the principal
officers of the Borrower and its independent public accountants, all at such
reasonable times and as often as such Lender may reasonably request.
8.32 DEPOSIT ACCOUNTS; CONCENTRATION AND DISBURSEMENT BANK. Borrower shall
maintain all of its business/depository accounts (i.e., general account, payroll
account, sweep account, disbursement account, etc.) with Bank.
8.33 YEAR 2000. Borrower shall take all steps which Borrower reasonably believes
necessary to address, on a timely basis, the Year 2000 Problem in order to
ensure that the Year 2000 Problem will not have a Material Adverse Effect upon
Borrower's financial condition, operations or business as now conducted.
8.34 GUARANTIES. Borrower shall not guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity except any of the
foregoing required by this Agreement.
8.35 LOANS, ADVANCES, INVESTMENTS AND CONTINGENT LIABILITIES. The Borrower shall
not make, or permit to remain outstanding, any loan or advance to, or own,
purchase or acquire any stock, obligations or securities of, of any other
interest in, or make any capital contribution to, any person.
8.36 DIVIDENDS AND DISTRIBUTIONS. Borrower shall not declare or pay any dividend
or distribution either in cash, stock or any other property on Borrower's stock
now or hereafter outstanding; nor redeem, retire, repurchase or otherwise
acquire any shares of any class of Borrower's stock now or hereafter
outstanding.
8.37 LIENS; PLEDGE OF ASSETS. Borrower shall not Mortgage, pledge, grant or
permit to exist any security interest in, or lien upon, all or any portion of
these assets of Borrower now owned or hereafter acquired, except any of the
foregoing required or permitted by any of the Loan Documents.
8.38 ACQUISITIONS. Borrower shall not, after the date hereof, acquire another
company or operating entity, either by acquisition of its stock or a controlling
interest therein, or by acquisition of all or substantially all of the assets of
such other entity.
8.39 CHANGE IN FISCAL YEAR OR ACCOUNTING METHODS. Borrower shall not, without
having received the prior written consent of Bank, change its Fiscal Year or
other accounting period, or change its method of accounting other than to
conform to GAAP, applied on a consistent basis.
8.40 AMENDMENTS TO ARTICLES. Borrower's Articles and/or Bylaws shall not be
modified or amended in any respect without Bank's prior written consent, which
shall not be unreasonably withheld. In the event of any modification or
amendment of any such Articles and/or Bylaws, Lenders may impose such
documentary, opinion of counsel and/or recording and filing conditions and
requirements as Lenders may determine on a conservative basis are required or
prudent to ensure that Lenders' rights under the Loan Documents will be
maintained in full force and effect and will not be impaired.
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8.41 SALE OF ASSETS. The Borrower shall not sell, lease, transfer or otherwise
dispose of, in any transaction or series of related transactions, any of its
assets or property (except inventory sold in the ordinary course of business).
8.42 SALE AND LEASE-BACK. The Borrower shall not enter into any arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by the Borrower of real or personal property which has been or
is to be sold or transferred by the Borrower to such lender or investor or to
any person to whom funds have been or are to be advanced by such lender or
investor.
8.43 SALE OR DISCOUNT OF RECEIVABLES. The Borrower shall not sell with recourse,
or discount or otherwise sell for less than the face value thereof, any of its
accounts receivable.
8.44 NO SUBSIDIARIES. The Borrower shall not create or acquire any subsidiary
without the written consent of Bank which consent may be withheld in its sole
and absolute discretion.
8.45 PATENTS PENDING. The Borrower shall take all steps reasonably necessary to
complete the pending patent application. Upon the final approval of such pending
patents by the U.S. Patent and Trademark office. Borrower shall immediately
inform Bank of such approval and shall cooperate with Bank to perfect Bank's
security interest in such patents in a manner acceptable to Bank in its sole and
absolute discretion.
9. DEFAULT
If any of the following events occur, Bank may do one or more of the following:
declare Borrower in default, stop making any additional credit available to
Borrower, and require Borrower to repay its entire debt immediately and without
prior notice. If an event of default occurs under the Paragraph entitled
"Bankruptcy" below, with respect to Borrower, then the entire debt outstanding
under this Agreement will automatically be due immediately.
9.1 FAILURE TO PAY. Borrower fails to make a payment within fifteen (15) days
after the date when due under this Agreement.
9.2 LIEN PRIORITY. Bank fails to have an enforceable first lien (except for any
prior liens to which Bank has consented in writing) on or security interest in
any property given as security for this extension of credit under this
Agreement.
9.3 FALSE INFORMATION. Borrower or any guarantor or any officer, authorized
agent or accountant of Borrower or any guarantor have Bank false or misleading
information or representations.
9.4 DEATH. If Borrower is a corporation, any principal office of majority
stockholder dies; or any guarantor dies.
9.5 BANKRUPTCY. Borrower or any guarantor files a bankruptcy petition, a
bankruptcy petition is filed against Borrower or any guarantor, or Borrower or
any guarantor makes a general assignment for the benefit of creditors. The
default will be deemed cured if any bankruptcy petition filed against Borrower
or any guarantor is dismissed within a period of forty-five (45) days after the
filing, provided, however, that Bank will not be obligated to extend any
additional credit to Borrower during that period.
9.6 RECEIVERS. A receiver or similar official is appointed for Borrower's or any
guarantor's business, or the business of Borrower or nay guarantor is
terminated.
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9.7 LAWSUITS. Any lawsuit or lawsuits are filed against Borrower or any
guarantor in an aggregate amount of Two Hundred Fifty Thousand Dollars
($250,000) or more in excess of any insurance coverage.
9.8 JUDGMENTS. Any judgments or arbitration awards are entered against Borrower
or any guarantor, or Borrower or any guarantor enters into any settlement
agreements with respect to any litigation or arbitration in an aggregate amount
of Two Hundred Fifty Thousand Dollars ($250,000) or more in excess of any
insurance coverage.
9.9 GOVERNMENT ACTION. Any governmental authority takes action that Bank
reasonably believes materially adversely affects Borrower's or any grantor's's
financial condition or ability to repay the Loan or perform pursuant to any of
the Loan Documents.
9.10 MATERIAL ADVERSE CHANGE. A material averse change occurs in Borrower's or
any guarantor's financial condition, properties or prospects, or the ability of
Borrower to repay the extensions of credit under this Agreement.
9.11 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit Borrower or any grantor's has obtained from anyone else or which
Borrower or any guarantor has guaranteed.
9.12 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement,
security agreement, deed of trust, or other documents required by this Agreement
is violated or no longer in effect.
9.13 OTHER BANK AGREEMENTS. Borrower or nay guarantor fails to meet the
conditions of, or fails to perform any obligation under any other agreement
Borrower or any guarantor has with Bank or any affiliate of Bank.
9.14 ERISA PLANS. The occurrence of any one or more of the following events with
respect to Borrower, provided such event or events could reasonably be expected,
in the judgment of Bank, to subject Borrower to any tax, penalty or liability
(or any combination of the foregoing) which, in the aggregate, could have a
material adverse effect on the financial condition of Borrower with respect to a
Plan:
(a) A reportable event with respect to a Plan which is, in the reasonable
judgment of Bank, likely to result in the termination of such Plan for
purposes of Title IV of ERISA.
(b) Any plan termination (or commencement of any proceeding to terminate a
Plan) or Borrower's full or partial withdrawal from a Plan.
9.15 OTHER BREACH UNDER AGREEMENT. Borrower fails to meet the conditions of, or
fails to perform any obligation under, any terms of this Agreement not
specifically referred to in this Article.
10. ENFORCING THIS AGREEMENT; MISCELLANEOUS
10.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to Bank and all financial covenants will be made under
generally accepted account principles, consistently applied.
10.2 ARIZONA LAW. This Agreement is governed by Arizona law, however, the
Guarantees, shall be governed by New Mexico law to the extent of marital
property law.
10.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on Borrower's and Bank's
successors and assignees. Borrower agrees that it may not assign this Agreement
without Bank's prior consent. Bank may sell
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participation in or assign this loan, and may exchange financial information
about Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against Borrower.
10.4 ARBITRATION.
(a) This Paragraph concerns the resolution of any controversies or claims
between Borrower, guarantor and each of them, and/or Bank, including,
but not limited to those that arise from:
(i) the Loan Documents, including Agreement (including any
renewals, extensions or modifications of this Agreement, or
the other Loan Documents);
(ii) any document, agreement or procedure related to or delivered
in connection with this Agreement, or the other Loan
Documents;
(iii) any violation of this Agreement, or the other Loan Documents;
or
(iv) any claims for damages form any business conducted between
Borrower and/or guarantor and Bank or its predecessors in
interest, including claims for injury to persons, property or
business interests (torts).
(b) At the request of Borrower, guarantor or Bank any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement and the other Loan Documents provide that
they are governed by Arizona law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this Section is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this Section is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises
from or relates to an obligation to Bank secured by residential real
property located in Arizona. In this case, Borrower, guarantor and Bank
must consent to submission of claim or controversy to arbitration. For
the purposes of this Section, "residential real property" means real
property of two and one-half acres or less which is limited to and
utilized for either a single one-family or a single two-family
dwelling.
(h) This provision does not limit the right of Borrower, guarantor or Bank
to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
23
<PAGE> 24
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) a provisional or interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for provisional, interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of Borrower, guarantor or
Bank, including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the
controversy or claim arises from or relates to an obligation to Bank
which is secured by residential real property located in Arizona at the
time of the proposed submission to arbitration, this right is limited
according to the provision above requiring the consent of both
Borrower, guarantor and Bank to seek resolution through arbitration.
(j) If Bank forecloses against any real property securing the Loan, Bank
has the option to exercise the power of sale under the deed of trust or
mortgage, or to proceed by judicial foreclosures.
10.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest the Agreement may be enforced. Bank retains all rights, even if it
makes a loan after default. If Bank waives a default, if may enforce a later
default. Any consent or waiver under this Agreement must be in writing.
10.6 ADMINISTRATION COSTS. Borrower shall pay Bank for all reasonable costs
incurred by Bank in connection with administering this Agreement.
10.7 ATTORNEY'S FEES. Borrower shall reimburse Bank for any reasonable costs and
attorneys' fees incurred by Bank in connection with the drafting, negotiation
and closing of the Loan Documents and in connection with the enforcement or
preservation of any rights or remedies under this Agreement and any other
documents executed in connection with this Agreement. In the event of a lawsuit
or arbitration proceeding, the prevailing party is entitled or to recover costs
and reasonable attorneys' fees in connection with the lawsuit or arbitration
proceeding as determined by the court or arbitrator. As used in the Paragraph,
"attorneys' fees" includes the allocated costs of Bank's in-house counsel.
10.8 [INTENTIONALLY OMITTED]
10.9 ONE AGREEMENT. This Agreement any related security or other agreements
required by this Agreement, collectively:
(a) represents the sum of the understandings and agreements between Bank
and Borrower concerning this credit;
(b) replace any prior oral or written agreements between Bank and Borrower
concerning this credit; and
(c) are intended by Bank and Borrower as the final, complete and exclusive
statement of the terms agreed to by them.
In the event of any such conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will prevail.
10.10 EXCHANGE OF INFORMATION. Borrower agrees that Bank may exchange financial
information about Borrower with BankAmerica Corporation affiliates and other
related entities.
24
<PAGE> 25
10.11 USURY LAWS. This Paragraph covers the transactions described in this
Agreement and any other agreements with Bank or its affiliates executed in
connection with this Agreement, to the extent they are subject to Arizona usury
laws (the "Transactions"). Borrower understands and believes that the
Transactions comply with the Arizona usury laws. However, if any interest or
other charges paid or payable in connection with the Transactions are ever
determined to exceed the maximum amount permitted by law, Borrower agrees that:
(a) the amount of interest or other charges payable by Borrower pursuant to
the Transactions shall be reduced to the maximum amount permitted by
law; and
(b) any excess amount previously collected from Borrower in connection with
the Transactions which exceeded the maximum amount permitted by law
will be credited against the then outstanding principal balance. If the
outstanding principal balance has been repaid in full, the excess
amount paid will be refunded to Borrower.
All fees, charges, goods, things in action or any other sums or things of value,
other than interest at the interest rate described in this Agreement, paid or
payable by Borrower (collectively, the "Additional Sums"), that may be deemed to
be interest with respect to the Transactions, shall, or the purpose of any laws
of the State of Arizona that may be deemed to be interest with respect to the
Transactions, shall, for the purpose of any laws of the State of Arizona that
may limit the maximum amount of interest to be charged with respect to the
Transactions, be payable by Borrower as, and shall be deemed to be, additional
interest. For such purposes only the agreed upon and "contracted for rate of
interest" of the Transactions shall be deemed to be increased by the rate of
interest resulting from the Additional Sums.
10.12 DISPOSITION OF SCHEDULES, REPORTS, ETC. DELIVERED BY BORROWER. Bank will
not be obligated to return any schedules, invoices, statements, budgets,
forecasts, reports or other papers delivered by Borrower. Bank will destroy or
otherwise dispose of such materials at such time as Bank, in its discretion,
deems appropriate.
10.13 RETURNED MERCHANDISE. Until Bank exercises its rights to collect the
accounts receivable as provided under any security Agreement required under this
Agreement, Borrower may continue its present policies for returned merchandise
and adjustments. Credit adjustments with respect to returned merchandise shall
be made immediately upon receipt of the merchandise by Borrower or upon such
other disposition of the merchandise by the debtor in accordance with Borrower's
instructions. If a credit adjustment is made with respect to any account
receivable, the amount of such adjustment shall no longer be included in the
amount of such accounts receivable in computing the Borrowing Base.
10.14 VERIFICATION OF RECEIVABLES. Bank may at any time after an Event of
Default or upon written consent from Borrower which consent may not be
reasonably withheld, either orally or in writing, request confirmation from any
debtor of the current amount and status of the accounts receivable upon which
such debtor is obligated.
10.15 INDEMNIFICATION. Borrower agrees to indemnify Bank against, and hold Bank
harmless from, all claims, actions, losses, costs and expenses (including
attorneys' fees and allocated costs for in-house legal services) incurred by
Bank and arising from any contention whether well-founded or otherwise, that
there has been a failure to comply with any law regulating Borrower's sales or
leases to or performance of services for debtors obligated upon Borrower's
accounts receivable and disclosures in connection therewith. This indemnity will
survive repayment of Borrower's obligations to Bank and termination of this
Agreement.
10.16 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as Bank and
Borrower may specify from time to time.
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<PAGE> 26
10.17 HEADINGS. Article and paragraph headings are for reference only and shall
not reflect the interpretations or meaning of any provisions of this Agreement.
10.18 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same Agreement.
10.19 RELEASE OF BANK. In consideration of the agreements and of Bank set forth
in this Agreement, Borrower and Guarantor, and all of their respective heirs,
personal representatives, predecessors, successors and assigns (individually and
collectively, the "Releasors"), hereby fully release, remise, and forever
discharge Bank, the parent of Bank and all other affiliates and predecessors of
Bank, and all past and present officers, directors, agents, employees, servants,
partners, shareholders, attorneys and managers of Bank, the parent of Bank, and
all other affiliates, and predecessors of Bank and all of their respective
heirs, personal representatives, predecessors, successors and assigns, for,
from, and against any and all claims, liens, demands, causes of action,
controversies, offsets, obligations, losses, damages and liabilities of every
kind and character whatsoever, including, without limitation, any action,
omission, misrepresentation or other basis of liability founded either in tort
or contract and the duties arising thereunder, that the Releasors, or any one of
more of them, has had in the past, or now has, whether known or unknown, whether
asserted or unasserted, by reason of any matter, cause or thing set forth in,
relating to or arising out of, or in any way connected with or resulting form,
the Loan or the Loan Documents.
This Agreement is executed as of the date stated at the top of the first page.
[LOGO]
<TABLE>
<S> <C>
MOBILITY ELECTRONICS, INC.,
f/k/a Electronics Accessory Specialists
International, Inc., a Delaware corporation
X /s/ KURT A. HUISMAN X /s/ RICHARD W. WINTERICH
------------------------------------------- --------------------------------------------
By: Kurt A. Huisman By: RICHARD W. WINTERICH
Title: Vice President Title: VICE PRESIDENT & CFO
Address where notices to the Bank are to be sent: Address where notices to the Borrower are to
be sent:
101 North First Avenue, Dept. 4934 7955 E. Redfield Road
--------------------------------------- ---------------------------------------
Phoenix, AZ 85003 Scottsdale, AZ 85260
--------------------------------------- ---------------------------------------
ATTN: ATTN:
--------------------------------------- ---------------------------------------
</TABLE>
26
<PAGE> 27
Reviewed, acknowledged and approved:
Date:
------------------------------- ----------------------------------
Charles Mollo, Guarantor
Date:
------------------------------- ----------------------------------
Jeffrey Doss, Guarantor
Date:
------------------------------- ----------------------------------
Cameron Wilson, Guarantor
Date:
------------------------------- ----------------------------------
Janice Breeze, Guarantor
<PAGE> 1
EXHIBIT 10.25
Loan No.:
------------------------------------------
RESTATED PROMISSORY NOTE
$3,000,000 November 2nd 1999
Phoenix, Arizona
Interest Rate: Prime Rate plus 250
Basis Points (see Section 3 below).
Maturity Date: March 31, 2000 (see Section 6 below).
- -------------------------------------------------------------------------------
1. FOR VALUE RECEIVED, MOBILITY ELECTRONICS, INC., f/k/a Electronics
Accessory Specialists International, Inc. a Delaware corporation ("Borrower"),
promise(s) to pay to the order of BANK OF AMERICA N.A. successor by merger to
NationsBank, N.A., (the "Bank"), at Bank's Home Office in Phoenix, Arizona, or
at such other place as Bank may from time to time designate, the principal sum
of Three Million Dollars ($3,000,000), plus interest thereon from the date of
the respective advances until paid. This Restated Promissory Note (this "Note")
evidences a loan (the "Loan") from Bank to Borrower pursuant to that certain
Loan Agreement dated January 13, 1998, as amended pursuant to that certain
Amended and Restated Business Loan Agreement (the "Modification Agreement")
dated of even date herewith (as amended, the "Loan Agreement").
2. This Note is secured by a Security Agreement dated of even date
herewith, a Pledge of Certificate of Deposit ($150,000) dated of even date
herewith, a Pledge of Certificate of Deposit ($75,000) dated of even date
herewith, and a Patent Collateral Assignment and Security Agreement dated of
even date herewith, (collectively, the "Security Documents"), covering certain
property as therein described (the "Property"). It may also be secured by other
collateral. This Note and the Security Documents are among several Loan
Documents, as defined and designated in the Loan Agreement, between Bank and
Borrower and several guarantors. Some or all of the Loan Documents, including
the Extension Agreement, contain provisions for the acceleration of the maturity
of this Note.
3. The principal sum outstanding from time to time under this Note
shall bear interest at the Prime Rate plus two hundred fifty (250) basis points
per year, as the same may change from time to time (the "Prime-based Rate"). As
used herein, the "Prime Rate" means the per annum rate of interest publicly
announced from time to time by Bank at San Francisco, California, as its Prime
Rate. The Prime Rate is set by Bank based on various factors, including its
costs and desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans. Bank may price loans to its
customers at, above, or below the Prime Rate. Any change in the Prime Rate shall
take effect at the opening of business on the day specified in the public
announcement of a change in the Prime Rate.
4. Accrued interest shall be payable on the first day of each month in
arrears, commencing on December 1, 1999 until all obligations are paid in full.
Interest shall be calculated on the basis of a 360-day year on actual days
elapsed, which results in more interest than if a 365-day year were used.
1
<PAGE> 2
5. For purposes of this Note, "interest" shall include any and all
interest payable as provided in this Note, together with any and all sums (the
"Additional Interest") payable by Borrower under any existing or future
agreement between Bank and Borrower. Borrower shall pay any and all Additional
Interest at the times and in the amounts specified in such agreements.
6. All principal and all accrued and unpaid interest and all other
amounts payable hereunder shall be due and payable no later than March 31, 2000.
7. Borrower may prepay some or all of the principal under this Note,
without penalty or premium. All prepayments shall be applied first on late
charges and costs, if any, and then on interest then due and the remainder on
the principal balance.
8. If Borrower fails to make any payment of principal or interest when
it is due and payable or upon the occurrence of any Event of Default as defined
hereunder, Borrower agrees to pay interest on the outstanding principal and
accrued and unpaid interest at an annual rate (the "Default Rate") of five
hundred (500) basis points in excess of the Prime-based Rate, from the date the
payment becomes due until Borrower pays in full all such amounts due under this
Note.
9. From and after maturity of this Note, whether by acceleration or
otherwise, all sums then due and payable under this Note, including all
principal and all accrued and unpaid interest, shall bear interest until paid in
full at the Default Rate.
10. If an "Event of Default", (as defined in the Loan Agreement)
occurs, any obligation of the holder to make advances under this Note shall
terminate, and at the holder's option, exercisable in its sole discretion, all
sums of principal and interest under this Note shall become immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character.
11. It shall also be an "Event of Default" under this Note if Borrower
becomes the subject of any bankruptcy or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships ("Insolvency Proceeding"). If that happens all sums of principal
and interest under this Note shall automatically become immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character.
12. All amounts payable under this Note are payable in lawful money of
the United States during normal business hours on a Banking Day, as defined
below. Checks constitute payment only when collected.
13. If any lawsuit or arbitration is commenced which arises out of or
relates to this Note, the Loan Documents or the Loan, the prevailing party shall
be entitled to recover from each other party such sums as the court (but not the
jury) or arbitrator may adjudge to be reasonable attorneys' fees in the action
or arbitration, in addition to costs and expenses otherwise allowed by law. In
all other situations, including any matter arising out of or relating to any
Insolvency Proceeding, Borrower agrees to pay all of Bank's costs and expenses,
including attorneys' fees, which may be incurred in enforcing or protecting
Bank's rights or interests. From the time(s) incurred until paid in full to
Bank, all such sums shall bear interest at the Default Rate.
14. Whenever Borrower is obligated to pay or reimburse Bank for any
attorneys' fees, those fees shall include the allocated costs for services of
in-house counsel.
15. This Note is governed by the laws of the State of Arizona, without
regard to the choice of law rules of that State.
16. Borrower agrees that the holder of this Note may accept additional
or substitute security for this Note, or release any security or any party
liable for this Note, or extend or renew this Note, all without notice to
Borrower and without affecting the liability of Borrower.
2
<PAGE> 3
17. If Bank delays in exercising or fails to exercise any of its rights
under this Note, that delay or failure shall not constitute a waiver of any of
Bank's rights, or of any breach, default or failure of condition of or under
this Note. No waiver by Bank of any of its rights, or of any such breach,
default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Bank. All of Bank's remedies in
connection with this Note, or any of the other Loan Documents or under
applicable law shall be cumulative, and Bank's exercise of any one or more of
those remedies shall not constitute an election of remedies.
18. This Note inures to and binds the heirs, personal representatives,
successors and assigns of Borrower and Bank; provided, however, that Borrower
may not assign this Note or any Loan funds, or assign or delegate any of its
rights or obligations without the prior written consent of Bank in each
instance. Bank in its sole discretion may transfer this Note, and may sell or
assign participations or other interests in all or part of the Loan, on the
terms and subject to the conditions of the Loan Documents, all without notice to
or the consent of Borrower. Also without notice to or the consent of Borrower,
Bank may disclose to any actual or prospective purchaser of any securities
issued or to be issued by Bank, and to any actual or prospective purchaser or
assignee of any participation or other interest in this Note, the Loan or any
other loans made by Bank to Borrower (whether evidenced by this Note or
otherwise), any financial or other information, data or material in Bank's
possession relating to Borrower, the Loan or the Property, including any
improvements on it. If Bank so requests, Borrower shall sign and deliver a new
note to be issued in exchange for this Note.
19. As used in this Note, the terms "Bank", "holder" and "holder of
this Note" are interchangeable. As used in this Note, the word "include(s)"
means "include(s), without limitation", and the word "including" means
"including, but not limited to." The term "Banking Day" is defined to mean a day
other than a Saturday or Sunday, on which Bank is open for business in Phoenix,
Arizona.
20. If more than one person or entity are signing this Note as
Borrower, their obligations under this Note shall be joint and several.
21. Each periodic payment shall be credited first on late charges and
costs of collection, if any, and then on interest then due and the remainder on
principal, and interest shall thereupon cease upon the principal so credited.
22. Time is of the essence of each and every obligation set forth
herein, including without limitation, payment.
23. The makers, endorsers, and guarantors of this Note jointly and
severally waive diligence, demand, presentment for payment, protest, notice of
non-payment and of protest, notice of default, notice of acceleration and all
other notices or demands of any kind. They jointly and severally consent,
without notice to them and without release of their liability to extensions and
accommodations given by the holder of this Note, the release notifications and
exchanges of any security, and to release, in whole or in part, of any other
maker, endorser or guarantor, and they each agree to make payment without the
prior consent by the holder to any security or against any other maker, endorser
or guarantor.
24. This Note modifies, restates and replaces that certain Promissory
Note dated January 13, 1998 in the original principal amount of Four Million
Five Hundred Thousand Dollars ($4,500,000), by Borrower in favor of Bank.
25. Borrower has caused this Note to be executed by its officers, who
were duly authorized and directed to do so by a resolution of its Board of
Directors which was duly passed and adopted by the requisite number of members
of the Board at a meeting which was duly called, noticed, and held or by a duly
adopted Action by the Unanimous Written Consent of the Board of Directors.
3
<PAGE> 4
Borrower: Mailing Address:
Mobility Electronics, Inc., f/k/a 7955 E. Redfield Road
Electronics Accessory Scottsdale, AZ 85260
Specialists International, Inc., ATTN: Charles Mollo
a Delaware corporation
By: /s/ RICHARD W. WINTERICH
------------------------
Name: Richard W. Winterich
----------------------
Title: Vice President & CFO
---------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 2nd day of
November, 1999 by Richard W. Winterich the Vice President and CFO of Mobility
Electronics, a(n) Delaware corporation, on behalf of the Borrower.
My commission expires: /s/ LYNDA H. FRANCIS
------------------------------
January 11, 2003 Notary Public
- ----------------
[SEAL]
4
<PAGE> 1
EXHIBIT 10.26
Loan No.: _______________________________________________________
PROMISSORY NOTE
$1,500,000 November 2nd 1999
Phoenix, Arizona
Interest Rate: Prime Rate plus 350
Basis Points (see Section 3 below).
Maturity Date: March 31, 2000 (see Section 6 below).
- -------------------------------------------------------------------------------
1. FOR VALUE RECEIVED, MOBILITY ELECTRONICS, INC., f/k/a Electronics
Accessory Specialists International, Inc. a Delaware corporation ("Borrower"),
promise(s) to pay to the order of BANK OF AMERICA N.A. successor by merger to
NationsBank, N.A., (the "Bank"), at Bank's Home Office in Phoenix, Arizona, or
at such other place as Bank may from time to time designate, the principal sum
of One Million Five Hundred Thousand Dollars ($1,500,000), plus interest thereon
from the date of the respective advances until paid. This Promissory Note (this
"Note") evidences a loan (the "Loan") from Bank to Borrower pursuant to that
certain Amended and Restated Business Loan Agreement dated of even date herewith
(the "Loan Agreement").
2. This Note is secured by a Security Agreement dated of even date
herewith, a Pledge of Certificate of Deposit ($150,000) dated of even date
herewith, a Pledge of Certificate of Deposit ($75,000) dated of even date
herewith, and a Patent Collateral Assignment and Security Agreement dated of
even date herewith, (collectively, the "Security Documents"), covering certain
property as therein described (the "Property"). It may also be secured by other
collateral. This Note and the Security Documents are among several Loan
Documents, as defined and designated in the Loan Agreement, between Bank and
Borrower and several guarantors. Some or all of the Loan Documents, including
the Extension Agreement, contain provisions for the acceleration of the maturity
of this Note.
3. The principal sum outstanding from time to time under this Note
shall bear interest at the Prime Rate plus Three Hundred Fifty (350) basis
points per year, as the same may change from time to time (the "Prime-based
Rate"). As used herein, the "Prime Rate" means the per annum rate of interest
publicly announced from time to time by Bank at San Francisco, California, as
its Prime Rate. The Prime Rate is set by Bank based on various factors,
including its costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. Bank may price
loans to its customers at, above, or below the Prime Rate. Any change in the
Prime Rate shall take effect at the opening of business on the day specified in
the public announcement of a change in the Prime Rate.
4. Borrower will pay (i) principal in the amount of $500,000 upon the
execution of this Agreement; and (ii) principal in four (4) successive monthly
installments of Eighty Three Thousand Three Hundred Thirty Three Dollars and
Thirty Three Cents ($83,333.33) plus interest commencing December 1, 1999 and on
the first day of each month thereafter through March 1, 2000. On the Facility II
Expiration Date, Borrower will repay the remaining principal balance plus any
interest then due. Each installment, when paid, will be applied first to the
payment of interest accrued. The amount of interest due, and the portion of each
installment which is applied to interest, will change from time to time if there
are changes in the Prime Rate. The balance, if any, of each installment will be
applied to the repayment of principal. If
1
<PAGE> 2
the accrued interest owing exceeds the amount of any installment, Borrower will
pay the excess in addition to the installment. The excess accrued interest will
be paid on the due date of the installment.
5. For purposes of this Note, "interest" shall include any and all
interest payable as provided in this Note, together with any and all sums (the
"Additional Interest") payable by Borrower under any existing or future
agreement between Bank and Borrower. Borrower shall pay any and all Additional
Interest at the times and in the amounts specified in such agreements.
6. All principal and all accrued and unpaid interest and all other
amounts payable hereunder shall be due and payable no later than March 31, 2000.
7. Borrower may prepay some or all of the principal under this Note,
without penalty or premium. All prepayments shall be applied first on late
charges and costs, if any, and then on interest then due and the remainder on
the principal balance. Any payment of principal hereunder, in monthly payments
or otherwise, may not be reborrowed by Borrower.
8. If Borrower fails to make any payment of principal or interest when
it is due and payable or upon the occurrence of any Event of Default as defined
hereunder, Borrower agrees to pay interest on the outstanding principal and
accrued and unpaid interest at an annual rate (the "Default Rate") of five
hundred (500) basis points in excess of the Prime-based Rate, from the date the
payment becomes due until Borrower pays in full all such amounts due under this
Note.
9. From and after maturity of this Note, whether by acceleration or
otherwise, all sums then due and payable under this Note, including all
principal and all accrued and unpaid interest, shall bear interest until paid in
full at the Default Rate.
10. If an "Event of Default", (as defined in the Loan Agreement)
occurs, at the holder's option, exercisable in its sole discretion, all sums of
principal and interest under this Note shall become immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or character.
11. It shall also be an "Event of Default" under this Note if Borrower
becomes the subject of any bankruptcy or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships ("Insolvency Proceeding"). If that happens all sums of principal
and interest under this Note shall automatically become immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character.
12. All amounts payable under this Note are payable in lawful money of
the United States during normal business hours on a Banking Day, as defined
below. Checks constitute payment only when collected.
13. If any lawsuit or arbitration is commenced which arises out of or
relates to this Note, the Loan Documents or the Loan, the prevailing party shall
be entitled to recover from each other party such sums as the court (but not the
jury) or arbitrator may adjudge to be reasonable attorneys' fees in the action
or arbitration, in addition to costs and expenses otherwise allowed by law. In
all other situations, including any matter arising out of or relating to any
Insolvency Proceeding, Borrower agrees to pay all of Bank's costs and expenses,
including attorneys' fees, which may be incurred in enforcing or protecting
Bank's rights or interests. From the time(s) incurred until paid in full to
Bank, all such sums shall bear interest at the Default Rate.
14. Whenever Borrower is obligated to pay or reimburse Bank for any
attorneys' fees, those fees shall include the allocated costs for services of
in-house counsel.
15. This Note is governed by the laws of the State of Arizona, without
regard to the choice of law rules of that State.
2
<PAGE> 3
16. Borrower agrees that the holder of this Note may accept additional
or substitute security for this Note, or release any security or any party
liable for this Note, or extend or renew this Note, all without notice to
Borrower and without affecting the liability of Borrower.
17. If Bank delays in exercising or fails to exercise any of its rights
under this Note, that delay or failure shall not constitute a waiver of any of
Bank's rights, or of any breach, default or failure of condition of or under
this Note. No waiver by Bank of any of its rights, or of any such breach,
default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Bank. All of Bank's remedies in
connection with this Note, or any of the other Loan Documents or under
applicable law shall be cumulative, and Bank's exercise of any one or more of
those remedies shall not constitute an election of remedies.
18. This Note inures to and binds the heirs, personal representatives,
successors and assigns of Borrower and Bank; provided, however, that Borrower
may not assign this Note or any Loan funds, or assign or delegate any of its
rights or obligations without the prior written consent of Bank in each
instance. Bank in its sole discretion may transfer this Note, and may sell or
assign participations or other interests in all or part of the Loan, on the
terms and subject to the conditions of the Loan Documents, all without notice to
or the consent of Borrower. Also without notice to or the consent of Borrower,
Bank may disclose to any actual or prospective purchaser of any securities
issued or to be issued by Bank, and to any actual or prospective purchaser or
assignee of any participation or other interest in this Note, the Loan or any
other loans made by Bank to Borrower (whether evidenced by this Note or
otherwise), any financial or other information, data or material in Bank's
possession relating to Borrower, the Loan or the Property, including any
improvements on it. If Bank so requests, Borrower shall sign and deliver a new
note to be issued in exchange for this Note.
19. As used in this Note, the terms "Bank", "holder" and "holder of
this Note" are interchangeable. As used in this Note, the word "include(s)"
means "include(s), without limitation", and the word "including" means
"including, but not limited to." The term "Banking Day" is defined to mean a day
other than a Saturday or Sunday, on which Bank is open for business in Phoenix,
Arizona.
20. If more than one person or entity are signing this Note as
Borrower, their obligations under this Note shall be joint and several.
21. Each periodic payment shall be credited first on late charges and
costs of collection, if any, and then on interest then due and the remainder on
principal, and interest shall thereupon cease upon the principal so credited.
22. Time is of the essence of each and every obligation set forth
herein, including without limitation, payment.
23. The makers, endorsers, and guarantors of this Note jointly and
severally waive diligence, demand, presentment for payment, protest, notice of
non-payment and of protest, notice of default, notice of acceleration and all
other notices or demands of any kind. They jointly and severally consent,
without notice to them and without release of their liability to extensions and
accommodations given by the holder of this Note, the release notifications and
exchanges of any security, and to release, in whole or in part, of any other
maker, endorser or guarantor, and they each agree to make payment without the
prior consent by the holder to any security or against any other maker, endorser
or guarantor.
24. Borrower has caused this Note to be executed by its officers, who
were duly authorized and directed to do so by a resolution of its Board of
Directors which was duly passed and adopted by the requisite number of members
of the Board at a meeting which was duly called, noticed, and held or by a duly
adopted Action by the Unanimous Written Consent of the Board of Directors.
3
<PAGE> 4
Borrower: Mailing Address:
Mobility Electronics, Inc., f/k/a 7955 E. Redfield Road
Electronics Accessory Specialists Scottsdale, AZ 85260
International, Inc., a Delaware corporation ATTN: Charles Mollo
By: /s/ RICHARD W. WINTERICH
--------------------------
Name: Richard W. Winterich
------------------------
Title: Vice President & CFO
-----------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 2nd day of
November, 1999 by Richard W. Winterich, the Vice President & CFO of Mobility
Electronics, a(n) Delaware corporation, on behalf of the Borrower.
My commission expires: /s/ LYNDA H. FRANCIS
-----------------------
January 11, 2003 Notary Public
- ----------------
(SEAL)
<PAGE> 1
EXHIBIT 10.27
Loan No.:
---------------------------------------------
PROMISSORY NOTE
$150,000 November 2, 1999
Phoenix, Arizona
Interest Rate: Prime Rate plus 250
Basis Points (see Section 3 below).
Maturity Date: June 1, 2000 (see Section 6 below).
- -------------------------------------------------------------------------------
1. FOR VALUE RECEIVED, MOBILITY ELECTRONICS, INC., f/k/a Electronics
Accessory Specialists International, Inc. a Delaware corporation ("Borrower"),
promise(s) to pay to the order of BANK OF AMERICA N.A. successor by merger to
NationsBank, N.A., (the "Bank"), at Bank's Home Office in Phoenix, Arizona, or
at such other place as Bank may from time to time designate, the principal sum
of One Hundred Fifty Thousand Dollars ($150,000), plus interest thereon from the
date of the respective advances until paid. This Promissory Note (this "Note")
evidences a loan (the "Loan") from Bank to Borrower pursuant to that certain
Amended and Restated Business Loan Agreement dated of even date herewith (the
"Loan Agreement").
2. This Note is secured by a Security Agreement dated of even date
herewith, a Pledge of Certificate of Deposit ($150,000) dated of even date
herewith, a Pledge of Certificate of Deposit ($75,000) dated of even date
herewith, and a Patent Collateral Assignment and Security Agreement,
(collectively, the "Security Documents"), covering certain property as therein
described (the "Property"). It may also be secured by other collateral. This
Note and the Security Documents are among several Loan Documents, as defined and
designated in the Loan Agreement, between Bank and Borrower and several
guarantors. Some or all of the Loan Documents, including the Extension
Agreement, contain provisions for the acceleration of the maturity of this Note.
3. The principal sum outstanding from time to time under this Note
shall bear interest at the Prime Rate plus Two Hundred Fifty (250) basis points
per year, as the same may change from time to time (the "Prime-based Rate"). As
used herein, the "Prime Rate" means the per annum rate of interest publicly
announced from time to time by Bank at San Francisco, California, as its Prime
Rate. The Prime Rate is set by Bank based on various factors, including its
costs and desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans. Bank may price loans to its
customers at, above, or below the Prime Rate. Any change in the Prime Rate shall
take effect at the opening of business on the day specified in the public
announcement of a change in the Prime Rate.
4. Accrued interest shall be payable on the first day of each month in
arrears, commencing on the first day of the first calendar month following the
date that the beneficiary of that certain letter of credit in the amount of
$150,000 (as described in the Loan Agreement) draws upon such letter of credit
and on the first day of each calendar month thereafter through its Maturity
Date. Interest shall be calculated on the basis of a 360-day year on actual days
elapsed, which results in more interest than if a 365-day year were used.
1
<PAGE> 2
5. For purposes of this Note, "interest" shall include any and all
interest payable as provided in this Note, together with any and all sums (the
"Additional Interest") payable by Borrower under any existing or future
agreement between Bank and Borrower. Borrower shall pay any and all Additional
Interest at the times and in the amounts specified in such agreements.
6. All principal and all accrued and unpaid interest and all other
amounts payable hereunder shall be due and payable no later than September 15,
2000 ("Maturity Date").
7. Borrower may prepay some or all of the principal under this Note,
without penalty or premium. All prepayments shall be applied first on late
charges and costs, if any, and then on interest then due and the remainder on
the principal balance. Any payment of principal hereunder, in monthly payments
or otherwise, may not be reborrowed by Borrower.
8. If Borrower fails to make any payment of principal or interest when
it is due and payable or upon the occurrence of any Event of Default as defined
hereunder, Borrower agrees to pay interest on the outstanding principal and
accrued and unpaid interest at an annual rate (the "Default Rate") of five
hundred (500) basis points in excess of the Prime-based Rate, from the date the
payment becomes due until Borrower pays in full all such amounts due under this
Note.
9. From and after maturity of this Note, whether by acceleration or
otherwise, all sums then due and payable under this Note, including all
principal and all accrued and unpaid interest, shall bear interest until paid in
full at the Default Rate.
10. If an "Event of Default", (as defined in the Loan Agreement)
occurs, at the holder's option, exercisable in its sole discretion, all sums of
principal and interest under this Note shall become immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or character.
11. It shall also be an "Event of Default" under this Note if Borrower
becomes the subject of any bankruptcy or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships ("Insolvency Proceeding"). If that happens all sums of principal
and interest under this Note shall automatically become immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character.
12. All amounts payable under this Note are payable in lawful money of
the United States during normal business hours on a Banking Day, as defined
below. Checks constitute payment only when collected.
13. If any lawsuit or arbitration is commenced which arises out of or
relates to this Note, the Loan Documents or the Loan, the prevailing party shall
be entitled to recover from each other party such sums as the court (but not the
jury) or arbitrator may adjudge to be reasonable attorneys' fees in the action
or arbitration, in addition to costs and expenses otherwise allowed by law. In
all other situations, including any matter arising out of or relating to any
Insolvency Proceeding, Borrower agrees to pay all of Bank's costs and expenses,
including attorneys' fees, which may be incurred in enforcing or protecting
Bank's rights or interests. From the time(s) incurred until paid in full to
Bank, all such sums shall bear interest at the Default Rate.
14. Whenever Borrower is obligated to pay or reimburse Bank for any
attorneys' fees, those fees shall include the allocated costs for services of
in-house counsel.
15. This Note is governed by the laws of the State of Arizona, without
regard to the choice of law rules of that State.
16. Borrower agrees that the holder of this Note may accept additional
or substitute security for this Note, or release any security or any party
liable for this Note, or extend or renew this Note, all without notice to
Borrower and without affecting the liability of Borrower.
2
<PAGE> 3
17. If Bank delays in exercising or fails to exercise any of its rights
under this Note, that delay or failure shall not constitute a waiver of any of
Bank's rights, or of any breach, default or failure of condition of or under
this Note. No waiver by Bank of any of its rights, or of any such breach,
default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Bank. All of Bank's remedies in
connection with this Note, or any of the other Loan Documents or under
applicable law shall be cumulative, and Bank's exercise of any one or more of
those remedies shall not constitute an election of remedies.
18. This Note inures to and binds the heirs, personal representatives,
successors and assigns of Borrower and Bank; provided, however, that Borrower
may not assign this Note or any Loan funds, or assign or delegate any of its
rights or obligations without the prior written consent of Bank in each
instance. Bank in its sole discretion may transfer this Note, and may sell or
assign participations or other interests in all or part of the Loan, on the
terms and subject to the conditions of the Loan Documents, all without notice to
or the consent of Borrower. Also without notice to or the consent of Borrower,
Bank may disclose to any actual or prospective purchaser of any securities
issued or to be issued by Bank, and to any actual or prospective purchaser or
assignee of any participation or other interest in this Note, the Loan or any
other loans made by Bank to Borrower (whether evidenced by this Note or
otherwise), any financial or other information, data or material in Bank's
possession relating to Borrower, the Loan or the Property, including any
improvements on it. If Bank so requests, Borrower shall sign and deliver a new
note to be issued in exchange for this Note.
19. As used in this Note, the terms "Bank", "holder" and "holder of
this Note" are interchangeable. As used in this Note, the word "include(s)"
means "include(s), without limitation", and the word "including" means
"including, but not limited to." The term "Banking Day" is defined to mean a day
other than a Saturday or Sunday, on which Bank is open for business in Phoenix,
Arizona.
20. If more than one person or entity are signing this Note as
Borrower, their obligations under this Note shall be joint and several.
21. Each periodic payment shall be credited first on late charges and
costs of collection, if any, and then on interest then due and the remainder on
principal, and interest shall thereupon cease upon the principal so credited.
22. Time is of the essence of each and every obligation set forth
herein, including without limitation, payment.
23. The makers, endorsers, and guarantors of this Note jointly and
severally waive diligence, demand, presentment for payment, protest, notice of
non-payment and of protest, notice of default, notice of acceleration and all
other notices or demands of any kind. They jointly and severally consent,
without notice to them and without release of their liability to extensions and
accommodations given by the holder of this Note, the release notifications and
exchanges of any security, and to release, in whole or in part, of any other
maker, endorser or guarantor, and they each agree to make payment without the
prior consent by the holder to any security or against any other maker, endorser
or guarantor.
24. Borrower has caused this Note to be executed by its officers, who
were duly authorized and directed to do so by a resolution of its Board of
Directors which was duly passed and adopted by the requisite number of members
of the Board at a meeting which was duly called, noticed, and held or by a duly
adopted Action by the Unanimous Written Consent of the Board of Directors.
3
<PAGE> 4
Borrower: Mailing Address:
Mobility Electronics, Inc., f/k/a 7955 E. Redfield Road
Electronics Accessory Specialists Scottsdale, AZ 85260
International, Inc., a Delaware corporation ATTN: Charles Mollo
By: /s/ R. WINTERICH
----------------------------
Name: Richard W. Winterich
--------------------------
Title: Vice President & CFO
-------------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 2nd day of
November, 1999 by Richard W. Winterich, the Vice President & CFO of Mobility
Electronics, a(n) Delaware corporation, on behalf of the Borrower.
My commission expires: /s/ LYNDA H. FRANCIS
--------------------------
January 11, 2003 Notary Public
- -----------------------
(SEAL)
4
<PAGE> 1
EXHIBIT 10.28
Loan No.:
------------------------------------------------
PROMISSORY NOTE
$75,000 November 2, 1999
Phoenix, Arizona
Interest Rate: Prime Rate plus 250
Basis Points (see Section 3 below).
Maturity Date: September 15, 2000 (see Section 6 below).
- -------------------------------------------------------------------------------
1. FOR VALUE RECEIVED, MOBILITY ELECTRONICS, INC., f/k/a Electronics
Accessory Specialists International, Inc. a Delaware corporation ("Borrower"),
promise(s) to pay to the order of BANK OF AMERICA N.A. successor by merger to
NationsBank, N.A., (the "Bank"), at Bank's Home Office in Phoenix, Arizona, or
at such other place as Bank may from time to time designate, the principal sum
of Seventy Five Thousand Dollars ($75,000), plus interest thereon from the date
of the respective advances until paid. This Promissory Note (this "Note")
evidences a loan (the "Loan") from Bank to Borrower pursuant to that certain
Amended and Restated Business Loan Agreement dated of even date herewith (the
"Loan Agreement").
2. This Note is secured by a Security Agreement dated of even date
herewith, a Pledge of Certificate of Deposit ($150,000) dated of even date
herewith, a Pledge of Certificate of Deposit ($75,000) dated of even date
herewith, and a Patent Collateral Assignment and Security Agreement,
(collectively, the "Security Documents"), covering certain property as therein
described (the "Property"). It may also be secured by other collateral. This
Note and the Security Documents are among several Loan Documents, as defined and
designated in the Loan Agreement, between Bank and Borrower and several
guarantors. Some or all of the Loan Documents, including the Extension
Agreement, contain provisions for the acceleration of the maturity of this Note.
3. The principal sum outstanding from time to time under this Note
shall bear interest at the Prime Rate plus Two Hundred Fifty (250) basis points
per year, as the same may change from time to time (the "Prime-based Rate"). As
used herein, the "Prime Rate" means the per annum rate of interest publicly
announced from time to time by Bank at San Francisco, California, as its Prime
Rate. The Prime Rate is set by Bank based on various factors, including its
costs and desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans. Bank may price loans to its
customers at, above, or below the Prime Rate. Any change in the Prime Rate shall
take effect at the opening of business on the day specified in the public
announcement of a change in the Prime Rate.
4. Accrued interest shall be payable on the first day of each month in
arrears, commencing on the first day of the first calendar month following the
date that the beneficiary of that certain letter of credit in the amount of
$150,000 (as described in the Loan Agreement) draws upon such letter of credit
and on the first day of each calendar month thereafter through its Maturity
Date. Interest shall be calculated on the basis of a 360-day year on actual days
elapsed, which results in more interest than if a 365-day year were used.
1
<PAGE> 2
5. For purposes of this Note, "interest" shall include any and all
interest payable as provided in this Note, together with any and all sums (the
"Additional Interest") payable by Borrower under any existing or future
agreement between Bank and Borrower. Borrower shall pay any and all Additional
Interest at the times and in the amounts specified in such agreements.
6. All principal and all accrued and unpaid interest and all other
amounts payable hereunder shall be due and payable no later than September 15,
2000 ("Maturity Date").
7. Borrower may prepay some or all of the principal under this Note,
without penalty or premium. All prepayments shall be applied first on late
charges and costs, if any, and then on interest then due and the remainder on
the principal balance. Any payment of principal hereunder, in monthly payments
or otherwise, may not be reborrowed by Borrower.
8. If Borrower fails to make any payment of principal or interest when
it is due and payable or upon the occurrence of any Event of Default as defined
hereunder, Borrower agrees to pay interest on the outstanding principal and
accrued and unpaid interest at an annual rate (the "Default Rate") of five
hundred (500) basis points in excess of the Prime-based Rate, from the date the
payment becomes due until Borrower pays in full all such amounts due under this
Note.
9. From and after maturity of this Note, whether by acceleration or
otherwise, all sums then due and payable under this Note, including all
principal and all accrued and unpaid interest, shall bear interest until paid in
full at the Default Rate.
10. If an "Event of Default", (as defined in the Loan Agreement)
occurs, at the holder's option, exercisable in its sole discretion, all sums of
principal and interest under this Note shall become immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or character.
11. It shall also be an "Event of Default" under this Note if Borrower
becomes the subject of any bankruptcy or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships ("Insolvency Proceeding"). If that happens all sums of principal
and interest under this Note shall automatically become immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character.
12. All amounts payable under this Note are payable in lawful money of
the United States during normal business hours on a Banking Day, as defined
below. Checks constitute payment only when collected.
13. If any lawsuit or arbitration is commenced which arises out of or
relates to this Note, the Loan Documents or the Loan, the prevailing party shall
be entitled to recover from each other party such sums as the court (but not the
jury) or arbitrator may adjudge to be reasonable attorneys' fees in the action
or arbitration, in addition to costs and expenses otherwise allowed by law. In
all other situations, including any matter arising out of or relating to any
Insolvency Proceeding, Borrower agrees to pay all of Bank's costs and expenses,
including attorneys' fees, which may be incurred in enforcing or protecting
Bank's rights or interests. From the time(s) incurred until paid in full to
Bank, all such sums shall bear interest at the Default Rate.
14. Whenever Borrower is obligated to pay or reimburse Bank for any
attorneys' fees, those fees shall include the allocated costs for services of
in-house counsel.
15. This Note is governed by the laws of the State of Arizona, without
regard to the choice of law rules of that State.
16. Borrower agrees that the holder of this Note may accept additional
or substitute security for this Note, or release any security or any party
liable for this Note, or extend or renew this Note, all without notice to
Borrower and without affecting the liability of Borrower.
2
<PAGE> 3
17. If Bank delays in exercising or fails to exercise any of its rights
under this Note, that delay or failure shall not constitute a waiver of any of
Bank's rights, or of any breach, default or failure of condition of or under
this Note. No waiver by Bank of any of its rights, or of any such breach,
default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Bank. All of Bank's remedies in
connection with this Note, or any of the other Loan Documents or under
applicable law shall be cumulative, and Bank's exercise of any one or more of
those remedies shall not constitute an election of remedies.
18. This Note inures to and binds the heirs, personal representatives,
successors and assigns of Borrower and Bank; provided, however, that Borrower
may not assign this Note or any Loan funds, or assign or delegate any of its
rights or obligations without the prior written consent of Bank in each
instance. Bank in its sole discretion may transfer this Note, and may sell or
assign participations or other interests in all or part of the Loan, on the
terms and subject to the conditions of the Loan Documents, all without notice to
or the consent of Borrower. Also without notice to or the consent of Borrower,
Bank may disclose to any actual or prospective purchaser of any securities
issued or to be issued by Bank, and to any actual or prospective purchaser or
assignee of any participation or other interest in this Note, the Loan or any
other loans made by Bank to Borrower (whether evidenced by this Note or
otherwise), any financial or other information, data or material in Bank's
possession relating to Borrower, the Loan or the Property, including any
improvements on it. If Bank so requests, Borrower shall sign and deliver a new
note to be issued in exchange for this Note.
19. As used in this Note, the terms "Bank", "holder" and "holder of
this Note" are interchangeable. As used in this Note, the word "include(s)"
means "include(s), without limitation", and the word "including" means
"including, but not limited to." The term "Banking Day" is defined to mean a day
other than a Saturday or Sunday, on which Bank is open for business in Phoenix,
Arizona.
20. If more than one person or entity are signing this Note as
Borrower, their obligations under this Note shall be joint and several.
21. Each periodic payment shall be credited first on late charges and
costs of collection, if any, and then on interest then due and the remainder on
principal, and interest shall thereupon cease upon the principal so credited.
22. Time is of the essence of each and every obligation set forth
herein, including without limitation, payment.
23. The makers, endorsers, and guarantors of this Note jointly and
severally waive diligence, demand, presentment for payment, protest, notice of
non-payment and of protest, notice of default, notice of acceleration and all
other notices or demands of any kind. They jointly and severally consent,
without notice to them and without release of their liability to extensions and
accommodations given by the holder of this Note, the release notifications and
exchanges of any security, and to release, in whole or in part, of any other
maker, endorser or guarantor, and they each agree to make payment without the
prior consent by the holder to any security or against any other maker, endorser
or guarantor.
24. Borrower has caused this Note to be executed by its officers, who
were duly authorized and directed to do so by a resolution of its Board of
Directors which was duly passed and adopted by the requisite number of members
of the Board at a meeting which was duly called, noticed, and held or by a duly
adopted Action by the Unanimous Written Consent of the Board of Directors.
3
<PAGE> 4
Borrower: Mailing Address:
Mobility Electronics, Inc., f/k/a 7955 E. Redfield Road
Electronics Accessory Specialists Scottsdale, AZ 85260
International, Inc., a Delaware corporation ATTN: Charles Mollo
By: /s/ RICHARD W. WINTERICH
-----------------------------
Name: Richard W. Winterich
---------------------------
Title: Vice President & CFO
--------------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 2nd day of
November, 1999 by Richard W. Winterich the Vice President & CFO of Mobility
Electronics, a(n) Delaware corporation, on behalf of the Borrower.
My commission expires: /s/ LYNDA H. FRANCIS
---------------------------
January 11, 2003 Notary Public
- -----------------------
(SEAL)
4
<PAGE> 1
EXHIBIT 10.29
RESTATED CONTINUING GUARANTY
(BREEZE)
To: BANK OF AMERICA N.A. and other
subsidiaries or affiliates of BankAmerica Corporation
(1) For valuable consideration, Janice Breeze ("Guarantor")
unconditionally guarantees and promises to pay to BANK OF AMERICA N.A. and any
other subsidiary or affiliate of BankAmerica Corporation (each, a "Bank") which
has extended or may hereafter extend credit to Borrower (as hereinafter
defined), or order, on demand, in lawful money of the United States, One Million
Eight Hundred Thousand Dollars ($1,800,000) of indebtedness of MOBILITY
ELECTRONICS, INC., f/k/a Electronics Accessory Specialists International, Inc. a
Delaware corporation ("Borrower") to Bank. The word "indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower or any one or more of them, heretofore,
now, or hereafter made, incurred or created, whether voluntary or involuntary
and however arising, whether direct or acquired by Bank by assignment or
succession, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Borrower may be liable
individually or jointly with others, or whether recovery upon such indebtedness
may be or hereafter become barred by any statute of limitations, or whether such
indebtedness may be or hereafter become otherwise unenforceable. This Restated
Continuing Guaranty restates, and replaces in its entirety, that certain
Commercial Guaranty dated April 6, 1999 executed by Guarantor in favor of Bank.
(2) The liability of Guarantor under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantor) shall be limited to:
One Million Eight Hundred Thousand Dollars ($1,800,000) of: (a) the principal
amount of the indebtedness; and (b) accrued but unpaid interest. In addition to
the obligations set forth in the immediately preceding sentence, Guarantor shall
be liable for all fees, and other costs and expenses relating to or arising out
of the enforcement of any rights or remedies of Bank under this Guaranty. Bank
may permit the indebtedness of Borrower to exceed Guarantor's liability, and may
apply any amounts received from any source, other than from Guarantor, to the
unguaranteed portion of Borrower's indebtedness. This is a Continuing Guaranty
relating to any indebtedness, including that arising under successive
transactions which shall either continue the indebtedness or from time to time
renew it after it has been satisfied. Any payment by Guarantor shall not reduce
their maximum obligation hereunder, unless written notice to that effect be
actually received by Bank at or prior to the time of such payment.
(3) The obligations hereunder are joint and several, and independent of
the obligations of Borrower, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against Borrower or
whether Borrower be joined in any such action or actions and regardless of
whether a trustee's sale is held under any deed of trust securing the
indebtedness or regardless of whether a judicial foreclosure sale is held if any
deed of trust securing the indebtedness is judicially foreclosed as a mortgage.
Guarantor waives the benefit of any statute of limitations affecting her
liability hereunder.
(4) Guarantor authorizes Bank, without notice or demand and without
affecting their liability hereunder, from time to time, either before or after
revocation hereof, to (a) renew, compromise, extend, accelerate or otherwise
change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, release, fail to
perfect, sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine, except to the extent specifically prohibited by law;
and (d) release or substitute any one or more of the endorsers or guarantors.
(5) Guarantor waives any right to require Bank to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower; or (c)
pursue any other remedy in Bank's power whatsoever. Guarantor waives any defense
arising by reason of any disability or other defense of Borrower, or the
cessation from any cause whatsoever of the liability of Borrower, or any claim
that Guarantor's obligations exceed or are more burdensome than those of
Borrower. Guarantor waives any right of subrogation,
<PAGE> 2
reimbursement, indemnification, and contribution (contractual, statutory or
otherwise), including without limitation, any claim or right of subrogation
under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute,
arising from the existence or performance of this Guaranty and Guarantor waives
any right to enforce any remedy which Bank now has or may hereafter have against
Borrower, and waive any benefit of, and any right to participate in, any
security now or hereafter held by Bank. Upon payment of the indebtedness in full
to the Bank and upon payment by Guarantor to Bank pursuant to this Guaranty,
Guarantor shall have full rights of subrogation against Borrower. Bank may
foreclose, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the indebtedness, and, even though the foreclosure may
destroy or diminish Guarantor's rights against Borrower, Guarantor shall be
liable to Bank for any part of the indebtedness remaining unpaid after the
foreclosure. Guarantor waives any benefit of any statutory provision limiting
the right of Bank to recover a deficiency judgment, or to otherwise proceed,
against any person or entity obligated for payment of the indebtedness, after
any judicial foreclosure sale or trustee's sale of any collateral securing the
indebtedness including, without limitation, the benefits, if any, of Arizona
Revised Statutes Sections 12-1566, 12-1641 et seq., 33-814, 44-142 and Rule
17(f) of the Arizona Rules of Civil Procedure, except to the extent otherwise
required by law. Guarantor waives any homestead or exemption rights. Guarantor
waives all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, and notices of acceptance of
this Guaranty and of the existence, creation, or incurring of new or additional
indebtedness.
(6) Guarantor acknowledges and agrees that she shall have the sole
responsibility for obtaining from Borrower such information concerning
Borrower's financial conditions or business operations as Guarantor may require,
and that Bank has no duty at any time to disclose to Guarantor any information
relating to the business operations or financial conditions of Borrower.
(7) In addition to Bank's rights of setoff, to secure all of
Guarantor's obligations hereunder, Guarantor assigns and grants to Bank a
security interest in all moneys, securities and other property of Guarantor now
or hereafter in the possession of Bank, and all deposit accounts of Guarantor
maintained with Bank, and all proceeds thereof. Upon default or breach of any of
Guarantor's obligations to Bank, Bank may apply any deposit account to reduce
the indebtedness, and may foreclose any collateral as provided in the Uniform
Commercial Code and in any security agreements between Bank and Guarantor.
(8) Any obligations of Borrower to Guarantor, now or hereafter
existing, including but not limited to any obligations to Guarantor as subrogees
of Bank or resulting from Guarantor's performance under this Guaranty, are
hereby subordinated to the indebtedness. Such obligations of Borrower to
Guarantor if Bank so requests shall be enforced and performance received by
Guarantor as trustees for Bank and the proceeds thereof shall be paid over to
Bank on account of the indebtedness of Borrower to Bank, but without reducing or
affecting in any manner the liability of Guarantor under the provisions of this
Guaranty.
(9) This Guaranty may be revoked at any time by Guarantor in respect to
future transactions, unless there is a continuing consideration as to such
transactions which Guarantor does not renounce. Such revocation shall be
effective upon actual receipt by Bank at the address shown below of written
notice of revocation. Revocation shall not affect any of Guarantor's obligations
or Bank's rights with respect to transactions which precede Bank's receipt of
such notice, regardless of whether or not the indebtedness related to such
transactions, before or after revocation, has been renewed, compromised,
extended, accelerated, or otherwise changed as to any of its terms, including
time for payment or increase or decrease of the rate of interest thereon, and
regardless of any other act or omission of Bank authorized hereunder. Revocation
by any one or more of Guarantor shall not affect any obligations of any
nonrevoking Guarantor. If this Guaranty is revoked, returned, or canceled, and
subsequently any payment or transfer of any interest in property by Borrower to
Bank is rescinded or must be returned by Bank to Borrower, this Guaranty shall
be reinstated with respect to any such payment or transfer, regardless of any
such prior revocation, return, or cancellation.
(10) Where any one or more of Borrower are corporations or partnerships
it is not necessary for Bank to inquire into the powers of Borrower or of the
officers, directors, partners or agents acting or purporting to act on their
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
2
<PAGE> 3
(11) Bank may, without notice to Guarantor and without affecting
Guarantor's obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantor agrees that Bank may disclose to any prospective
purchaser and any purchaser of all or part of the indebtedness any and all
information in Bank's possession concerning Guarantor, this Guaranty and any
security for this Guaranty.
(12) Guarantor agrees to pay all attorneys' fees, the allocated costs
of Bank's in-house counsel, and all other costs and expenses which may be
incurred by Bank in the enforcement of this Guaranty, including without
limitation all costs and necessary disbursements in any legal action or
arbitration proceeding.
(14) This Guaranty shall be governed by and construed according to the
laws of the State of Arizona, to the jurisdiction of which the parties hereto
submit; provided, however, this Guaranty shall be governed by New Mexico law to
the extent of application of marital interests and rights to bind property of a
Guarantor and/or his spouse.
(15) (a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this Guaranty
or any agreements or instruments relating hereto or delivered in connection
herewith and any claim based on or arising from an alleged tort, shall at the
request of any party be determined by arbitration. The arbitration shall be
conducted in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Guaranty, and under
the Commercial Rules of the American Arbitration Association ("AAA"). The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) No provision of this paragraph shall limit the right of
any party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration. At Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of power of sale under the deed
of trust or mortgage or by judicial foreclosure.
Executed this 2nd day of November, 1999.
"Guarantor"
/s/ JANICE L. BREEZE
---------------------------------------------
Janice Breeze
Address for notices to Bank:
101 North 1st Avenue, Dept. 4934
Phoenix, AZ 85003
ATTN:
----------------------------
3
<PAGE> 1
EXHIBIT 10.30
RESTATED CONTINUING GUARANTY
(DOSS)
To: BANK OF AMERICA N.A. and other
subsidiaries or affiliates of BankAmerica Corporation
(1) For valuable consideration, Jeffrey Doss ("Guarantor")
unconditionally guarantees and promises to pay to BANK OF AMERICA N.A. and any
other subsidiary or affiliate of BankAmerica Corporation (each, a "Bank") which
has extended or may hereafter extend credit to Borrower (as hereinafter
defined), or order, on demand, in lawful money of the United States, One Million
Eight Hundred Thousand Dollars ($1,800,000) of indebtedness of MOBILITY
ELECTRONICS, INC., f/k/a Electronics Accessory Specialists International, Inc. a
Delaware corporation ("Borrower") to Bank. The word "indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower or any one or more of them, heretofore,
now, or hereafter made, incurred or created, whether voluntary or involuntary
and however arising, whether direct or acquired by Bank by assignment or
succession, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Borrower may be liable
individually or jointly with others, or whether recovery upon such indebtedness
may be or hereafter become barred by any statute of limitations, or whether such
indebtedness may be or hereafter become otherwise unenforceable. This Restated
Continuing Guaranty restates, and replaces in its entirety, that certain
Commercial Guaranty dated April 6, 1999 executed by Guarantor in favor of Bank.
(2) The liability of Guarantor under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantor) shall be limited to:
One Million Eight Hundred Thousand Dollars ($1,800,000) of: (a) the principal
amount of the indebtedness; and (b) accrued but unpaid interest. In addition to
the obligations set forth in the immediately preceding sentence, Guarantor shall
be liable for all fees, and other costs and expenses relating to or arising out
of the indebtedness or such part of the enforcement of any rights or remedies of
Bank under this Guaranty. Bank may permit the indebtedness of Borrower to exceed
Guarantor's liability, and may apply any amounts received from any source, other
than from Guarantor, to the unguaranteed portion of Borrower's indebtedness.
This is a Continuing Guaranty relating to any indebtedness, including that
arising under successive transactions which shall either continue the
indebtedness or from time to time renew it after it has been satisfied. Any
payment by Guarantor shall not reduce their maximum obligation hereunder, unless
written notice to that effect be actually received by Bank at or prior to the
time of such payment.
(3) The obligations hereunder are joint and several, and independent of
the obligations of Borrower, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against Borrower or
whether Borrower be joined in any such action or actions and regardless of
whether a trustee's sale is held under any deed of trust securing the
indebtedness or regardless of whether a judicial foreclosure sale is held if any
deed of trust securing the indebtedness is judicially foreclosed as a mortgage.
Guarantor waives the benefit of any statute of limitations affecting his
liability hereunder.
(4) Guarantor authorizes Bank, without notice or demand and without
affecting their liability hereunder, from time to time, either before or after
revocation hereof, to (a) renew, compromise, extend, accelerate or otherwise
change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, release, fail to
perfect, sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine, except to the extent specifically prohibited by law;
and (d) release or substitute any one or more of the endorsers or guarantors.
(5) Guarantor waives any right to require Bank to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower; or (c)
pursue any other remedy in Bank's power whatsoever. Guarantor waives any defense
arising by reason of any disability or other defense of Borrower, or the
cessation from any cause whatsoever of the liability of Borrower, or any claim
that Guarantor's obligations
1
<PAGE> 2
exceed or are more burdensome than those of Borrower. Guarantor waives any right
of subrogation, reimbursement, indemnification, and contribution (contractual,
statutory or otherwise), including without limitation, any claim or right of
subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or any
successor statute, arising from the existence or performance of this Guaranty
and Guarantor waives any right to enforce any remedy which Bank now has or may
hereafter have against Borrower, and waive any benefit of, and any right to
participate in, any security now or hereafter held by Bank. Upon payment of the
indebtedness in full to the Bank and upon payment by Guarantor to Bank pursuant
to this Guaranty, Guarantor shall have full rights of subrogation against
Borrower. Bank may foreclose, either by judicial foreclosure or by exercise of
power of sale, any deed of trust securing the indebtedness, and, even though the
foreclosure may destroy or diminish Guarantor's rights against Borrower,
Guarantor shall be liable to Bank for any part of the indebtedness remaining
unpaid after the foreclosure. Guarantor waives any benefit of any statutory
provision limiting the right of Bank to recover a deficiency judgment, or to
otherwise proceed, against any person or entity obligated for payment of the
indebtedness, after any judicial foreclosure sale or trustee's sale of any
collateral securing the indebtedness including, without limitation, the
benefits, if any, of Arizona Revised Statutes Sections 12-1566, 12-1641 et seq.,
33-814, 44-142 and Rule 17(f) of the Arizona Rules of Civil Procedure, except to
the extent otherwise required by law. Guarantor waives any homestead or
exemption rights. Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor,
and notices of acceptance of this Guaranty and of the existence, creation, or
incurring of new or additional indebtedness.
(6) Guarantor acknowledges and agrees that he shall have the sole
responsibility for obtaining from Borrower such information concerning
Borrower's financial conditions or business operations as Guarantor may require,
and that Bank has no duty at any time to disclose to Guarantor any information
relating to the business operations or financial conditions of Borrower.
(7) In addition to Bank's rights of setoff, to secure all of
Guarantor's obligations hereunder, Guarantor assigns and grants to Bank a
security interest in all moneys, securities and other property of Guarantor now
or hereafter in the possession of Bank, and all deposit accounts of Guarantor
maintained with Bank, and all proceeds thereof. Upon default or breach of any of
Guarantor's obligations to Bank, Bank may apply any deposit account to reduce
the indebtedness, and may foreclose any collateral as provided in the Uniform
Commercial Code and in any security agreements between Bank and Guarantor.
(8) Any obligations of Borrower to Guarantor, now or hereafter
existing, including but not limited to any obligations to Guarantor as subrogees
of Bank or resulting from Guarantor's performance under this Guaranty, are
hereby subordinated to the indebtedness. Such obligations of Borrower to
Guarantor if Bank so requests shall be enforced and performance received by
Guarantor as trustees for Bank and the proceeds thereof shall be paid over to
Bank on account of the indebtedness of Borrower to Bank, but without reducing or
affecting in any manner the liability of Guarantor under the provisions of this
Guaranty.
(9) This Guaranty may be revoked at any time by Guarantor in respect to
future transactions, unless there is a continuing consideration as to such
transactions which Guarantor does not renounce. Such revocation shall be
effective upon actual receipt by Bank at the address shown below of written
notice of revocation. Revocation shall not affect any of Guarantor's obligations
or Bank's rights with respect to transactions which precede Bank's receipt of
such notice, regardless of whether or not the indebtedness related to such
transactions, before or after revocation, has been renewed, compromised,
extended, accelerated, or otherwise changed as to any of its terms, including
time for payment or increase or decrease of the rate of interest thereon, and
regardless of any other act or omission of Bank authorized hereunder. Revocation
by any one or more of Guarantor shall not affect any obligations of any
nonrevoking Guarantor. If this Guaranty is revoked, returned, or canceled, and
subsequently any payment or transfer of any interest in property by Borrower to
Bank is rescinded or must be returned by Bank to Borrower, this Guaranty shall
be reinstated with respect to any such payment or transfer, regardless of any
such prior revocation, return, or cancellation.
(10) Where any one or more of Borrower are corporations or partnerships
it is not necessary for Bank to inquire into the powers of Borrower or of the
officers, directors, partners or agents acting or purporting to act on their
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
2
<PAGE> 3
(11) Bank may, without notice to Guarantor and without affecting
Guarantor's obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantor agrees that Bank may disclose to any prospective
purchaser and any purchaser of all or part of the indebtedness any and all
information in Bank's possession concerning Guarantor, this Guaranty and any
security for this Guaranty.
(12) Guarantor agrees to pay all attorneys' fees, the allocated costs
of Bank's in-house counsel, and all other costs and expenses which may be
incurred by Bank in the enforcement of this Guaranty, including without
limitation all costs and necessary disbursements in any legal action or
arbitration proceeding.
(14) This Guaranty shall be governed by and construed according to the
laws of the State of Arizona, to the jurisdiction of which the parties hereto
submit; provided, however, this Guaranty shall be governed by New Mexico law to
the extent of application of marital interests and rights to bind property of a
Guarantor and/or his spouse.
(15) (a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this Guaranty
or any agreements or instruments relating hereto or delivered in connection
herewith and any claim based on or arising from an alleged tort, shall at the
request of any party be determined by arbitration. The arbitration shall be
conducted in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Guaranty, and under
the Commercial Rules of the American Arbitration Association ("AAA"). The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) No provision of this paragraph shall limit the right of
any party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration. At Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of power of sale under the deed
of trust or mortgage or by judicial foreclosure.
Executed this 2nd day of November, 1999.
"Guarantor"
/s/ JEFFREY DOSS
------------------------------------
Jeffrey Doss
Address for notices to Bank:
101 North 1st Avenue, Dept. 4934
Phoenix, AZ 85003
ATTN:
----------------------------
3
<PAGE> 1
EXHIBIT 10.31
RESTATED CONTINUING GUARANTY
(MOLLO)
To: BANK OF AMERICA N.A. and other
subsidiaries or affiliates of BankAmerica Corporation
(1) For valuable consideration, Charles Mollo ("Guarantor")
unconditionally guarantees and promises to pay to BANK OF AMERICA N.A. and any
other subsidiary or affiliate of BankAmerica Corporation (each, a "Bank") which
has extended or may hereafter extend credit to Borrower (as hereinafter
defined), or order, on demand, in lawful money of the United States, One Million
Eight Hundred Thousand Dollars ($1,800,000) of indebtedness of MOBILITY
ELECTRONICS, INC., f/k/a Electronics Accessory Specialists International, Inc. a
Delaware corporation ("Borrower") to Bank. The word "indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower or any one or more of them, heretofore,
now, or hereafter made, incurred or created, whether voluntary or involuntary
and however arising, whether direct or acquired by Bank by assignment or
succession, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Borrower may be liable
individually or jointly with others, or whether recovery upon such indebtedness
may be or hereafter become barred by any statute of limitations, or whether such
indebtedness may be or hereafter become otherwise unenforceable. This Restated
Continuing Guaranty restates, and replaces in its entirety, that certain
Commercial Guaranty dated April 6, 1999 executed by Guarantor in favor of Bank.
(2) The liability of Guarantor under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantor) shall be limited to:
One Million Eight Hundred Thousand Dollars ($1,800,000) of: (a) the principal
amount of the indebtedness; and (b) accrued but unpaid interest. In addition to
the obligations set forth in the immediately preceding sentence, Guarantor shall
be liable for all fees, and other costs and expenses relating to or arising out
of the enforcement of any rights or remedies of Bank under this Guaranty. Bank
may permit the indebtedness of Borrower to exceed Guarantor's liability, and may
apply any amounts received from any source, other than from Guarantor, to the
unguaranteed portion of Borrower's indebtedness. This is a Continuing Guaranty
relating to any indebtedness, including that arising under successive
transactions which shall either continue the indebtedness or from time to time
renew it after it has been satisfied. Any payment by Guarantor shall not reduce
their maximum obligation hereunder, unless written notice to that effect be
actually received by Bank at or prior to the time of such payment.
(3) The obligations hereunder are joint and several, and independent of
the obligations of Borrower, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against Borrower or
whether Borrower be joined in any such action or actions and regardless of
whether a trustee's sale is held under any deed of trust securing the
indebtedness or regardless of whether a judicial foreclosure sale is held if any
deed of trust securing the indebtedness is judicially foreclosed as a mortgage.
Guarantor waives the benefit of any statute of limitations affecting his
liability hereunder.
(4) Guarantor authorizes Bank, without notice or demand and without
affecting their liability hereunder, from time to time, either before or after
revocation hereof, to (a) renew, compromise, extend, accelerate or otherwise
change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, release, fail to
perfect, sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine, except to the extent specifically prohibited by law;
and (d) release or substitute any one or more of the endorsers or guarantors.
(5) Guarantor waives any right to require Bank to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower; or (c)
pursue any other remedy in Bank's power whatsoever. Guarantor waives any defense
arising by reason of any disability or other defense of Borrower, or the
cessation from any cause whatsoever of the liability of Borrower, or any claim
that Guarantor's obligations exceed or are more burdensome than those of
Borrower. Guarantor waives any right of subrogation,
1
<PAGE> 2
reimbursement, indemnification, and contribution (contractual, statutory or
otherwise), including without limitation, any claim or right of subrogation
under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute,
arising from the existence or performance of this Guaranty and Guarantor waives
any right to enforce any remedy which Bank now has or may hereafter have against
Borrower, and waive any benefit of, and any right to participate in, any
security now or hereafter held by Bank. Upon payment of the indebtedness in full
to the Bank and upon payment by Guarantor to Bank pursuant to this Guaranty,
Guarantor shall have full rights of subrogation against Borrower. Bank may
foreclose, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the indebtedness, and, even though the foreclosure may
destroy or diminish Guarantor's rights against Borrower, Guarantor shall be
liable to Bank for any part of the indebtedness remaining unpaid after the
foreclosure. Guarantor waives any benefit of any statutory provision limiting
the right of Bank to recover a deficiency judgment, or to otherwise proceed,
against any person or entity obligated for payment of the indebtedness, after
any judicial foreclosure sale or trustee's sale of any collateral securing the
indebtedness including, without limitation, the benefits, if any, of Arizona
Revised Statutes Sections 12-1566, 12-1641 et seq., 33-814, 44-142 and Rule
17(f) of the Arizona Rules of Civil Procedure, except to the extent otherwise
required by law. Guarantor waives any homestead or exemption rights. Guarantor
waives all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, and notices of acceptance of
this Guaranty and of the existence, creation, or incurring of new or additional
indebtedness.
(6) Guarantor acknowledges and agrees that he shall have the sole
responsibility for obtaining from Borrower such information concerning
Borrower's financial conditions or business operations as Guarantor may require,
and that Bank has no duty at any time to disclose to Guarantor any information
relating to the business operations or financial conditions of Borrower.
(7) In addition to Bank's rights of setoff, to secure all of
Guarantor's obligations hereunder, Guarantor assigns and grants to Bank a
security interest in all moneys, securities and other property of Guarantor now
or hereafter in the possession of Bank, and all deposit accounts of Guarantor
maintained with Bank, and all proceeds thereof. Upon default or breach of any of
Guarantor's obligations to Bank, Bank may apply any deposit account to reduce
the indebtedness, and may foreclose any collateral as provided in the Uniform
Commercial Code and in any security agreements between Bank and Guarantor.
(8) Any obligations of Borrower to Guarantor, now or hereafter
existing, including but not limited to any obligations to Guarantor as subrogees
of Bank or resulting from Guarantor's performance under this Guaranty, are
hereby subordinated to the indebtedness. Such obligations of Borrower to
Guarantor if Bank so requests shall be enforced and performance received by
Guarantor as trustees for Bank and the proceeds thereof shall be paid over to
Bank on account of the indebtedness of Borrower to Bank, but without reducing or
affecting in any manner the liability of Guarantor under the provisions of this
Guaranty.
(9) This Guaranty may be revoked at any time by Guarantor in respect to
future transactions, unless there is a continuing consideration as to such
transactions which Guarantor does not renounce. Such revocation shall be
effective upon actual receipt by Bank at the address shown below of written
notice of revocation. Revocation shall not affect any of Guarantor's obligations
or Bank's rights with respect to transactions which precede Bank's receipt of
such notice, regardless of whether or not the indebtedness related to such
transactions, before or after revocation, has been renewed, compromised,
extended, accelerated, or otherwise changed as to any of its terms, including
time for payment or increase or decrease of the rate of interest thereon, and
regardless of any other act or omission of Bank authorized hereunder. Revocation
by any one or more of Guarantor shall not affect any obligations of any
nonrevoking Guarantor. If this Guaranty is revoked, returned, or canceled, and
subsequently any payment or transfer of any interest in property by Borrower to
Bank is rescinded or must be returned by Bank to Borrower, this Guaranty shall
be reinstated with respect to any such payment or transfer, regardless of any
such prior revocation, return, or cancellation.
(10) Where any one or more of Borrower are corporations or partnerships
it is not necessary for Bank to inquire into the powers of Borrower or of the
officers, directors, partners or agents acting or purporting to act on their
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
2
<PAGE> 3
(11) Bank may, without notice to Guarantor and without affecting
Guarantor's obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantor agrees that Bank may disclose to any prospective
purchaser and any purchaser of all or part of the indebtedness any and all
information in Bank's possession concerning Guarantor, this Guaranty and any
security for this Guaranty.
(12) Guarantor agrees to pay all attorneys' fees, the allocated costs
of Bank's in-house counsel, and all other costs and expenses which may be
incurred by Bank in the enforcement of this Guaranty, including without
limitation all costs and necessary disbursements in any legal action or
arbitration proceeding.
(14) This Guaranty shall be governed by and construed according to the
laws of the State of Arizona, to the jurisdiction of which the parties hereto
submit; provided, however, this Guaranty shall be governed by New Mexico law to
the extent of application of marital interests and rights to bind property of a
Guarantor and/or his spouse.
(15) (a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this Guaranty
or any agreements or instruments relating hereto or delivered in connection
herewith and any claim based on or arising from an alleged tort, shall at the
request of any party be determined by arbitration. The arbitration shall be
conducted in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Guaranty, and under
the Commercial Rules of the American Arbitration Association ("AAA"). The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) No provision of this paragraph shall limit the right of
any party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration. At Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of power of sale under the deed
of trust or mortgage or by judicial foreclosure.
Executed this 2nd day of November, 1999.
"Guarantor"
/s/ CHARLES MOLLO
-------------------------------------
Charles Mollo
Address for notices to Bank:
101 North 1st Avenue, Dept. 4934
Phoenix, AZ 85003
ATTN:
---------------------------
3
<PAGE> 1
EXHIBIT 10.32
RESTATED CONTINUING GUARANTY
(WILSON)
To: BANK OF AMERICA N.A. and other
subsidiaries or affiliates of BankAmerica Corporation
(1) For valuable consideration, Cameron Wilson ("Guarantor")
unconditionally guarantees and promises to pay to BANK OF AMERICA N.A. and any
other subsidiary or affiliate of BankAmerica Corporation (each, a "Bank") which
has extended or may hereafter extend credit to Borrower (as hereinafter
defined), or order, on demand, in lawful money of the United States, One Million
Eight Hundred Thousand Dollars ($1,800,000) of indebtedness of MOBILITY
ELECTRONICS, INC., f/k/a Electronics Accessory Specialists International, Inc. a
Delaware corporation ("Borrower") to Bank. The word "indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower or any one or more of them, heretofore,
now, or hereafter made, incurred or created, whether voluntary or involuntary
and however arising, whether direct or acquired by Bank by assignment or
succession, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Borrower may be liable
individually or jointly with others, or whether recovery upon such indebtedness
may be or hereafter become barred by any statute of limitations, or whether such
indebtedness may be or hereafter become otherwise unenforceable. This Restated
Continuing Guaranty restates, and replaces in its entirety, that certain
Commercial Guaranty dated April 6, 1999 executed by Guarantor in favor of Bank.
(2) The liability of Guarantor under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantor) shall be limited to:
One Million Eight Hundred Thousand Dollars ($1,800,000) of: (a) the principal
amount of the indebtedness; and (b) accrued but unpaid interest. In addition to
the obligations set forth in the immediately preceding sentence, Guarantor shall
be liable for all fees, and other costs and expenses relating to or arising out
of the enforcement of any rights or remedies of Bank under this Guaranty. Bank
may permit the indebtedness of Borrower to exceed Guarantor's liability, and may
apply any amounts received from any source, other than from Guarantor, to the
unguaranteed portion of Borrower's indebtedness. This is a Continuing Guaranty
relating to any indebtedness, including that arising under successive
transactions which shall either continue the indebtedness or from time to time
renew it after it has been satisfied. Any payment by Guarantor shall not reduce
their maximum obligation hereunder, unless written notice to that effect be
actually received by Bank at or prior to the time of such payment.
(3) The obligations hereunder are joint and several, and independent of
the obligations of Borrower, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against Borrower or
whether Borrower be joined in any such action or actions and regardless of
whether a trustee's sale is held under any deed of trust securing the
indebtedness or regardless of whether a judicial foreclosure sale is held if any
deed of trust securing the indebtedness is judicially foreclosed as a mortgage.
Guarantor waives the benefit of any statute of limitations affecting his
liability hereunder.
(4) Guarantor authorizes Bank, without notice or demand and without
affecting their liability hereunder, from time to time, either before or after
revocation hereof, to (a) renew, compromise, extend, accelerate or otherwise
change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security for the payment of this Guaranty
or the indebtedness guaranteed, and exchange, enforce, waive, release, fail to
perfect, sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine, except to the extent specifically prohibited by law;
and (d) release or substitute any one or more of the endorsers or guarantors.
(5) Guarantor waives any right to require Bank to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower; or (c)
pursue any other remedy in Bank's power whatsoever. Guarantor waives any defense
arising by reason of any disability or other defense of Borrower, or the
cessation from any cause whatsoever of the liability of Borrower, or any claim
that Guarantor's obligations exceed or are more burdensome than those of
Borrower. Guarantor waives any right of subrogation,
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<PAGE> 2
reimbursement, indemnification, and contribution (contractual, statutory or
otherwise), including without limitation, any claim or right of subrogation
under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute,
arising from the existence or performance of this Guaranty and Guarantor waives
any right to enforce any remedy which Bank now has or may hereafter have against
Borrower, and waive any benefit of, and any right to participate in, any
security now or hereafter held by Bank. Upon payment of the indebtedness in full
to the Bank and upon payment by Guarantor to Bank pursuant to this Guaranty,
Guarantor shall have full rights of subrogation against Borrower. Bank may
foreclose, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the indebtedness, and, even though the foreclosure may
destroy or diminish Guarantor's rights against Borrower, Guarantor shall be
liable to Bank for any part of the indebtedness remaining unpaid after the
foreclosure. Guarantor waives any benefit of any statutory provision limiting
the right of Bank to recover a deficiency judgment, or to otherwise proceed,
against any person or entity obligated for payment of the indebtedness, after
any judicial foreclosure sale or trustee's sale of any collateral securing the
indebtedness including, without limitation, the benefits, if any, of Arizona
Revised Statutes Sections 12-1566, 12-1641 et seq., 33-814, 44-142 and Rule
17(f) of the Arizona Rules of Civil Procedure, except to the extent otherwise
required by law. Guarantor waives any homestead or exemption rights. Guarantor
waives all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, and notices of acceptance of
this Guaranty and of the existence, creation, or incurring of new or additional
indebtedness.
(6) Guarantor acknowledges and agrees that he shall have the sole
responsibility for obtaining from Borrower such information concerning
Borrower's financial conditions or business operations as Guarantor may require,
and that Bank has no duty at any time to disclose to Guarantor any information
relating to the business operations or financial conditions of Borrower.
(7) In addition to Bank's rights of setoff, to secure all of
Guarantor's obligations hereunder, Guarantor assigns and grants to Bank a
security interest in all moneys, securities and other property of Guarantor now
or hereafter in the possession of Bank, and all deposit accounts of Guarantor
maintained with Bank, and all proceeds thereof. Upon default or breach of any of
Guarantor's obligations to Bank, Bank may apply any deposit account to reduce
the indebtedness, and may foreclose any collateral as provided in the Uniform
Commercial Code and in any security agreements between Bank and Guarantor.
(8) Any obligations of Borrower to Guarantor, now or hereafter
existing, including but not limited to any obligations to Guarantor as subrogees
of Bank or resulting from Guarantor's performance under this Guaranty, are
hereby subordinated to the indebtedness. Such obligations of Borrower to
Guarantor if Bank so requests shall be enforced and performance received by
Guarantor as trustees for Bank and the proceeds thereof shall be paid over to
Bank on account of the indebtedness of Borrower to Bank, but without reducing or
affecting in any manner the liability of Guarantor under the provisions of this
Guaranty.
(9) This Guaranty may be revoked at any time by Guarantor in respect to
future transactions, unless there is a continuing consideration as to such
transactions which Guarantor does not renounce. Such revocation shall be
effective upon actual receipt by Bank at the address shown below of written
notice of revocation. Revocation shall not affect any of Guarantor's obligations
or Bank's rights with respect to transactions which precede Bank's receipt of
such notice, regardless of whether or not the indebtedness related to such
transactions, before or after revocation, has been renewed, compromised,
extended, accelerated, or otherwise changed as to any of its terms, including
time for payment or increase or decrease of the rate of interest thereon, and
regardless of any other act or omission of Bank authorized hereunder. Revocation
by any one or more of Guarantor shall not affect any obligations of any
nonrevoking Guarantor. If this Guaranty is revoked, returned, or canceled, and
subsequently any payment or transfer of any interest in property by Borrower to
Bank is rescinded or must be returned by Bank to Borrower, this Guaranty shall
be reinstated with respect to any such payment or transfer, regardless of any
such prior revocation, return, or cancellation.
(10) Where any one or more of Borrower are corporations or partnerships
it is not necessary for Bank to inquire into the powers of Borrower or of the
officers, directors, partners or agents acting or purporting to act on their
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
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<PAGE> 3
(11) Bank may, without notice to Guarantor and without affecting
Guarantor's obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantor agrees that Bank may disclose to any prospective
purchaser and any purchaser of all or part of the indebtedness any and all
information in Bank's possession concerning Guarantor, this Guaranty and any
security for this Guaranty.
(12) Guarantor agrees to pay all attorneys' fees, the allocated costs
of Bank's in-house counsel, and all other costs and expenses which may be
incurred by Bank in the enforcement of this Guaranty, including without
limitation all costs and necessary disbursements in any legal action or
arbitration proceeding.
(14) This Guaranty shall be governed by and construed according to the
laws of the State of Arizona, to the jurisdiction of which the parties hereto
submit; provided, however, this Guaranty shall be governed by New Mexico law to
the extent of application of marital interests and rights to bind property of a
Guarantor and/or his spouse.
(15) (a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this Guaranty
or any agreements or instruments relating hereto or delivered in connection
herewith and any claim based on or arising from an alleged tort, shall at the
request of any party be determined by arbitration. The arbitration shall be
conducted in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Guaranty, and under
the Commercial Rules of the American Arbitration Association ("AAA"). The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) No provision of this paragraph shall limit the right of
any party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration. At Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of power of sale under the deed
of trust or mortgage or by judicial foreclosure.
Executed this 2nd day of November, 1999.
"Guarantor"
/s/ CAMERON WILSON
----------------------------------
Cameron Wilson
Address for notices to Bank:
101 North 1st Avenue, Dept. 4934
Phoenix, AZ 85003
ATTN:
---------------------------
3
<PAGE> 1
EXHIBIT 10.33
SECURED PROMISSORY NOTE
$1,750,000.00 March 25, 1998
FOR VALUE RECEIVED, the undersigned, ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC, a Delaware corporation ("Maker"), promises to pay to the
order of SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Payee"; Payee and
any subsequent holder[s] hereof are hereinafter referred to collectively as
"Holder"), at the office of Payee at P. O. Box 30378, Nashville, Tennessee
37241-0378, or at such other place as Holder may designate to Maker in writing
from time to time, the principal sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND
AND NO/100THS DOLLARS ($1,750,000.00), together with interest on the outstanding
principal balance hereof from the date hereof at the rate of thirteen and
one-half percent (13.5%) per annum (computed on the basis of a 360-day year);
provided, however, that Holder may charge and receive interest upon any renewal
or extension hereof at the greater of (i) the rate set out above, or (ii) any
rate agreed to by the undersigned that is not in excess of the maximum rate of
interest allowed to be charged under applicable law (the "Maximum Rate") at the
time of such renewal or extension.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first payment being payable on the
first (1st) day of April, 1998, and subsequent payments being payable on the
first (1st) day of each succeeding month thereafter until June 23, 2002 (the
"Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty. Any such prepayments shall
be credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured within five (5) days; or in the
event that any default or event of default shall occur under that certain Loan
Agreement dated June 24, 1997, between Maker and Payee (as may be amended from
time to time, including on the date hereof, the "Loan Agreement"), which default
or event of default is not cured following the giving of any applicable notice
and within any applicable cure period set forth in said Loan Agreement; or
should any default by Maker be made in the performance or observance of any
covenants or conditions contained in any other instrument or document now or
hereafter evidencing, securing or otherwise relating to the indebtedness
evidenced hereby (subject to any applicable notice and cure period provisions
that may be set forth therein); then, and in such event, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any other
sums advanced hereunder, under the Loan Agreement and/or under any other
<PAGE> 2
instrument or document now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby, together with all unpaid interest
accrued thereon, shall, at the option of Holder and without notice to Maker, at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, at the option of Holder and without notice to Maker, all accrued and
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at an annual rate (the "Default Rate") equal to
the lesser of (i) the rate that is seven percentage points (7.0%) in excess of
the above-specified interest rate, or (ii) the Maximum Rate in effect from time
to time, regardless of whether or not there has been an acceleration of the
payment of principal as set forth herein. All such interest shall be paid at the
time of and as a condition precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any reasonable costs incident to the collection
of the indebtedness evidenced hereby, Maker and any indorsers hereof agree to
pay to Holder an amount equal to all such reasonable costs, including without
limitation all reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom
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<PAGE> 3
enforcement of any waiver, change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC., a Delaware corporation
By: /s/ CHARLES R. MOLLO
----------------------------------------
Title: CEO
-------------------------------------
3
<PAGE> 1
EXHIBIT 10.34
FIRST AMENDMENT TO
LOAN AGREEMENT AND LOAN DOCUMENTS
THIS FIRST AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS
("Amendment") dated as of the 25th day of March, 1998, is made and entered into
on the terms and conditions hereinafter set forth, by and between ELECTRONICS
ACCESSORY SPECIALISTS INTERNATIONAL, INC., a Delaware corporation ("Borrower"),
and SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Lender made a term loan to Borrower in the original principal
amount of One Million Six Hundred Thousand and No/100ths Dollars ($1,600,000.00)
(the "Loan") on the terms and conditions set forth in that certain Loan
Agreement dated as of June 24, 1997, by and between Lender and Borrower (as now
or hereafter amended, the "Loan Agreement"); capitalized terms used herein but
not otherwise defined shall have the meanings ascribed thereto in the Loan
Agreement; and
WHEREAS, the Loan is further evidenced and secured by certain
agreements, documents and instruments as more particularly described in the Loan
Agreement and defined therein as the "Loan Documents"; and
WHEREAS, the Loan and the Loan Documents were assigned by Lender to
Sirrom Funding Corporation ("SFC"), a wholly owned subsidiary of Lender; and
WHEREAS, Borrower desires to borrow from Lender and Lender desires to
lend to Borrower an additional One Million Seven Hundred Fifty Thousand and
No/100ths Dollars ($1,750,000.00) (the "Additional Loan"), all on the terms and
conditions set forth in the Loan Agreement, secured and evidenced by among other
things (a) a security interest in certain personal property granted pursuant to
that certain Security Agreement dated as of June 24, 1997, by and between Lender
and Borrower (the "Security Agreement"); and (b) a security interest in certain
intellectual property granted pursuant to that certain Amended and Restated
Trademark and Patent Security Agreement dated as of July 29, 1997, by and
between Lender and Borrower; and
WHEREAS, this Amendment shall amend the Loan Documents.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
<PAGE> 2
1. The second sentence of Section 1.1 of the Loan Agreement is hereby
amended to read in its entirety as follows: 1.
The Loan shall be evidenced (i) a promissory note (the "First Note") in
the original principal amount of One Million Six Hundred Thousand and
No/100ths Dollars ($1,600,000.00) substantially in the form of Exhibit A
attached hereto and incorporated herein by this reference, dated June
24, 1997, executed by Borrower in favor of Lender, and (ii) a promissory
note (the "Second Note") in the original principal amount of One Million
Seven Hundred Fifty Thousand and No/100ths Dollars ($1,750,000.00),
substantially in the form of Exhibit A attached to the Amendment and
incorporated herein by this reference, of even date with the Amendment,
executed by Borrower in favor of Lender (the First Note and the Second
Note shall be referred to herein collectively as the "Note").
2. The obligations of Borrower in connection with and/or relating to the
Additional Loan are further evidenced and/or secured by the Loan Documents.
3. Upon satisfaction of the conditions set forth in Section 9 hereof,
Lender shall immediately disburse the proceeds of the Additional Loan to
Borrower by wire transfer upon instructions therefor given to Lender.
4. Borrower hereby represents and warrants to Lender that (i) all of the
representations made in Section 2.1 of the Loan Agreement are true and correct
as of the date hereof, except as modified or supplemented by Schedule A attached
hereto and incorporated herein by this reference; and (ii) no Event of Default
has occurred and is continuing.
5. The covenants and agreements in Article III of the Loan Agreement shall
continue in full force and effect.
6. Borrower hereby represents and warrants to Lender that all
representations regarding Borrower's location(s) set forth in Section 3(f) of
the Security Agreement are true and correct as of the date hereof.
7. Borrower shall pay to Lender a processing fee of $43,750.00 in
connection with the Additional Loan, $15,000 of which has previously been paid
and $28,750 of which shall be paid upon the closing of the Additional Loan.
8. Borrower shall use the proceeds of the Additional Loan for working
capital and to pay all costs and expenses incurred by the parties hereto in
connection with the making and documentation of the Additional Loan.
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<PAGE> 3
9. The obligation of Lender to fund the Additional Loan on the date hereof
is subject to Borrower's satisfaction of each of the following conditions:
(a) delivery to Lender of a Secured Promissory Note executed by Borrower,
substantially in the form of Exhibit A attached hereto;
(b) delivery to Lender of a Stock Purchase Warrant executed by Borrower
(the "Stock Purchase Warrant") together with a warrant valuation letter, each in
form and substance acceptable to Lender;
(c) delivery to Lender of an Amended and Restated Stock Purchase Warrant
executed by Borrower in form and substance acceptable to Lender;
(d) delivery to Lender of copies of certificate of incorporation and other
publicly filed organizational documents of Borrower, certified by the Secretary
of State or other public official in the jurisdiction in which Borrower is
incorporated;
(e) delivery to Lender of an opinion of Jackson Walker L.L.P., as
Borrower's counsel, of even date herewith, in form and substance reasonably
acceptable to Lender's counsel, Chambliss, Bahner & Stophel, P.C.;
(f) delivery to Lender of resolutions of Borrower's Board of Directors
authorizing the Additional Loan, the issuance of the Stock Purchase Warrant in
connection therewith and the reservation of the shares to be issued in
connection with the Stock Purchase Warrant;
(g) delivery to Lender of an Authorization Agreement for Pre-Authorized
Payments completed and executed by Borrower; and
(h) delivery to Lender of a certificate as to the legal existence and good
standing of Borrower, issued by the Secretary of State or other appropriate
public official in the jurisdiction in which Borrower is incorporated.
10. The terms "Loan Document" and "Loan Documents" as defined in the Loan
Agreement are amended to include this Amendment and any and all other documents
relating to the Loan or the Additional Loan (i) by and between Borrower or any
other person or entity and Lender or (ii) executed by Borrower or any other
person or entity in favor of Lender.
11. Borrower hereby acknowledges that the original Loan (as evidenced by
the First Note) was assigned by Lender to SFC and that upon the closing of the
Additional Loan, the Additional Loan may also be assigned to SFC.
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<PAGE> 4
12. Except as modified and amended hereby, the Loan Documents shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be executed by their duly authorized officers, as
of the day and year first above written.
BORROWER: LENDER:
- -------- ------
ELECTRONICS ACCESSORY SIRROM CAPITAL CORPORATION, a
SPECIALISTS INTERNATIONAL, Tennessee corporation
INC., a Delaware corporation
By: /s/ Charles R. Mollo By: /s/ Elizabeth Lundig
------------------------------ ------------------------------------
Title: CEO Title: Assistant-Vice President
--------------------------- ---------------------------------
4
<PAGE> 1
EXHIBIT 10.35
SECURED PROMISSORY NOTE
$1,600,000.00 June 24, 1997
FOR VALUE RECEIVED, the undersigned, ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC, a Delaware corporation ("Maker"), promises to pay to the
order of SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Payee"; Payee and
any subsequent holder[s] hereof are hereinafter referred to collectively as
"Holder"), at the office of Payee at P. O. Box 30378, Nashville, Tennessee
37241-0378, or at such other place as Holder may designate to Maker in writing
from time to time, the principal sum of ONE MILLION SIX HUNDRED THOUSAND AND
NO/100THS DOLLARS ($1,600,000.00), together with interest on the outstanding
principal balance hereof from the date hereof at the rate of thirteen and
one-half percent (13.5%) per annum (computed on the basis of a 360-day year);
provided, however, that Holder may charge and receive interest upon any renewal
or extension hereof at the greater of (i) the rate set out above, or (ii) any
rate agreed to by the undersigned that is not in excess of the maximum rate of
interest allowed to be charged under applicable law (the "Maximum Rate") at the
time of such renewal or extension.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first payment being payable on the
first (1st) day of August, 1997, and subsequent payments being payable on the
first (1st) day of each succeeding month thereafter until June 23, 2002 (the
"Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest; shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty. Any such prepayments shall
be credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured within five (5) days; or in the
event that any default or event of default shall occur under that certain Loan
Agreement of even date herewith, between Maker and Payee (as may be amended from
time to time, the "Loan Agreement"), which default or event of default is not
cured following the giving of any applicable notice and within any applicable
cure period set forth in said Loan Agreement; or should any default by Maker be
made in the performance or observance of any covenants or conditions contained
in any other instrument or document now or hereafter evidencing, securing or
otherwise relating to the indebtedness evidenced hereby (subject to any
applicable notice and cure period provisions that may be set forth therein);
then, and in such event, the entire outstanding principal balance of the
indebtedness evidenced hereby, together with any other sums advanced hereunder,
under the Loan Agreement and/or under any other instrument or document now
<PAGE> 2
or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby, together with all unpaid interest accrued thereon, shall at
the option of Holder and without notice to Maker, at once become due and payable
and may be collected forthwith, regardless of the stipulated date of maturity.
Upon the occurrence of any default as set forth herein, at the option of Holder
and without notice to Maker, all accrued and unpaid interest, if any, shall be
added to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to the lesser of (i) the rate that is
seven percentage points (7.0%) in excess of the above-specified interest rate,
or (ii) the Maximum Rate in effect from time to time, regardless of whether or
not there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any reasonable costs incident to the collection
of the indebtedness evidenced hereby, Maker and any indorsers hereof agree to
pay to Holder an amount equal to all such reasonable costs, including without
limitation all reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
2
<PAGE> 3
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
ELECTRONICS ACCESSORY SPECIALISTS
INTERNATIONAL, INC., a Delaware corporation
By: /s/ CHARLES R. MELLO
----------------------------------------
Title: CEO
------------------------------------
3
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
None
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mobility Electronics, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus. Our report dated February 4, 2000, contains an
explanatory paragraph that states that the Company has suffered recurring
losses from operations and has a net capital deficiency, which raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
/s/ KPMG LLP
Phoenix, Arizona
February 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-1.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,267,660
<SECURITIES> 0
<RECEIVABLES> 3,706,946
<ALLOWANCES> 675,682
<INVENTORY> 1,963,532
<CURRENT-ASSETS> 8,349,628
<PP&E> 4,507,062
<DEPRECIATION> 2,017,180
<TOTAL-ASSETS> 12,053,183
<CURRENT-LIABILITIES> 10,832,587
<BONDS> 3,473,618
0
11,664
<COMMON> 112,322
<OTHER-SE> (2,377,008)
<TOTAL-LIABILITY-AND-EQUITY> 12,053,183
<SALES> 10,162,434
<TOTAL-REVENUES> 10,162,434
<CGS> 8,809,551
<TOTAL-COSTS> 8,809,551
<OTHER-EXPENSES> 9,167,607
<LOSS-PROVISION> 90,002
<INTEREST-EXPENSE> 5,640,124
<INCOME-PRETAX> (13,393,697)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,393,697)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,393,697)
<EPS-BASIC> (1.44)
<EPS-DILUTED> (1.24)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-1.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,432,703
<SECURITIES> 0
<RECEIVABLES> 3,444,939
<ALLOWANCES> 648,152
<INVENTORY> 3,358,025
<CURRENT-ASSETS> 9,265,131
<PP&E> 3,140,291
<DEPRECIATION> 1,535,933
<TOTAL-ASSETS> 12,734,719
<CURRENT-LIABILITIES> 12,454,889
<BONDS> 3,776,193
0
5,584
<COMMON> 91,276
<OTHER-SE> (3,593,223)
<TOTAL-LIABILITY-AND-EQUITY> 12,734,719
<SALES> 21,072,057
<TOTAL-REVENUES> 21,072,057
<CGS> 23,529,822
<TOTAL-COSTS> 23,529,822
<OTHER-EXPENSES> 13,938,051
<LOSS-PROVISION> 762,217
<INTEREST-EXPENSE> 1,756,534
<INCOME-PRETAX> (18,032,858)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,032,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,032,858)
<EPS-BASIC> (2.18)
<EPS-DILUTED> (2.10)
</TABLE>
